[Senate Hearing 106-953]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 106-953

      CLEAN AIR ACT: ENVIRONMENTAL BENEFITS AND IMPACTS OF ETHANOL

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CLEAN AIR, WETLANDS,
                  PRIVATE PROPERTY, AND NUCLEAR SAFETY

                                 OF THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2000

                               __________

  Printed for the use of the Committee on Environment and Public Works

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
71-515                     WASHINGTON : 2001

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402


               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED SIXTH CONGRESS
                             second session

                   BOB SMITH, New Hampshire, Chairman
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
JAMES M. INHOFE, Oklahoma            DANIEL PATRICK MOYNIHAN, New York
CRAIG THOMAS, Wyoming                FRANK R. LAUTENBERG, New Jersey
CHRISTOPHER S. BOND, Missouri        HARRY REID, Nevada
GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
MICHAEL D. CRAPO, Idaho              JOSEPH I. LIEBERMAN, Connecticut
ROBERT F. BENNETT, Utah              BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas          RON WYDEN, Oregon
LINCOLN CHAFEE, Rhode Island
                      Dave Conover, Staff Director
                  Tom Sliter, Minority Staff Director
                                 ------                                

  Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear 
                                 Safety

                  JAMES M. INHOFE, Oklahoma, Chairman
GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
ROBERT F. BENNETT, Utah              JOSEPH I. LIEBERMAN, Connecticut
KAY BAILEY HUTCHISON, Texas          BARBARA BOXER, California


                            C O N T E N T S

                              ----------                              
                                                                   Page

                             JUNE 14, 2000
                           OPENING STATEMENTS

Bennett, Hon. Robert F., U.S. Senator from the State of Utah.....    50
Bond, Hon. Christopher S., U.S. Senator from the State of 
  Missouri.......................................................     7
Boxer, Hon. Barbara, U.S. Senator from the State of California...    25
    Article, Environmental Sciences and Technologies.............   155
    Letter, biomass industry representatives.....................   116
Graham, Hon. Bob, U.S. Senator from the State of Florida.........    10
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
    Chart, Causes of Fuel Price Spikes...........................     5
    Recommendations, EPA Blue Ribbon Panel on Oxygenates.........     4
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................    10
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....    50
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    28

                               WITNESSES

Durbin, Richard J., U.S. Senator from the State of Illinois......    48
    Prepared statement...........................................    50
Early, Blakeman, environmental consultant, American Lung 
  Association, Washington, DC....................................    12
    Prepared statement...........................................    51
Gatto, Stephen, president and chief executive officer, BC 
  International, Dedham, MA......................................    21
    Prepared statement...........................................    64
Graboski, Michael, director, Colorado Institute for Fuels and 
  High Altitude Engine Research, Department of Chemical 
  Engineering, Colorado School of Mines, Lakewood, CO............    13
    Prepared statement...........................................    68
Grassley, Hon. Charles, U.S. Senator from the State of Iowa......    43
    Prepared statement...........................................    71
Greenbaum, Dan, president, Health Effects Institute, Cambridge, 
  MA.............................................................     5
    Prepared statement...........................................    74
Grumet, Jason S., executive director, Northeast States for 
  Coordinated Air Use Management, Boston, MA.....................    19
    Articles:
            American Lung Association............................    84
            American Petroleum Institute.........................    85
            Des Moines Sunday Register...........................    91
            Grand Island Independent.............................    94
            Lincoln, NE newspaper................................    90
            Northeast & Mid-Atlantic States, Gasoline/MTBE Task 
              Force..............................................    82
            Northeast States for Coordinated Air Use Management 
              (NESCAUM)..........................................    82
            Omaha World Herald...................................    92
            Quad City Times......................................    93
            The Gazette..........................................    94
    Letters:
            Daschle, Hon. Tom, U.S. Senator from the State of 
              South Dakota.......................................    85
            King, Hon. Angus S., Jr., Governor of the State of 
              Maine..............................................    89
            NESCAUM..............................................    86
            Shaheen, Hon. Jeanne, Governor of the State of New 
              Hampshire..........................................    88
    Prepared statement...........................................    75
Harkin, Hon. Tom, U.S. Senator from the State of Iowa............    46
    Prepared statement...........................................    95
Huggins, Jack, vice president, Ethanol Operations, Williams 
  Energy Service, Pekin, IL......................................    17
    Prepared statement...........................................    96
Proctor, Gordon, Director, Ohio Department of Transportation, 
  Columbus, OH...................................................    24
    Prepared statement...........................................   104
Slaughter, Bob, director, Public Policy, National Petrochemical & 
  Refiners Association, Washington, DC...........................    15
    Prepared statement...........................................   107

                          ADDITIONAL MATERIAL

Articles:
    Des Moines Sunday Register...................................   119
    Des Moines Register..........................................   168
    Energy Journal...............................................   127
    Environmental Science & Technology...........................   155
    Quad City Times..............................................   120
Letter, Representatives and Supporters of the Biomass Ethanol 
  Industry.......................................................   116
Statements:
    American Road and Transportation Builders Association........   168
    Exxon Mobil Corporation......................................   153
    Fitzgerald, Hon. Peter G., U.S. Senator from the State of 
      Illinois, prepared statement...............................    63
    Keller, Glen, Engine Manufacturers Association...............   103
    Long, Russell, executive director, Bluewater Network.........   121
    NATSO, Incorporation.........................................   114
    Oxygenated Fuel Association..................................   170

 
      CLEAN AIR ACT: ENVIRONMENTAL BENEFITS AND IMPACTS OF ETHANOL

                              ----------                              

                               U.S. Senate,
         Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:28 a.m. in 
room 406, Dirksen Senate Building, Hon. James M. Inhofe 
(chairman of the subcommittee) presiding.
    Present: Senators Inhofe, Bond, Voinovich, Lieberman, 
Graham, and Boxer.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. Today's hearing will address the 
environmental benefits and impacts of ethanol under the Clean 
Air Act. This subcommittee will address MTBE. We addressed it 
last fall in the other principal oxygenate, so today we will 
turn our attention to ethanol.
    In 1990, Congress made a mistake by mandating oxygenates in 
gasoline. We ended up creating a water quality issue because of 
the use of MTBE. I think it is important to note that, 3 years 
before Congress acted, scientists at EPA identified the 
potential problem, although the Agency failed to notify 
Congress during the debate in 1990, the debate on the Clean Air 
Act.
    Today Congress is being asked to do the same thing, create 
a new mandate, and I hope that we have learned our lessons from 
the mistakes in the past, because the EPA certainly has not 
learned from their mistakes. I say this because last week the 
Administration issued a report called ``The Analysis of Policy 
Scenarios for Reducing or eliminating MTBE.'' This report 
clearly shows that the Administration would rather play games 
and pander to constituent groups than enter into a serious 
policy discussion about a real environmental problem.
    This report comes 9 months after the Blue Ribbon Panel 
recommendations and 3 months after the Administration announced 
their legislative principles. This report is in response to 
questions we asked the day the principles were released. This 
is simple background information that the Administration should 
have considered before issuing their principles. Because of 
their delays, I think it will be very difficult to enact 
legislation on this issue this late in the year, particularly 
since, instead of a rifle shot approach to addressing the real 
environmental issue, the Administration is advocating what is 
essentially a broad-based rewriting of the fuel section of the 
Clean Air Act.
    I believe if we rewrite title two it should be done next 
year during authorization. This year we should be concentrating 
on fixing the MTBE issue.
    We stated this repeatedly several times that we're going to 
be very busy reauthorizing and we are going to do it in a much 
shorter period of time than people thought, so those things 
that we're doing prior to next year are going to be just the 
relatively small things, and we want to have hearings that will 
set the stage for the ultimate consideration in the next 2 
years.
    While I will not go into detail about all of the problems 
with the report today, I will just list a few concerns.
    They ``cherry pick'' from the recommendations of their own 
Blue Ribbon Panel, implying that they have followed the 
recommendations.
    We have chart on up there. These are some of the 
recommendations. If you pay attention to that last paragraph 
that is highlighted, it says, ``In addition''--this is the Blue 
Ribbon Panel--``in addition, the EPA and others should 
accelerate ongoing research efforts into the inhalation and 
ingestion of human effects, air emissions, transformation 
byproducts, and environmental behavior of all oxygenates and 
other components likely to increase in the absence of MTBE.''
    When discussing benefits, they--and I'm referring to the 
EPA--only discuss the benefits of reformulated gas, not the 
benefits of oxygenates. The benefits of reformulated gas are 
not an issue, but the benefits of oxygenates--in particular, 
ethanol--are clearly an issue. They do not discuss any of the 
environmental problems associated with ethanol, such as the 
effect of benzene, the increased emissions of NOx, 
the increased emission levels of aldehydes, the potential 
health problems associated with ethanol.
    They call their approach ``cost effective,'' even though 
they admit that costs will almost double, and their costs are 
extremely conservative.
    When a product is mandated, creating a monopoly, the prices 
do not remain constant. They rise, which is what will happen to 
the price of ethanol.
    Most importantly, they ignore every independent scientist 
who has looked at the use of ethanol and called for more tests 
and studies before it is mandated. Specifically, the EPA's own 
Blue Ribbon Panel recommendations and the report to the 
California Environmental Policy Council last December, which 
was a comprehensive health and environmental assessment of 
ethanol, both reports called for more studies on ethanol--those 
reports, as well as the Blue Ribbon Panel.
    On a final note, over the last few days the EPA has started 
blaming the oil companies for the high cost of gasoline, 
particularly the reformulated gas phase two in the midwest, 
which uses ethanol. This is like the story of the small child 
that doesn't regret eating the whole cake but awfully upset 
that he has a stomach ache.
    The EPA is not taking responsibility for its actions. The 
EPA has forced numerous controls and mandates on gasoline 
formulas, and it is proposing another one, ethanol; yet, it 
wants to deny the real outcome of its policies to the 
consumers, higher fuel prices.
    We will be looking at the price of fuel issue more tomorrow 
when the EPA testifies during our hearing on the sulfur diesel 
regulations.
    We have a number of witnesses today, and we have changed--
in deference and as a favor to you guys, we've changed panel 
No. 2 with panel No. 1 so you can go first, because all of the 
sudden we had a number of Senators who wanted to get in on 
this, and so we felt that it would be better to let you folks 
take care of your testimony and respond to questions of this 
committee, and then we'll handle the Senators as panel No. 2, 
and we'll have a number of Senators that will show up, most of 
them, oddly enough, from corn States.
    We have Mr. Dan Greenbaum, president, Health Effects 
Institute; Mr. Blake Early, environmental consultant, American 
Lung Association; Dr. Michael Graboski, director, Colorado 
Institute of Fuels and High Altitude Engine Research; Mr. Bob 
Slaughter, director, public policy, the National Petrochemical 
& Refiners Association; Mr. Jack Huggins, vice president, 
ethanol operations of Williams Energy Services; Mr. Jason 
Grumet, executive director, Northeast States for Coordinated 
Air Use Management from Boston; Mr. Stephen Gatto, president 
and CEO, BC International; and Mr. Gordon Proctor, director, 
Ohio Department of Transportation.
    We are going to have in attendance several Members of the 
Senate. I know that Senator Voinovich will be here, but not 
until 10 because of a conflicting meeting that he has. So what 
we're going to do is go ahead and begin. Because of the number 
of witnesses that we have today, we're going to ask you to 
follow the red/yellow/green light, like my granddaughter does, 
and conclude your remarks in 5 minutes.
    Now, your entire statement will be submitted for the 
record, but if you could confine your opening remarks to 5 
minutes it would be appreciated very much.
    [The prepared statement of Senator Inhofe follows:]

 STATEMENT OF HON. JIM INHOFE, U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Today's hearing will address the environmental benefits and impacts 
of ethanol under the Clean Air Act. This Subcommittee addressed MTBE 
last fall, the other principle oxygenate, so today we will turn our 
attention to ethanol.
    In 1990, Congress made a mistake by mandating oxygenates in 
gasoline. We ended up creating a water quality issue because of the use 
of MTBE. I think it is important to note that 3 years before Congress 
acted, scientists at EPA identified the potential problem, although the 
Agency failed to notify Congress during the debate in 1990.
    Today, Congress is being asked to do the same thing, create a new 
mandate. I hope Congress has learned from the mistake, because the EPA 
certainly has not learned from their mistake. I say this because last 
week the Administration issued a report called ``Analysis of Policy 
Scenarios for Reducing or Eliminating MTBE.'' This report clearly shows 
that the Administration would rather play games and pander to 
constituent groups than enter into a serious policy discussion about a 
real environmental problem.
    This report comes 9 months after the Blue Ribbon Panel 
recommendations and 3 months after the Administration announced their 
legislative principles. This Report is in response to questions we 
asked the day the principles were released. This is simple background 
information that the Administration should have considered before 
issuing their principles. Because of their delays, I think it will be 
very difficult to enact legislation on this issue this late in the 
year. Particularly since instead of a rifle-shot approach to addressing 
a real environmental issue, the Administration is advocating what is 
essentially a broad-based rewriting of the fuels section of the Clean 
Air Act. I believe if we rewrite Title 2 is should be next year during 
reauthorization, this year we should just concentrate on fixing the 
MTBE issue.
    While I will not go into detail about all of the problems with the 
report today, I will just list a few key concerns.
    1. They cherry pick from the recommendations of their own Blue 
Ribbon Panel, implying that they have followed the recommendations. I 
pulled out two additional recommendations that they ignored regarding 
the need for additional research on ethanol before its use is expanded. 
All together the panel recommended 14 steps. The Administration is only 
following 3.
    2. When discussing benefits, they only discuss the benefits of RFG, 
not the benefits of oxygenates. The benefits of RFG are not an issue, 
but the benefits of oxygenates, in particular ethanol are clearly an 
issue.
    3. They do not discuss any of the environmental problems associated 
with ethanol, such as the effect on benzene, the increased emissions of 
NOxX, the increased emissions levels of aldehydes, and 
potential health problems associated with ethanol.
    4. They call their approach cost-effective even though they admit 
that the costs will almost double, and their costs are extremely 
conservative. When a product is mandated, creating a monopoly, the 
prices do not remain constant, they rise, which is what will happen to 
the price of ethanol.
    5. Most importantly, they ignore every independent scientist who 
has looked at the use of ethanol and has called for more tests and 
studies before it is mandated. Specifically the EPA's own Blue Ribbon 
Panel recommendations and the Report to the California Environmental 
Policy Council last December, which was a comprehensive health and 
environmental assessment of ethanol. Both reports called for more 
studies on ethanol.
    On a final note, over the last few days the EPA has started blaming 
the oil companies for the high cost of gasoline, particularly the RFG 
phase 2 in the Midwest, which uses ethanol. This is like the story of 
the small child that doesn't regret eating the whole cake, but is 
awfully upset that he has a stomach ache. The EPA is not taking 
responsibility for its actions. The EPA has forced numerous controls 
and mandates on gasoline formulas, and it is proposing another one, 
ethanol, yet it wants to deny the real outcome of its policies to the 
consumers, higher fuel prices. We will be looking at the price of fuel 
issue more tomorrow when the EPA testifies during our hearing on the 
sulfur diesel regulations.
                                 ______
                                 

   RECOMMENDATIONS FROM THE EPA'S BLUE RIBBON PANEL ON OXYGENATES IN 
                            GASOLINE REPORT

    6. Develop and implement an integrated field research program into 
the groundwater behavior of gasoline and oxygenates, including:
          a. Identifying and initiating research at a population of UST 
        release sites and nearby drinking water supplies including 
        sites with MTBE, sites with ethanol, and sites using no 
        oxygenate;
          b. Conducting broader, comparative studies of levels of MTBE, 
        ethanol, benzene, and other gasoline compounds in drinking 
        water supplies in areas using primarily MTBE, areas using 
        primarily ethanol, and areas using no or lower levels of 
        oxygenate.
    13. The other ethers (e.g. ETBE, TAME, and DIPE) have been less 
widely used and less widely studied than MTBE. To the extent that they 
have been studied, they appear to have similar, but not identical, 
chemical and hydrogeologic characteristics. The Panel recommends 
accelerated study of the health effects and groundwater characteristics 
of these compounds before they are allowed to be placed in widespread 
use.
    In addition, EPA and others should accelerate ongoing research 
efforts into the inhalation and ingestion health effects, air emission 
transformation byproducts, and environmental behavior of all oxygenates 
and other components likely to increase in the absence of MTBE. This 
should include research on ethanol, alkylates, and aromatics, as well 
as of gasoline compositions containing those components.


    Senator Inhofe. We will start with Mr. Greenbaum, who is 
first on our list.

     STATEMENT OF DAN GREENBAUM, PRESIDENT, HEALTH EFFECTS 
                    INSTITUTE, CAMBRIDGE, MA

    Mr. Greenbaum. Thank you, Mr. Chairman.
    It is a pleasure to be here today to speak to you about the 
health effects of ethanol. I speak to you today, as you 
mentioned, as the president of the Health Effects Institute, 
which is an independent institute funded both by Government and 
industry to provide impartial science on the health effects of 
air pollution, and also as the former Chair of the Blue Ribbon 
Panel----
    Senator Inhofe. If you would suspend for just a moment, I 
apologize. We have another one of our Members here.
    Do you have an opening remark, Senator Bond, that you would 
like to make prior to hearing the witnesses?
    Senator Bond. Why don't we let this witness finish and then 
I'll try to make my remarks brief.
    Senator Inhofe. All right.
    Senator Bond. I don't want to interrupt Mr. Greenbaum's 
presentation.
    Senator Inhofe. Mr. Greenbaum, I apologize. Go ahead.
    Mr. Greenbaum. Thank you, Senator.
    I am pleased to be here today.
    In 1996 HEI published a comprehensive review of the health 
effects of ethanol and MTBE. For the record, I have submitted 
copies of our report, and I'll summarize our findings in my 
brief comments today.
    We, as a Nation, have substantial scientific evidence on 
the health effects of ingesting ethanol. We know that at high 
levels pregnant mothers ingesting ethanol can see their infants 
suffer from fetal alcohol syndrome, and that consumption of 
ethanol in the form of alcoholic beverages has been shown to 
increase the risk of certain cancers, leading the national 
toxicology program in its recent report on carcinogens to 
designate alcoholic beverage consumption as a known human 
carcinogen.
    For all of these effects, there are not firmly defined 
thresholds below which effects are not expected, although some 
scientists have identified an apparent threshold for the fetal 
effects of about one-half ounce of alcohol per day. That's 
important, because, although we know much about these effects 
of ethanol at high levels, it is likely that exposure of 
citizens to ethanol while refilling their fuel tanks or through 
ethanol-contaminated drinking water will be substantially below 
levels at which effects have been seen.
    In the case of inhalation, our estimate is that the dose of 
ethanol delivered to the body would probably be below the level 
of ethanol normally produced internally within the body.
    The use of ethanol, however, also results in changes in the 
exhaust and evaporative emissions from vehicles, especially 
acetaldehyde and volatility. Acetaldehyde, which is designated 
as reasonably anticipated to be a human carcinogen, would, 
according to a recent California analysis, increase in the 
atmosphere in 2003 in ethanol-used fuel when compared to the 
use of fuel oxygenated with MTBE; however, there would be an 
overall decrease in the acetaldehydes when compared to 1997 
levels due to tightening California fuel requirements. These 
results are reassuring, but similar analyses have not been 
performed for the rest of the Nation.
    At the same time, the addition of ethanol to gasoline can 
result in an increase in the volatility of fuel and in the 
potential for increased formation of ozone. The base fuel can 
be reformulated to lower its inherent RVP to offset this 
effect, although even with that there are some continuing 
questions about the possible impacts of commingling ethanol-
blended fuels with non-ethanol fuels.
    Beyond these effects, the use of ethanol as an oxygenate 
provides the ability, as do other oxygenates, to replace more-
toxic substances such as benzene; however, the Blue Ribbon 
Panel found that it is also possible to achieve these 
improvements using non-oxygenated reformulated fuels.
    One further key question is the potential for ethanol to 
contaminate groundwater. Here, although we still have many 
questions in general, two general conclusions can be drawn. 
First, the high degradability of ethanol would suggest that the 
chances of an ethanol spill or leak getting, to any significant 
degree, into drinking water, itself, are small. At the same 
time, the degradability of ethanol appears to retard the 
degradation of other components, resulting in the likelihood 
that plumes of these other substances and the risk of water 
contamination would increase somewhat. Precise estimates of 
this risk do not exist.
    In conclusion, we know much about the significant health 
effects of drinking ethanol, but should recognize that likely 
exposure of the public to ethanol either through breathing or 
ingestion would likely be low. At the same time, there are 
continuing questions, and it is based on these questions that 
the Blue Ribbon Panel recommended first that EPA and others 
accelerate ongoing research efforts into the health effects, 
air emissions, and environmental behavior of all oxygenates and 
other components likely to increase in the absence of MTBE, and 
second recommended that EPA, in conjunction with USGS and 
others, move quickly to analyze and monitor both the use of 
MTBE and ethanol and the levels of these substances in ground, 
surface, and drinking water.
    The decision to greatly increase any one component of the 
fuel supply is a major one, with potential widespread 
implications for exposure and public health. Although the 
current information on ethanol and its effects is somewhat 
reassuring, it is critical that accelerated efforts be made to 
fill key information gaps before widespread increases in use of 
any additive have been accomplished.
    Thank you for the opportunity to submit this testimony. I 
would be pleased to answer any questions.
    Senator Inhofe. Thank you, Mr. Greenbaum.
    Now, Senator Bond, if you would like to make your opening 
statement----
    Senator Bond. Thank you very much, Mr. Chairman.
    Senator Inhofe. Before you came in, I mentioned that there 
are, I think, four Senators now who will constitute panel No. 
2, and you certainly are welcome to join that as well as this.

        OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, 
            U.S. SENATOR FROM THE STATE OF MISSOURI

    Senator Bond. I wanted to come. I have some wonderful 
remarks that I will submit for the record. I will trust that if 
I promise to do that, I'm sure that everybody will read them 
about the economic benefits of ethanol.
    Senator Inhofe. Could I get an advanced copy of that?
    Senator Bond. We want you to have that in hand.
    I want to express my appreciation to the members of the 
panel. I appreciated the testimony from Mr. Greenbaum and the 
work of the Blue Ribbon Committee.
    We don't recommend drinking ethanol. It is probably not a 
good idea to drink gasoline, either. We do appreciate the 
results of the Blue Ribbon study.
    We are here because I think everybody agrees or should 
agree that MTBE contamination in the water is a problem. It is 
the second most commonly found chemical in the groundwater. For 
those who continue to advocate MTBE, who say, ``Let's don't 
phase it out completely,'' I suggest we go out to the States 
and see what they are doing in response to their constituents 
and their water contamination.
    Eight States have taken action to limit or phaseout MTBE to 
protect their water resources. Even in Missouri, where we think 
we don't use MTBE, we have found some of it sneaked into our 
State and contaminated water in school districts and other 
places, and I hope that Congress will act to get rid of MTBE 
and make sure that we do not further endanger our water supply 
or, by making changes, endanger our air quality.
    We do believe that ethanol is an environmentally friendly 
alternative to MTBE that adds value to our farmers' products, 
moves us away from the energy hostage situation.
    Mr. Chairman, we all know that the Federal oxygen content 
requirement was adopted in 1990 for several reasons. Congress 
understood that oxygenates provide a source of clean octane, 
displacing toxic compounds such as benzene and reducing ozone-
forming exhaust emissions of hydrocarbons and carbon monoxide, 
and EPA has stated the program is equivalent to taking 16 
million vehicles off the road each year. We have also 
recognized the energy security importance of it.
    I have read the studies that I will not try to explain to 
you, because it is difficult enough for me to understand them, 
but when you take a look at the potency-weighted toxicity, 
ethanol and other products, you will see, I believe, the 
studies confirmed that ethanol does provide significant 
benefits in lowering the toxics in gasoline.
    We have problems with the lack of an energy policy in this 
Administration, and there are some who want to blame the 
increase in energy prices on the changes that we've mandated in 
gasoline. I think they are far more deeply rooted than that and 
go to a failure to develop energy sources.
    I think ethanol can and will continue to play an important 
role in our environmental, economic, and energy security. The 
ethanol, which contains approximately 35 percent oxygen, 
enhances combustion, contributes to more-efficient burn of 
gasoline, reducing carbon monoxide emissions, which is a 
contributor to harmful ozone formation by as much as 30 
percent.
    The use of ethanol reduces emissions of all major 
pollutants regulated by EPA, including ozone, carbon monoxide, 
particulate matter, PM10, and nitrogen oxides.
    I think it is an effective tool, as I mentioned, for 
reducing air toxics, and it can significantly reduce greenhouse 
gas emissions, and I know that you will hear from our 
colleagues later on.
    We do have new ethanol facilities coming on line in 
Missouri. We are very proud of them. Not only do they provide 
jobs and value for the economy, but they are making significant 
contributions, and I will discuss all those further in the 
statement I am submitting for the record, but I want to 
emphasize that this is a safe, biodegradable fuel that does not 
pose an environmental threat to water or soil. I was pleased 
that the California Environmental Policy Council awarded it a 
clean bill of health.
    Mr. Chairman, I thank you for your time, and I appreciate 
the indulgence of our witnesses.
    [The prepared statement of Senator Bond follows:]

  STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR FROM THE STATE 
                              OF MISSOURI

    Good morning Senator Inhofe, members of the subcommittee, and those 
in attendance today. It is a pleasure to be here. My time that I can 
stay at this hearing is short so I want to get straight to the point.
    MTBE water contamination can be found throughout the country. I 
have been told that today, MTBE contamination is the second most 
commonly found chemical in groundwater. For those who continue to 
advocate for MTBE I say forget what is happening here inside the 
beltway, go out to the states and see what they are doing in response 
to their constituents and the water contamination.
    Eight states have taken action to limit or phase-out MTBE use in an 
effort to protect their water resources, and legislation to ban MTBE 
has been introduced in another 16 states. I do believe that Congress 
should act to come up with a solution to the MTBE debacle that does not 
sacrifice the air quality gains of the current program and does not 
jeopardize our Nation's valuable water supplies.
    I know that Missouri, and I believe this country, requires a 
renewable, environmentally friendly alternative to MTBE that helps 
create local jobs, which adds value to our farmer's product and which 
moves us away from this energy hostage situation where our reliance on 
foreign-produced oil makes our producers, consumers and economy subject 
to the whims of international cartel autocrats. In my opinion, that 
alternative is ethanol.
    Mr. Chairman, we all know that the Federal oxygen content 
requirement was adopted in 1990 for several reasons. First, those of us 
in Congress understood that oxygenates provide a source of clean 
octane--displacing toxic compounds such as benzene and reducing ozone-
forming exhaust emissions of hydrocarbons and carbon monoxide. EPA has 
stated the program is equivalent to taking 16 million vehicles off the 
road each year. Congress also recognized the energy security benefits 
of substituting a certain percentage of imported petroleum with 
domestically produced renewable fuel such as ethanol. Promoting 
renewables that are domestically produced, such as ethanol, is a 
critical element toward regaining our independence from foreign oil. It 
is unfortunate that the Clinton administration has done nothing to 
promote a sound energy policy for this country, and in my opinion came 
to this debate late. Finally, the Congress hoped the Federal oxygen 
requirement could provide new market opportunities for farmers by 
stimulating new demand for ethanol. I believe these objectives remain 
as valid today as they were in 1990.
    I firmly believe that ethanol does play and will continue to play 
in our Nation's environmental, economic and energy security. I know 
that ethanol, an organic, non-toxic, biodegradable substance, is the 
right thing to pursue in the case of the MTBE debate. Unfortunately, 
some are trying to use the sins of MTBE as a reason to pull the plug 
mid-stream on clean-burning ethanol.
    Ethanol is widely marketed across the country to increase octane 
and reduce emissions through its clean burning properties as an 
oxygenate. Ethanol, which contains approximately 35 percent oxygen, 
enhances combustion and therefore contributes to a more efficient burn 
of gasoline, reducing carbon monoxide emissions, a contributor to 
harmful ozone formation, by as much as 30 percent. The use of ethanol 
reduces emissions of all the major pollutants regulated by the 
Environmental Protection Agency (EPA), including ozone, carbon monoxide 
(CO), particulate matter (PM10), and nitrogen oxides 
(NOx). Ethanol is also an effective tool for reducing air 
toxics. As a renewable fuel, ethanol can dramatically reduce greenhouse 
gas emissions. It is clear to me and many others that ethanol is good 
for the environment, both our water and our air. I believe that my 
fellow colleagues Senators Grassley, Durbin, and Harkin will be able to 
outline additional environmental benefits later in this hearing.
    Let me touch briefly on another reason we enacted the oxygen 
content requirement--the economy. Ethanol provides significant benefits 
to the economy, particularly in farming communities across rural 
America. Earlier this year, I participated in the first ethanol plant 
grand-opening in Missouri. This facility is a 15 million gallon per 
year facility located in Macon, Missouri and owned by farmers across 
the state. The ethanol facility not only provides new jobs, but a 
value-added market for their commodities. In light of today's record 
low prices, value-added ethanol processing provides a much-needed 
economic opportunity. According to a letter from Secretary Dan Glickman 
of the United States Department of Agriculture which assumes an MTBE 
phaseout and the oxygen content requirement staying in place, ``The 
MTBE phase-out is projected to have a positive effect on U.S. trade, 
with the average U.S. agricultural net export value increasing by over 
$200 million per year. The U.S. import value of MTBE would decline by 
$1.1 billion per year and almost $12 billion cumulatively from 2000-
2010. The agricultural export increase combined with the MTBE import 
decrease would improve the U.S. balance of trade by $1.3 billion per 
year.'' In addition, according to Secretary Glickman, ``The increase in 
farm and ethanol production caused by replacing MTBE with ethanol is 
projected to create 13,000 jobs across the economy by 2010. Over a 
third of the new jobs, 4,300, would be created in the ethanol sector 
itself. Another 6,400 jobs are created in the trade, transportation, 
and service sectors. Farm sector jobs increase by 575. Jobs in other 
industries, food processing, and energy sectors increase by 1,600.'' 
Mr. Chairman, colleagues, witnesses, and those in the audience--we know 
a lot about ethanol. Ethanol is a safe, biodegradable fuel that does 
not pose an environmental threat to water or soil, is good for air 
quality, and has been awarded a ``clean bill of health'' by the 
California Environmental Policy Council.
    So, let us be very clear about the issue we are addressing. The 
issue is MTBE contamination of our valuable water supplies, not 
ethanol. Ethanol will allow us to address several important policy 
objectives: clean air, clean water, balance of trade, economic 
development, etc. Ethanol is the solution and I will work with other 
Members of Congress to see that that notion prevails.

    Senator Inhofe. Thank you. We have been joined by two of 
our members of the committee. We had already started with Mr. 
Greenbaum. He has given his testimony, and we are going to go 
ahead and get the rest of them, but first we'd like to hear any 
statements that the two of you have. We probably should start 
with Senator Graham, ranking minority member of the committee.

             OPENING STATEMENT OF HON. BOB GRAHAM, 
             U.S. SENATOR FROM THE STATE OF FLORIDA

    Senator Graham. Thank you, Mr. Chairman. I will be very 
brief.
    I appreciate your holding the hearing on this issue. The 
question of ethanol has become an issue, including in the 
current Presidential elections, and this opportunity to get 
some expert testimony on its environmental effects I think will 
contribute to that debate.
    With that, I am going to yield my time to my colleague and 
to the experts.
    Senator Inhofe. Senator Lieberman.

        OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, 
           U.S. SENATOR FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks, Mr. Chairman. Thanks, Senator 
Graham.
    Mr. Chairman, I do have a statement I'd like to submit for 
the record and just very briefly share the concern that has 
been expressed here.
    Obviously, we started to use MTBE as a way of cleaning up 
the air, and it has had that effect, but it has also had a 
surprising effect on water supplies, both wells and surface 
waters, and the statistics were indicated by Senator Bond and 
others. This is a real source of concern to us in the 
Northeast.
    We look to ethanol hopefully as a possible replacement that 
will continue the positive effects on air quality that MTBE has 
had, but reduce or eliminate the concerns about effect on water 
quality.
    I do think that we are coming to a point where Congress has 
got to do something tangible and direct to reduce or eliminate 
the use of MTBE in our gasoline supply.
    In the northeast, we have two particular concerns about the 
use of ethanol which I know will be addressed here today, and I 
want to mention them briefly. The first is that ethanol is much 
more volatile than MTBE. In our part of the country, summer 
temperatures we fear will exacerbate this volatility, 
increasing evaporation of ethanol and creating emissions that 
may actually worsen our normal summertime smog and ozone 
problems which are already significant.
    The second concern about ethanol use is the lack of a 
regional production and distribution infrastructure so that, 
for the short-term future, anyway, we presume that ethanol 
would have to be transported into our region, and that has 
complexities attached to it, as well. So I hope that the 
witnesses will address those two concerns as we move, perhaps 
in this session of Congress, to a consensus approach on this 
issue which reflects what science and fact tell us about MTBE 
and also tries to develop the potential of ethanol as a 
substitute.
    I apologize, Mr. Chairman. I am going to stay a while, but 
I've got a markup in another committee so I can't stay as long 
as I'd like. I hope, which is against conventional thinking, 
that the markup will go quickly and I will return soon to hear 
the testimony.
    Thank you very much.
    Senator Inhofe. Thank you, Senator Lieberman.
    [The prepared statement of Senator Lieberman follows:]

    STATEMENT OF HON. JOSEPH LIEBERMAN, U.S. SENATOR FROM THE STATE
                             OF CONNECTICUT

    Thank you, Chairman Inhofe, for holding this hearing to examine the 
environmental benefits and impacts of using ethanol to replace MTBE in 
gasoline. This is an extremely important matter in my home State of 
Connecticut, as it is throughout the Northeast and across the country, 
and it is one that we need to work quickly to address.
    As most of us are aware, recent testing of drinking water sources 
has revealed that a surprising number of wells across the country have 
been contaminated by MTBE, a common gasoline additive. A study by EPA's 
Blue Ribbon Panel on MTBE reported that between 5 and 10 percent of 
community drinking water supplies have detectable levels of MTBE. 
Private wells and surface waters have also been contaminated. The 
United States Geological Survey reports that MTBE was the second most 
commonly detected volatile organic compound in water from urban wells. 
In Connecticut and the rest of the northeast, these problems are as bad 
as they are anywhere. The reformulated gasoline that we use is mandated 
to contain oxygenates, and that mandate has primarily been met by 
adding MTBE. I am absolutely convinced that we, as a Congress, must do 
something to reduce or eliminate the use of MTBE in our gasoline supply 
because of the contamination of the Nation's drinking water supply that 
MTBE has caused.
    Despite its negative impacts on drinking water, MTBE has had some 
positive effects on air quality. We are here today to hear testimony on 
the potential environmental benefits and impacts of an MTBE replacement 
that may afford similar air quality benefits: ethanol. I have a number 
of concerns about replacing MTBE with ethanol. First, ethanol is much 
more volatile than MTBE. In the Northeast, summer temperatures will 
exacerbate this volatility, increasing evaporation of ethanol and 
creating emissions that may worsen summertime smog and ozone problems, 
which are already a significant concern for Connecticut and the 
Northeast. My second concern about increasing the use of ethanol in the 
Northeast is the lack of ethanol production and distribution 
infrastructure in our region. Ethanol would have to be transported into 
the region. Due to its affinity for water, ethanol cannot be piped into 
the Northeast premixed with gasoline. At the moment, viable 
alternatives to corn ethanol, such as biomass ethanol, are not in 
widespread existence. I do not know whether the Northeast could cope 
with a mandate to use much greater volumes of ethanol without facing 
outrageous increases in gas prices because of small supply. Finally, 
while the renewable nature of ethanol as a fuel source is desirable, I 
know there are those that argue that the energy that goes into 
producing ethanol the fossil fuels that are needed for harvesting, 
producing, and transporting ethanol undercut the presumed environmental 
benefits.
    These are the very real concerns we in the Northeast have. I hope 
we are able to use our time today productively, to learn more about the 
benefits and the risks of using ethanol as a major feedstock in 
gasoline. Thank you and I look forward to hearing from our witnesses.

    Senator Inhofe. I'm sure the next witness will address some 
of the things that you mentioned in your opening statement.
    Mr. Early is here representing the American Lung 
Association.
    Mr. Early.

 STATEMENT OF BLAKE EARLY, ENVIRONMENTAL CONSULTANT, AMERICAN 
                LUNG ASSOCIATION, WASHINGTON, DC

    Mr. Early. Good morning, Mr. Chairman and members of the 
committee. It is good to see you and I am happy to be here on 
behalf of the American Lung Association to discuss the role of 
ethanol under the Clean Air Act.
    Data clearly indicates that ethanol in gasoline helps to 
reduce tailpipe emissions of carbon monoxide, and this is 
particularly important in areas that exceed the ambient air 
quality standard for CO. This is a problem in the winter time, 
and we have an oxy-fuel program that the Lung Association fully 
supports that involves using ethanol in many portions of the 
country to reduce carbon monoide tailpipe emissions to address 
exceedences of the ambient air quality standard for CO.
    The number of those areas is falling. It's one of the real 
success stories of the Clean Air Act. That's due, in large 
part, to better pollution controls on automobiles, but there is 
no question that ethanol in the fuel helps achieve that, as 
well.
    Ethanol also provides a clean source of octane for fuel. It 
doesn't have any aromatics in it, and it has moderately low 
levels of sulfur. We believe that refiners are going to be 
using a lot of ethanol as they replace MTBE in reformulated 
gasoline and they replace or they lower sulfur in conventional 
gasoline in accordance with EPA's new sulfur rules for 
gasoline.
    But the important thing to stress here is that the use of 
ethanol does not guarantee the reductions of other pollutants 
other than carbon monoxide.
    Looking at my testimony in figure B-2--this is data 
presented to the Blue Ribbon Panel, on which the Lung 
Association served--you can see that the air toxics reductions 
achieved in Chicago, where ethanol dominates the RFG program, 
were among the least reductions in the Nation. It is pretty 
clear that the use of ethanol doesn't necessarily guarantee you 
reductions of air toxics. There are many factors that influence 
that.
    Looking further at the figures in my testimony labeled 15, 
16, and 17, you look again at Chicago and the sulfur levels in 
RFG. In 1996 and 1997 the sulfur levels in RFG using ethanol 
were among the highest in the Nation. Then, in 1997, for 
reasons that nobody really knows, the sulfur levels in RFG in 
Chicago dropped 40 percent, from 500 parts per million to 
approximately 300 parts per million. It is very clear that 
ethanol was not the cause of that. This data illustrates the 
point that the use of ethanol or the use of oxygenates doesn't 
guarantee any particular reduction.
    What we have learned is the best way to guarantee certain 
performance from a fuel is to mandate that performance and 
allow refiners to meet that any way they can. We believe that 
that will involve using ethanol.
    Now, the one problem with ethanol which Senator Lieberman 
has already mentioned is its impact on volatility. The ethanol 
industry is fond of talking about the tailpipe carbon monoxide 
reductions, and they often quote the National Research Council 
report from last year. They only quote part of the report.
    The Council also recognized that evaporation from ethanol 
was a serious problem, and I'm going to quote a sentence from 
their report. The National Research Council said, ``The 
increase in the evaporated emissions from the ethanol-
containing fuels was significantly larger than the slight 
benefit obtained from the lowering of carbon monoxide exhaust 
emissions using the ethanol-containing fuel.'' So you have 
ethanol reducing CO tailpipe emissions but increasing 
volatility. And, in fact, volatility is one of the biggest 
problems in smog creation today. For new cars, volatility from 
the car is 50 percent or more of total emissions from a car, so 
you have to focus on both volatility and the evaporation of 
hydrocarbons from the car, as well as the tailpipe.
    Even low volatility RFG with ethanol can cause evaporation, 
and that is because alcohol fuels, including ethanol, increase 
the permeation of the fuel through the system of the car--the 
hoses, the gaskets, the rubber portions and plastic portions of 
the car. The ethanol fuel penetrates those more rapidly and 
enhances it.
    Last, ethanol gasoline, when mixed with a nonethanol 
gasoline, increases the evaporative tendencies of the whole, so 
when consumers go out and they purchase an ethanol-containing 
fuel--doesn't matter whether it is RFG or conventional--and 
then they purchase a non-ethanol-containing fuel, the 
evaporative emissions go up.
    I see my time is up. In conclusion, we don't think that 
mandating ethanol is really a solution to cleaner gasoline. Set 
performance standards, and those standards must include 
offsetting the impact of ethanol on both RFG and conventional 
gasoline when refiners choose to use it. That must be an 
important element to the fixes that Congress adopts because 
ethanol in conventional gasoline, since its use is going to 
rise--and I cover that in my testimony--is going to worsen the 
volatility of fuels throughout the country and not just RFG.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Mr. Early.
    Dr. Graboski.

STATEMENT OF MICHAEL GRABOSKI, DIRECTOR, COLORADO INSTITUTE FOR 
FUELS AND HIGH ALTITUDE ENGINE RESEARCH, DEPARTMENT OF CHEMICAL 
      ENGINEERING, COLORADO SCHOOL OF MINES, LAKEWOOD, CO

    Mr. Graboski. I'm Mike Graboski and I'm the director of the 
Colorado Institute for Fuels and High Altitude Engine Research. 
I am a Ph.D. chemical engineer and faculty member at the 
Colorado School of Mines in Golden, CO. My research areas and 
technology areas are involved in both gasoline and diesel fuels 
and emissions from gasoline and diesel vehicles. I'm here today 
on behalf of the National Corn Growers Association, but here to 
talk to you about what I know about oxygenates and ethanol 
fuels as an independent expert in this area.
    I want to use my time briefly today to talk to you a little 
bit about some analysis work that I have been doing. In my 
analysis, I have been looking at the effects of removing 
oxygenates from reformulated gasoline on emissions of ozone-
forming volatile compounds, the effects on carbon monoxide, the 
effects on toxics air pollutants, and on particulate matter.
    I would like you to refer to my written testimony for 
several figures that I have provided you in terms of my 
discussion.
    The first thing I want to talk about is the effect of 
oxygenates on toxics emissions, and I think it is important 
that, since we are talking about the RFG program, in all cases 
we are talking about gasolines that are complying gasolines, so 
they all meet the performance standards set forth in the RFG 
rules and they are all complying, which means that the 
volatility issues really are not volatility issues because all 
of these gasolines meet the volatility specifications under the 
Clean Air Act.
    Based upon 1998 EPA reformulated gasoline compliance 
survey, I have attempted to estimate nationally how refiners 
are going to produce phase II reformulated gasolines if they 
had to use ethanol and if they are allowed to do this without 
oxygen, and I have compared the resulting potency-weighted 
toxic emissions to those from RFG-II-containing MTBE.
    Because various air toxics pose different cancer risks, 
potency weighting allows us to compare one toxic compound with 
another, and using potency weightings we can add all the toxics 
emissions together and compare the relative toxicity of one 
fuel formulation with another.
    Potency weighting uses benzene as the referencing, giving 
it a value of one, and weighing all other compounds against 
benzene. So, for example, if a compound is found to be twice as 
toxic as benzene, it has a potency weighting of two.
    In the handout that I provided you, figure one shows how 
I'd expect refiners to produce RFG-II fuels if they were 
allowed to not only meet the RFG-II spec but also satisfy the 
1998 average toxic reduction of about 28.1 percent nationally 
from RFG-I.
    Based upon public statements from refiners, I would expect 
new alkylate production and use to replace most of the lost 
gasoline volume resulting from the removal of MTBE with 
aromatics being used to balance the octane, and if ethanol is 
used then ethanol would substitute for some of this alkylate.
    Figure one that I provided you shows that oxygenated fuels 
with ethanol provide a greater reduction in potency weighted 
toxics compared to MTBE fuel, where benzene again is used as 
the reference weight.
    The non-oxygenated fuel in figure one has an increased 
aromatic content, which is consistent with national gasoline 
surveys and with the phase one data provided by EPA. And 
increased aromatics are necessary to meet octane requirements.
    In this case, the only way for the refiner to produce the 
same benzene-equivalent potency-weighted toxics is if olefins 
are also reduced, but there is no economic incentive to do 
this. Therefore, we can reasonably expect refiners to increase 
aromatics when oxygenates are remove from the gasoline pool and 
if refiners make non-oxygenate RFG with the same mass toxics 
reduction as oxygenated gasoline, there is going to be a 
negative increase on public health because potency-weighted 
toxics will increase.
    I want to talk about removing oxygen from summer ozone and 
the effect on particulates, and I will briefly summarize. I 
looked at on-road and off-road emissions in Philadelphia, 
Wilmington, and Trenton using EPA inventories and models, and 
what I estimated is that, by removing oxygenates from RFG, one 
will increase not only off-road emissions but on-road 
emissions, and the net effect could be that as much as 35 
percent of the additional ozone benefits attributable to RFG-II 
compared to RFG-I could be lost because of the fact that 
oxygenates reduce off-road emissions and we're not considering 
this in our analysis.
    Finally, I have been looking at the effect of oxygenates on 
particulate matter, and what I have been able to determine is 
that removing oxygenates from RFG is going to increase the 
inventory of fine particulate matter in RFG areas. Some 
analyses show that half of the fine particulate emissions come 
from motor vehicles in those areas, and oxygenates might reduce 
30 to 40 percent of the fine particulate emission from 
vehicles.
    So I would conclude that removing oxygenate from RFG is 
likely to result in an increase in direct emissions of 
particulate matter from tailpipes, and again this is an issue 
that is not being considered.
    So I would hope that in your deliberations, as time goes 
on, that we look at these benefits of oxygenates, and any 
legislative actions take them into account to make sure that 
public health is protected.
    Thank you.
    Senator Inhofe. Thank you, Dr. Graboski.
    Mr. Slaughter, it is nice to have you back before this 
committee. You are recognized.

 STATEMENT OF BOB SLAUGHTER, DIRECTOR, PUBLIC POLICY, NATIONAL 
      PETROCHEMICAL & REFINERS ASSOCIATION, WASHINGTON, DC

    Mr. Slaughter. Thank you, Senator. Thanks, Mr. Chairman and 
members of the subcommittee. As you know, I am representing the 
National Petrochemical & Refiners Association. We basically 
represent all U.S. refiners plus petrochemical manufacturers 
who have similar processes. A lot has already been said about 
the points I was going to make today.
    I want to point out that NPRA is in substantial agreement 
with Mr. Greenbaum and Mr. Early's testimony, and, just because 
we don't all that often end up in complete accord with the 
findings of an EPA panel and the American Lung Association, I 
want to point that out. I think it is significant and ought to 
be noted.
    We do have substantial difficulties with mandates in fuels. 
We think the RFG oxygen mandate has been problematic and 
concerns have been raised. We think that mandates always raise 
fuel costs, and therefore they are a burden on consumers. 
People really don't like mandates. They prefer freedom of 
choice.
    As Mr. Early pointed out, performance standards allow 
choices and spur innovations, and they are always preferable to 
mandates, which tend to stifle new ideas and competition, and 
they are very hard to get rid of, and they cost money.
    A mandate for alternative fuels in the transportation 
sector is really an ethanol mandate in disguise because 
consumers, fuel providers, and auto manufacturers prefer liquid 
fuels. Ethanol is the only viable alternative liquid fuel in 
the future.
    The oxygenate program in RFG, of course, has led to some 
concerns about water quality, and, as I said before, NPRA is 
largely in accord with the recommendations of the Blue Ribbon 
Panel and urges Congress to act on them.
    One of the problems, though, with mandates is that they are 
hard to get rid of, and here you have a situation in which 
people in California and the Northeast, where most of the MTBE 
is used, seem to agree with the recommendations of the EPA 
panel as to how to address this situation. But, unfortunately, 
people who largely don't live in California or the Northeast 
are blocking action on the recommendations because they want an 
ethanol mandate to replace the current one.
    I think every new mandate proposal has to be looked at in 
this regard, because that's really what will be behind it.
    It is not that NPRA is anti-ethanol, because many of our 
members and maybe most of our members are blending ethanol and 
selling it in their products. Ethanol use has really increased 
in the past decade. DOE and the California Energy Commission 
say that if MTBE is phased out, national usage of ethanol will 
double just through increases in California and the Northeast, 
alone. This happens without an ethanol mandate.
    There have been several statements made this morning to the 
effect--and I do think it is true--that ethanol usage is going 
to increase in gasoline. It has a very bright future as a 
blending component for gasoline in the foreseeable future and 
in the near future without a mandate and the attendant problems 
that a mandate causes.
    I might point out, you know--Senator Lieberman, 
unfortunately, has left, but he raised some questions about 
ethanol usage in the Northeast, its practicality and its impact 
on the environment. Some of the people who are pushing national 
ethanol mandates--and I think this would also be the case in 
California--are saying, ``Well, that's all right. We'll do a 
credit trading program, and if you don't want to use it you can 
pay not to use it.'' That doesn't really make a lot of sense to 
us that you should have to pay to avoid use of a product which 
is problematic in your particular area.
    So I would urge people like Senator Lieberman, Senator 
Boxer, and others in those areas that might have problems with 
the volatility characteristics of ethanol, to take a close look 
at this credit trading idea, because it really is a payment to 
avoid usage of the product, and it will basically be a payment 
to people who produce ethanol in other areas of the country for 
part of the gasoline used in your area. I think it is a suspect 
idea.
    Ethanol has good characteristics and bad characteristics. 
That has been pointed out today. It improves combustion, but it 
does have some problems in air with volatility and in water.
    This first chart shows the different gasolines that are 
made in the central and east United States in the summer now. 
You will see there are 10 of them--10 different types of 
gasoline--this chart was provided to us by our member, CITGO--
that have to be provided in these areas.
    If you put an ethanol mandate as an overlay on top of that, 
you are going to force these people basically to ship special 
blendstock into all of these areas to blend the ethanol at the 
terminal. That means significantly more cost for that 
blendstock, a shipment of ethanol by rail or truck, plus the 
blending facilities needed at the terminal, which will have to 
be passed on to consumers. That's tremendous increase in 
complexity in an already very complex and almost inscrutable 
system.
    I just want to point out that refiners already have a full 
plate. Mr. Chairman, I know you are very much aware of that. 
These are the 12 programs that the refiners are going to have 
to implement and comply with over the next 10 years. They are 
extremely expensive. Diesel sulfur reductions and gasoline 
sulfur reductions, alone, are going to cost roughly $15 billion 
in the next 10 years. And an ethanol mandate is another product 
specification change that will basically complicate all of 
those compliance programs and cost additional money and 
overburden a refining industry that already is showing some 
signs of strain.
    So we urge Members of the Subcommittee and Members of the 
Senate to take a very close look at this mandate proposal. We 
think it is very premature and will end up, again, being bad 
policy for U.S. consumers and the fuel supply.
    Thank you.
    Senator Inhofe. Thank you, Mr. Slaughter.
    Where would all these increased costs of these regulations 
be passed on?
    Mr. Slaughter. Consumers will bear them, Mr. Chairman.
    Senator Inhofe. Thank you.
    Mr. Huggins with Williams.

STATEMENT OF JACK HUGGINS, VICE PRESIDENT, ETHANOL OPERATIONS, 
              WILLIAMS ENERGY SERVICES, PEKIN, IL

    Mr. Huggins. Good morning, Mr. Chairman and members of the 
committee. I am very pleased to be here to discuss ethanol's 
continued participation in the Federal reformulated gasoline 
program, generally, and RFG oxygen content requirement, 
specifically. I appreciate the opportunity to provide comments 
on behalf of the domestic ethanol industry.
    First, let me tell you something about my company. Williams 
is a global energy and communications company headquartered in 
Tulsa, OK. We have about 23,000 employees and operate about $25 
billion in assets.
    Through our various energy businesses, we own and operate 
nearly 60,000 miles of natural gas and liquid pipelines located 
throughout the United States.
    Williams is a producer of natural gas, a large processor of 
natural gas and natural gas liquids, and our energy marketing 
and trading group is one of the largest in the country.
    We own two refineries in the United States and operate a 
refinery in Lithuania.
    We transport, terminal and retail gasoline and other 
petroleum products.
    Our bioenergy group, of which I am a part, is the second-
largest producer of ethanol in the country, with plants in 
Illinois, Nebraska, and, most recently, a new project announced 
in Wisconsin.
    Given our extensive involvement in both the petroleum 
industry and the ethanol industry, we believe we have a unique 
perspective on the issues being discussed today.
    I think it is important to underscore that the reformulated 
gasoline program, with its oxygen content requirement, has 
worked quite effectively. Air quality has improved. Indeed, 
about 75 million people are breathing cleaner air because of 
RFG. EPA reports that RFG is reducing ozone-forming hydrocarbon 
emissions by 41,000 tons annually and toxic pollutants such as 
benzene by 24,000 tons annually. That's equivalent to taking 16 
million vehicles off the road each year.
    A study by the Northeast States for Coordinated Air Use 
Management shows that today's RFG reduces the cancer risk from 
gasoline by about 20 percent.
    It is critically important to recognize that these benefits 
are significantly greater than required by the Clean Air Act's 
performance standards for hydrocarbons and toxics, at least in 
part because of the Federal oxygen requirement.
    In the midwest markets, where ethanol has been used 
extensively, the air quality record is excellent and can serve 
as a model for the rest of the country. In fact, the Chicago 
branch of the American Lung Association fully supports this 
program.
    Air quality gains provided by RFG with oxygenates should 
not be sacrificed as MTBE use is reduced. The RFG program 
assures air quality benefits through the combined application 
of emissions performance standards and an oxygen requirement. 
As a result, the RFG program has provided toxic reductions in 
excess of those required by the performance standards, alone.
    The oxygen standard has also provided reductions in carbon 
monoxide, for which there is no performance standard at all.
    The real world emissions benefits of oxygen are especially 
beneficial with higher-emitting vehicles and off-road and off-
cycle driving. The EPA should be instructed to compare the 
potency weighted toxic effects of oxygenated and non-oxygenated 
RFG.
    It is critical that the carbon monoxide benefits of 
oxygenates not be ignored. The oxy-fuel program works, and CO 
has been dramatically reduced nationwide.
    The primary concern with maintaining the oxygen standard 
appears to be the industry's ability to supply the increased 
demand for ethanol, but such concerns are unfounded.
    It is important to understand that, because ethanol has 
twice the oxygen content of MTBE, it will only take half as 
much ethanol to satisfy the oxygenate requirements of RFG. 
Currently, MTBE use in RFG is approximately 250,000 barrels per 
day. That level of oxygen can be met by 128,000 barrels per day 
of Ethanol. Current ethanol production is 100,000 barrels per 
day.
    A recent report prepared by AUS consultants for the 
Governors' Ethanol Coalition demonstrates that the ethanol 
industry can double production within 2 years, quicker than the 
proposed 3-year MTBE phase-out. Information demonstrating 
ethanol's ability to meet the expanded requirements is included 
in the paper I have presented to this group.
    The logistics of the expansion of ethanol markets can be 
met by water movement, rail movement, and pipeline movement. 
Williams has met with major refiners on both the East Coast and 
West Coast, and we contemplate moving vessel loads of ethanol 
to Los Angeles, to New York, and New Haven, and further 
distribution by pipeline. There are also pipeline possibilities 
from Chicago to the East Coast.
    In conclusion, the domestic ethanol industry understands 
that Congress is faced with a daunting challenge--how to 
protect water supplies by reducing the use of MTBE without 
sacrificing air quality or increasing fuel prices.
    We see ethanol as a solution. Increasing ethanol use in 
this program will allow MTBE to be phased out cost effectively 
while protecting precious water resources and air quality.
    Stimulating rural economies by increasing demand for grain 
use in ethanol production will help farmers left behind by our 
booming economy. Encouraging new ethanol production from 
biomass feedstocks will provide additional environmental 
benefits and take a positive step toward a sustainable energy 
future and global climate change.
    The bottom line is that we need to protect both air quality 
and water quality, and with ethanol we can.
    Senator Inhofe. Thank you very much, Mr. Huggins.
    Mr. Grumet with the Northeast States for Coordinated Air 
Use Management.

  STATEMENT OF JASON S. GRUMET, EXECUTIVE DIRECTOR, NORTHEAST 
     STATES FOR COORDINATED AIR USE MANAGEMENT, BOSTON, MA

    Mr. Grumet. Thank you, Mr. Chairman. Again, my name is 
Jason Grumet, and I am with NSCAUM, the Northeast States for 
Coordinated Air Use Management--not an easy one, Mr. Chairman. 
For 30 years, however, with that acronym, the Northeast States 
have been working together to try to promote consistent 
policies to air pollution control, and on behalf of those 
States I want to thank you for the opportunity to be here 
today.
    Mr. Chairman, in order to talk about where we are going, 
I'd like to begin by talking about where we are, the status 
quo, and the dire impacts on the Northeast's economy and 
environment if Congress does not legislate to lift the oxygen 
mandate this summer, and then I'd like to talk about the 
different approaches that are under consideration today and the 
different impacts those approaches would have for ethanol 
policy and ethanol use.
    The good news, Mr. Chairman, is that MTBE as a fuel 
additive is going away, and I think we can thank Senator Boxer 
and Governors Davis and Pataki and Roland and many others for 
the advocacy to remove MTBE as a fuel additive.
    The real debate right now is simply whether we proceed with 
a severe curtailment of MTBE back to the historic pre-1990 
levels with the possibility of banning the product altogether, 
or whether we just ban the product right now. But within that 
narrow band I think it is clear to us in the Northeast that 
MTBE will no longer be a fuel additive in our region in any 
quantity. That would be the good news, Mr. Chairman.
    The bad news is that, if we keep the oxygen mandate in the 
absence of MTBE, we have just, in fact, required a de facto 
ethanol mandate and, in fact, it is an ethanol mandate of the 
very worst kind, Mr. Chairman, because it is a summer time 
ethanol mandate borne primarily on the Northeast colonies that 
I represent, on the backs of California and Texas.
    This would have profoundly negative impacts on our 
environment and our economy in that these are the regions of 
the country that have severe ozone problems, and, as we've 
heard from a number of speakers, ethanol, in fact, undermines 
our ability to attain the ozone standard. I think that is 
evidenced by the fact that we have a waiver on one of the most 
important environmental criteria in gasoline, that being the 
volatility, in order to tolerate extended uses of ethanol.
    Second, it is a mandate of the worst kind because it is a 
mandate on the very fringes of the country where ethanol is not 
produced. One only needs to pick up the newspaper to look at 
the dramatic increases in price that have come in reformulated 
gasoline in those States that use ethanol, and that's certainly 
a problem that we care very deeply about. It's certainly a 
problem that we don't want to exacerbate.
    If we were to require summertime use of ethanol in 
Philadelphia and Boston and Hartford and New York City, not 
only would we have the same problems that are being faced in 
Milwaukee and Chicago with regard to providing the low blend 
stock base fuel with which you can blend the very volatile 
ethanol, we would have the additional cost of transporting that 
fuel to the Northeast. So, as I think you can see, from our 
standpoint a summertime ethanol mandate would be an absolute 
disaster.
    With regard to who benefits from that, however, since 
someone always benefits from someone else's misery, I would 
argue that it is not the farmers who would benefit from 
maintaining the oxygen mandate, but rather it is one or two 
large, multinational agribusinesses, the only companies in this 
country who have the infrastructure capacity to move hundreds 
of millions of gallons of ethanol from where it is produced to 
where it would be mandated to be used.
    We simply cannot tolerate Congressional inaction in the 
northeast and, frankly, we can't fathom legislative efforts 
which would seek to take this de facto ethanol mandate and make 
it an aspect of law. Legislative efforts to require maintenance 
of the oxygen mandate we feel do not hold any promise to 
provide the bipartisan and national consensus necessary to 
address this problem.
    Within and beneath the shadow of what we truly believe is a 
looming disaster for the northeast, we are trying very ardently 
to work and bring new collaborative efforts forward to try to 
help you address this issue. I think most people are aware the 
Northeast States several months ago joined with the American 
Petroleum Institute, several refiners, the NPRA, and the Lung 
Association to advance a set of principles that we believed 
were the bedrock necessity to move forward on this legislative 
effort, and I want to thank you, Mr. Chairman, for introducing 
legislation very recently which I believe is very true to these 
basic principles.
    I'd also like to thank Senator Smith's staff for bringing 
forth a discussion draft I think is true to those basic 
principles, and the legislation brought forward by Senators 
Lugar and Daschle, which I also think reflects the basic 
principles that the Northeast States and the Lung Association 
have argued as necessary to address lifting the mandate while 
maintaining air quality.
    We find ourselves where we expected we would be in this 
moment in the debate, and that is having consensus about all 
issues, generally, except one, and that being the treatment of 
ethanol.
    At the outset, I would suggest that, if it were possible to 
advance legislation that took care of all the Northeast State's 
interests, as your bill I believe does, and provided no 
consideration of ethanol, that would be wonderful and we would 
strongly endorse such an effort. However, if, by maintaining 
our unyielding and entrenched adherence to our interests to the 
exclusion of the interests of other regions of the country, we, 
in fact, are collusive in encouraging legislative inaction, and 
shame on us, because what we would have just done is ensured 
the worst possible kind of mandate for the Northeast States.
    So, again, the worst possible outcome for the Northeast 
States is Congressional inaction. We firmly believe that 
ethanol policy must transition from policies of market 
protection to policies of product quality; however, we are not 
willing to play a game of legislative chicken with the 
northeast environment and economy on the line.
    We, therefore, have made several supportive statements of a 
properly designed renewable fuel standard or clean alternative 
fuels program that would ensure that ethanol use is able to 
continue, but also does so in a way that does it in the right 
place and the right time.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Mr. Grumet.
    During question and answer time I will be asking each one 
to respond to my legislation, so I appreciate that.
    Mr. Gatto.

   STATEMENT OF STEPHEN GATTO, PRESIDENT AND CHIEF EXECUTIVE 
             OFFICER, BC INTERNATIONAL, DEDHAM, MA

    Mr. Gatto. Thank you, Mr. Chairman. My name is Stephen 
Gatto. I'm the president and CEO of BC International 
Corporation, a company that is utilizing new technologies to 
manufacture ethanol from cellulosic biomass wastes such as wood 
waste, rice straw, and a variety of urban wastes and nonenergy-
intensive dedicated crops.
    I am here today to address many of the issues raised 
regarding the ethanol industry's ability to meet the demand and 
infrastructure in all areas of the country, and biomass has a 
unique opportunity to address that.
    Before I begin, I'd like to thank Chairman Inhofe, Ranking 
Member Senator Graham, and subcommittee members for providing 
me with the opportunity to testify today. In particular, I'd 
like to thank Senator Boxer for her support of the biomass 
ethanol, in particular. And I'd also like to compliment the 
subcommittee for the work it has been doing to address the MTBE 
in gasoline and explore the ethanol alternative.
    This is a very exciting period for the biomass ethanol 
industry. BC International is currently involved in the 
completion of a 23 million gallon ethanol facility located down 
in Jennings, Louisiana. It is the first of a kind ethanol 
facility to take biomass waste. In particular, we will be using 
sugar cane residue as our feedstock. We expect that this plant 
will be fully operational within less than 2 years, and we are 
also developing plants in Gridley and Chester, California, that 
will use rice straw and wood waste to produce ethanol. In 
addition, we are exploring the opportunities of developing 
plants in the Northeast.
    Potential capacity for our initial facilities is expected 
to be over 150 million gallons of ethanol per year; however, 
the biomass ethanol industry's ability to grow exponentially 
depends, in part, on the Nation's commitment to providing 
renewable fuels with sustainable markets such as a market for 
ethanol as a gasoline additive.
    The tremendous advances made in the past decade enabling 
the construction of these biomass facilities has been made 
possible due to the research at the University of Florida. This 
research led to the development of an organism that, for the 
first time, allows you to take all of the things that we 
typically throw away and pile up in landfills and use it 
effectively and efficiently.
    This research, along with the ongoing Department of Energy 
and BC International research, will further increase the 
efficiency of production and transportation of biomass ethanol, 
and, in particular, we're talking about facilities that get 
located where the demand is needed--in particular, building a 
facility in the Northeast for Northeast use.
    I am before you today to pledge my support for the 
Renewable Fuels Act of 2000 introduced on May 4th by Senators 
Daschle and Lugar. I firmly believe that the renewable fuel 
standard contained in this bill--specifically, the provision 
that credits cellulosic biomass ethanol with 1.5 times as much 
value as starch-based ethanol for the purposes of compliance 
with the standard--would help develop the meaningful domestic 
renewable fuels industry across the country, not just in the 
Midwest.
    The use of ethanol, particularly biomass ethanol, provides 
a win/win environmental and economic solution to the MTBE 
problem. Ethanol use contributes to improved air quality and 
does not pose the same dangers to our water resources as does 
MTBE, proven by decades of ethanol use in the Midwest.
    This is why gasoline suppliers in California and in the 
Northeast such as Tosco and Getty feel confident displacing 
most of their MTBE with ethanol.
    Ethanol is also favorable because, unlike petroleum-based 
alternatives, such as alkylates, ethanol means increased use if 
indigenous renewable resources and reduced reliance on imported 
oil.
    Equally important, our technology enables us to turn 
regional waste problems into economic growth opportunities in 
rural communities.
    To take a closer look at some of the projects that further 
demonstrate the extensive benefits of ethanol, in Gridley, 
California, in particular, BCI is planning to build a biomass 
ethanol plant that will use agricultural waste from the rice 
straw farms in Sacramento and areas north of the Sacramento 
area. Use of rice straw waste will help reduce the need to burn 
open field rice straw, to the tune of roughly 1.5 million tons 
annually, resulting in significantly decreased local air 
pollution.
    Later this summer, BC International plans to begin 
construction of a similar plant down in Jennings, Louisiana, 
and it will use sugar cane waste as a feedstock, helping to 
alleviate a major disposal problem now faced by many of the 
sugar-growing communities, especially in Louisiana and Florida.
    In the Northeast, and particularly in Maine, as long-term 
contracts for electricity from biomass energy facilities expire 
or are bought out, a number of sawmill facilities, which 
currently provide feedstocks to these biomass electric 
facilities, are faced with impending pressures and possible 
closure. And, likewise, the sawmill operators face disposal 
costs in the tens of millions of dollars if we cannot find an 
alternative to disposing of this material. BC International is 
currently exploring the development of facilities in the 
Northeast to address this problem.
    In addition, the potential impact of biomass ethanol on our 
available fuel supply and economy is enormous. According to the 
National Renewable Energy Lab study, an average of 2.45 billion 
metric tons of cellulosic biomass could be available on an 
annual basis for ethanol production in the United States. This 
is enough biomass to produce over 270 billion gallons of 
ethanol, approximately two times the level of current U.S. 
gasoline supply.
    Having said all this, the question arises: what will these 
benefits cost gasoline customers? Simply stated, the use of 
ethanol in gasoline does not and will not significantly impact 
the price of gasoline. Results of the 1999 study completed by 
the California Energy Commission shows that using ethanol would 
cost approximately the same and potentially less over the long 
term as replacing MTBE with alkylates. Long term, the creation 
of a market for biomass ethanol will drive technology 
advancements and result in further cost reductions.
    With the introduction of Senators Daschle and Lugar's bill, 
we are seeking to reduce the reliance on imported fuel by 
growing a domestic and renewable fuels industry. The bill's 
provision to support biomass ethanol ensures that a renewable 
industry will continue to expand beyond the limited capacity of 
the starch-based ethanol industry.
    I firmly believe that this vision will make for a better, 
more sustainable economy, cleaner air and water for our 
children and our grandchildren.
    For more details on any items that I've mentioned, please 
refer to the full written text of my testimony.
    I thank you again for the opportunity.
    Senator Inhofe. Thank you, Mr. Gatto.
    Last, we have Mr. Proctor, who is the director of 
transportation in the State of Ohio.

   STATEMENT OF GORDON PROCTOR, DIRECTOR, OHIO DEPARTMENT OF 
                  TRANSPORTATION, COLUMBUS, OH

    Mr. Proctor. Thank you, Chairman Inhofe, members of the 
committee. I am Gordon Proctor, director of the Ohio Department 
of Transportation. Thank you very much for this invitation to 
testify, and I would especially like to thank Senator Voinovich 
for helping make this possible.
    The committee today is discussing the role of ethanol as a 
motor fuel and a fuel additive. Coming from an agricultural 
State, I understand the importance of ethanol's use to the 
agricultural industry. I'm also aware of ethanol's role as a 
fuel oxygenate and as a domestically produced energy source. 
I'm not here to speak against ethanol or the strategy of 
promoting its use.
    As a State director of transportation, however, I would 
point out to the committee an unintended consequence that has 
befallen Ohio as a result of the increasing ethanol 
consumption.
    Under the funding formula adopted in the Transportation 
Equity Act for the 21st Century, T-21, Ohio's Federal 
appropriation is determined in large part by our contribution 
to the highway trust fund. At the time of this enactment, this 
was a welcome move for Ohio and one that Ohio supported. 
However, there was a consequence that neither Ohio nor 
apparently the appropriators anticipated. The consequence was 
the dramatic increase in the use of ethanol caused by national 
market forces. I am neither an ethanol nor petroleum expert, 
but apparently, because of continued depressed corn prices and 
because of the continued Federal tax reduction on ethanol, the 
use of ethanol-blended gasoline in Ohio has soared from 19 
percent to more than 40 percent of all gallons sold at the 
pump. Because ethanol-blended fuel is taxed differently than 
petroleum fuels, the increase in ethanol use has significantly 
decreased the amount of revenue credited to Ohio in the highway 
trust fund.
    As you may know, there is a 5.4 cent per gallon Federal tax 
break on each gallon of ethanol-blended gasoline, and, in 
addition, $0.031 of the tax that is collected on ethanol is 
credited to the general fund and not to the highway trust fund. 
So, in other words, Ohio's contribution to the highway trust 
fund is reduced by 8.5 cents for each gallon of ethanol-blended 
fuel sold in Ohio. I expect ethanol use will continue to rise 
and will continue to reduce Ohio's trust fund contributions.
    The sums involved are substantial. For Ohio, these reduced 
contributions to the highway trust fund reduced Ohio's Federal 
highway funding by $185 million annually. To put that number in 
perspective, it equals 21 percent of Ohio's total Federal 
obligation ceiling, it equals two-thirds of our State's entire 
new construction budget, and it equals what ODOT budgets for 
routine bridge repair and replacement each year.
    The situation appears to be unique to Ohio because we are 
both a large consumer of ethanol and a donor State. For donee 
States, other provisions in T-21 appear to mitigate the effect 
of rising ethanol use, because those States' appropriations are 
not tied directly to their highway trust fund contributions.
    Let me emphasize, I am very appreciative of Congress' 
efforts on behalf of T-21 and the unprecedented appropriation 
it has provided.
    Let me also emphasize that Ohio has received the minimum 
appropriations guaranteed under the Act. I do not want to imply 
otherwise.
    What Ohio has not realized, however, is a commensurate 
increase of growing highway trust fund dollars, because, while 
consumption of fuel in Ohio has risen, our contributions to the 
highway trust funds have been stunted by the way ethanol is 
taxed.
    The situation exacerbates Ohio's donor State status. We in 
Ohio have the tenth-largest highway network, we have the fifth-
highest volume of traffic, we have the fourth-largest 
interstate network, and we have the second-largest inventory of 
bridges in the country. While our traffic and congestion has 
risen, our Federal receipts have not risen commensurately 
because of the unintended consequence of the ethanol issue.
    I would ask for your consideration in two ways. First, I 
would ask, in any future consideration of highway funding 
formulas, that the use of ethanol be taken into account. 
Although it is national policy to encourage ethanol use, the 
cost of this policy is not spread uniformly.
    Second, I would request, at the appropriate time and in the 
appropriate legislation, that the $0.031 of the ethanol tax 
that is credited to the general fund be redirected to the 
highway trust fund. At least that effort would continue 
directing the highway tax receipts into the highway trust fund, 
where they would accrue to Ohio.
    Mr. Chairman, thank you for this opportunity. I am grateful 
for the committee's time and attention.
    Senator Inhofe. Thank you, Mr. Proctor.
    We want to hear opening statements from the two Senators 
who just arrived. First, if it is all right, Senator Boxer, I 
want to enter something into the record. I would like to enter 
into the record an article about the economics of the ethanol 
subsidy which appeared in the ``Energy Journal'' entitled, 
``The Economics of Energy Market Transformation Programs,'' by 
researchers from Princeton University and the University of 
California. They looked at the cost/benefit ratio of ethanol 
and compared it to other programs and found--and this is a 
quote from the report--``a corn ethanol has not yielded 
positive benefits to date, and it appears unlikely that it will 
do so in the future.''
    We would recognize Senator Boxer for any opening remarks 
she might make up to 5 minutes.

           OPENING STATEMENT OF HON. BARBARA BOXER, 
           U.S. SENATOR FROM THE STATE OF CALIFORNIA

    Senator Boxer. Thank you very much, Mr. Chairman, for 
holding this hearing. I understand that after this good panel 
we are going to hear from Senators Harkin, Durbin, and 
Grassley, and I'm----
    Senator Inhofe. That's correct. Before you arrived, I 
announced that we changed those panels around so that the 
Senators will have the last panel.
    Senator Boxer. Right. I'm very pleased about that. I have a 
conflict that starts at 11, but I just wanted to thank you very 
much for including them, as well, because I think they have a 
lot of expertise in these areas.
    I also was very pleased to hear from Stephen Gatto from BC 
International and his plans concerning the opening of a biomass 
ethanol plant in Gridley and Chester, California. As he 
explained, the plant would use the agricultural waste from 
rice, rice straw, and turn that straw into ethanol, and this 
would solve a serious waste problem for Sacramento's rice 
farmers, who have no way to dispose of the waste, and make a 
great contribution, I think, to the transportation sector, to 
clean air, and, frankly, clean water, which I'm going to talk 
about in a moment.
    I'd like to place into the record a letter written to me by 
California Biomass Interests, which discusses their plans and 
the way they see that this biomass can, in fact, help us with 
the problems that we face.
    Senator Inhofe. Without objection.
    Senator Boxer. I am also very pleased to learn that this 
hearing will be followed by a full committee markup--is it next 
week on MTBE?
    Senator Boxer. I'm very pleased about that. And I just want 
to state at the start, I don't have any prejudices about, you 
know, what we should put in the gasoline to help clean up the 
air. I just know that we need to clean up the air, and I'm 
going to be strong on that point. We shouldn't back down from 
that goal.
    And we also shouldn't trade clean air for poison water. I 
mean, that's just not even something that makes any sense at 
all. So what has motivated me from the beginning is not any 
particular interest except what I would call the environmental 
interest.
    Now, clearly, we wouldn't be here today if we weren't 
having a horrible problem with MTBE. I have been calling for 
the elimination of MTBE for over 3 years, and I introduced 
legislation to ban it. Frankly, it is poisoning the water 
supply in California. It is as simple as I can state it.
    I called on the EPA administrator for many years to ban it. 
Finally, on March 21, 2000, she did propose to write a rule to 
phaseout MTBE, and that was after I'd brought a resolution to 
the Senate which was, fortunately, a victorious one, to 
phaseout MTBE. So the Senate went on record as saying we should 
get rid of MTBE, then the administrator, a year later, said, 
``We're going to phase it out.'' As far as I am concerned, we 
ought to move it even faster, and I want to explain why.
    Since Santa Monica, CA, lost 71 percent of its drinking 
water supply to MTBE contamination, we have found MTBE leaking 
into groundwater at approximately 10,000 sites in California. 
Drinking water wells in beautiful Lake Tahoe and Glenville have 
been closed due to MTBE contamination. MTBE leaking from 
underground tanks near drinking water wells in Cambria, 
California, now threatens that small community's entire water 
supply. And we all know by now that MTBE is not just a 
California problem. Frankly, when I raised this issue 3 years 
ago, we had just found MTBE in just a couple of States. I said, 
``Let's learn from California's problems here. Let's get rid of 
it.''
    Well, we haven't done it, and so now we see MTBE as a 
problem in Maine, where it is estimated that between 1,000 and 
4,300 private wells may contain MTBE. MTBE is a problem for New 
Hampshire. Our full committee chairman knows that--he has been 
very helpful, by the way, working with me on this matter--where 
MTBE has been detected in more than 100 public wells and water 
supplies, and that's a small State, so that's a lot of 
detection.
    MTBE is such a severe problem in New York that New York 
recently followed California's lead by banning MTBE. Suffolk 
County, New York, for example, estimates that 80 percent of its 
wells showed detectable levels of MTBE. In fact, a recent study 
of 31 States found that approximately one-third of the drinking 
water supplies in those States, 31 States, may already be 
contaminated with MTBE.
    I'd like to place that study, a particular study, in the 
record. That shows the contamination in these 31 States--
without objection.
    Senator Inhofe. Without objection.
    Senator Boxer. Thank you.
    As we move forward with legislation that would finally 
phaseout MTBE, we do need to be sure that any replacement is 
safe and reliable and is affordable. I look forward to learning 
more about that as I study all of your comments. I was here for 
many of them. And I want to compliment the Chair, because he 
really has put together a panel that doesn't agree on much, 
which is a healthy thing because we get to see all the 
different views.
    I'm about to finish my remarks, if I could have an 
additional minute.
    I am hopeful that replacing MTBE with ethanol will help 
restore what I consider to be some sanity in our Nation's 
energy policy. Because ethanol is a renewable resource made 
from readily available feedstock like corn, increasing ethanol 
use would help reduce dependence on foreign oil. I see it as a 
win/win. I really do. And it would help our farmers by boosting 
their low corn prices. And, as I mentioned before, ethanol can 
be made from waste like rice, straw, wood trimmings, and trash, 
as Mr. Gatto has explained.
    So the greater use of ethanol can turn an environmental 
problem, waste, into an environmental benefit, energy, and the 
economic benefits for our farmers and clean air and getting rid 
of a poison, which is clearly a poison and is drastically 
harming our people--at least in California I can say that.
    So, Mr. Chairman, again thank you for putting together this 
panel that has a very broad range of views. I think it is good. 
I know your views and mine aren't exactly the same on this, but 
I can only say to you from the bottom of my heart, I don't have 
any agenda other than making sure that the air is clean, the 
water is clean, and we keep on moving forward, and people can 
afford to get the gasoline.
    You know, the question of whether it will add four cents or 
six cents a gallon is an important issue, but I think the 
overriding problem here is that we are poisoning our water, and 
that costs a lot to fix, and you can't really measure the kind 
of ill health effects you might have if we continued with MTBE, 
so thank you very much for your time.
    Senator Inhofe. Thank you, Senator Boxer.
    Senator Voinovich, you are recognized for an opening 
statement.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman.
    I appreciate your conducting this hearing today on ethanol, 
particularly as the full committee tries to address the issue 
of MTBE contamination of groundwater and drinking water 
systems. It is kind of an interesting time because we see this 
high increase in the cost of gasoline and the debate going on 
about whether oxygenates are really important or not important 
and whether the use of ethanol is being exploited in some parts 
of the country. There are lots of accusations and things just 
rolling all over the country, so I think it is kind of a good 
time to have all these folks in front of us today.
    As you know, Mr. Chairman, I have been a strong supporter 
of ethanol for its environmental benefits toward reducing 
carbon monoxide, particulate matter, and toxins. In addition, I 
believe its benefits to the agriculture community through the 
use of corn, and when I was Governor I sent many letters to 
Congress urging them to keep ethanol. And I do support the use 
of ethanol to reduce this country's dependence on foreign oil.
    Like MTBE, another oxygenate used in RFG, ethanol helps 
lower emissions of volatile organic compounds, toxins, carbon 
monoxide, and particulate matter, and, according to the EPA, 
reformulated gasoline is responsible for 17 percent reductions 
in VOC emissions and 30 percent reductions in toxic emissions. 
Oxygenates such as ethanol also reduce the use of aromatics in 
gasoline, many of which are known as potential human 
carcinogens. Unlike MTBE, however, ethanol does not contaminate 
groundwater and drinking water systems.
    In addition, the production of ethanol is helping our 
Nation's farmers. The Department of Agriculture estimates that 
about 555 million bushels of corn are used to produce about 1.4 
billion gallons of fuel, ethanol.
    It is kind of interesting, Mr. Chairman, that last year or 
this year we are trying to do something about the farm economy. 
There is no question that the use of ethanol is having a 
positive impact on that farm economy, and, quite frankly--and I 
hate to say this--if they weren't benefiting from this way, I'm 
sure some of them would be in here asking for some more help 
from the Federal Government.
    When you start looking at these things, there are many 
aspects of it that you have to take into consideration.
    I also believe that one of the important benefits of using 
ethanol is that it is domestically produced. I don't believe 
that ethanol is going to take the place of conventional 
gasoline, but I do think it is important to reduce this 
country's reliance on foreign oil, which is, at this stage of 
the game, 55 percent, and, as the Department of Energy 
predicts, by 2020 it will be up to 65 percent. We have a real 
crisis in this country, and ethanol may be one of the things 
that we can use, along with, perhaps, Mr. Chairman, subsidizing 
marginal producers of oil in this country who have been out of 
business because of the low cost per barrel.
    There are a lot of things that we need to do, but this, I 
think, is one of the things that should be on the smorgasbord 
of this country's energy policy.
    I also believe that we also have to take into 
consideration--Gordon Proctor, I am glad that you are here 
today. I want you to know, Mr. Chairman and Senator Boxer, 
Gordon is one of the outstanding highway directors in the 
United States of America, and brings to us a real interesting 
perspective. Senator Boxer, I think you should be real 
interested in it. It is that the more use of ethanol, the less 
money goes into the highway trust fund. And today Ohio is 
hurting because we are the biggest user of ethanol in the 
country. I don't know how that has happened, but we are. As a 
result of that, we are not getting the growth in that highway 
trust fund.
    If we are going to keep the oxygenate and if we are going 
to be using ethanol, then we need to look at the highway trust 
fund and maybe change one of the provisions that says that 
$0.031 of that tax goes into the general fund, because if we 
don't, places like California and Ohio and others that are 
going to be using ethanol are going to be not getting their 
fair share of that trust fund because it is going into the 
general fund.
    So I think that this is a wonderful hearing to have at this 
time, and hopefully, as you're listening to the witnesses and 
reading their testimony, we'll have a better idea of how we 
ought to figure out what we ought to do in regard to this.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Voinovich.
    [The prepared statement of Senator Voinovich follows:]

     STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR FROM THE 
                             STATE OF OHIO

    Mr. Chairman, I appreciate you conducting this hearing today on 
ethanol, particularly as the full committee tries to address the issue 
of MTBE contamination in groundwater and drinking water systems.
    I have been a strong supporter of the use of ethanol for its 
environmental benefits toward reducing carbon monoxide, particulate 
matter and toxics. In addition, I believe it benefits the agricultural 
community through the use of corn. And, I support the use of ethanol as 
a way to help reduce our dependence on foreign oil.
    Mr. Chairman, I particularly want to welcome Gordon Proctor, 
director of the Ohio Department of Transportation. Mr. Proctor was a 
member of my transportation team when I was Governor of Ohio and was a 
leader in quality management. Mr. Proctor also was instrumental in 
implementing the TRAC system in Ohio for prioritizing transportation 
projects. The TRAC system enables the state to recognize and fund those 
projects that are the most needed. I was delighted that Governor Taft 
elevated him to Director of ODOT. He is one of the most respected 
transportation directors in this country. I look forward to his 
testimony today on the effects of ethanol consumption on the Highway 
Trust Fund.
    Ethanol has been beneficial to the environment and the agricultural 
community. It has been used successfully to improve air quality in 
areas that use Reformulated Gasoline (RFG). It has also reduced carbon 
monoxide emissions under the Oxygenated Fuels program in carbon 
monoxide nonattainment areas.
    Like MTBE, another oxygenate used in RFG, ethanol helps lower 
emissions of volatile organic compounds (VOCs), toxics, carbon monoxide 
and particulate matter. According to EPA, RFG is responsible for 17 
percent reductions in VOC emissions and 30 percent reductions in toxic 
emissions. Oxygenates, such as ethanol, also reduce the use of 
aromatics in gasoline, many of which are known or potential human 
carcinogens.
    Unlike MTBE, however, ethanol does not contaminate groundwater and 
drinking water systems.
    In addition, the production of ethanol is helping our nation's 
farmers. The U.S. Department of Agriculture estimates that about 555 
million bushels of corn are used to produce about 1.4 billion gallons 
of fuel ethanol.
    I also believe one of the important benefits of using ethanol is 
that it is domestically produced. While I do not believe that ethanol 
will take the place of conventional gasoline, I believe it is important 
to support its growth as a tool to help reduce this country's reliance 
on foreign oil and gasoline imports. Today, our oil imports have risen 
to about 55 percent.
    However, as chairman of the Transportation and Infrastructure 
Subcommittee, I believe we need to keep in mind the effects that any 
increased ethanol use would have on the Highway Trust Fund.
    Currently ethanol receives a Federal tax credit of 5.4 cents per 
gallon of gasohol or 54 cents of pure ethanol. OMB currently estimates 
that the annual revenue loss due to the 5.4-cent tax credit is $800 
million. In addition, 3.1 cents of the tax that is collected on ethanol 
is credited the general fund and not to the Highway Trust Fund.
    I strongly believe that as we proceed forward with addressing MTBE, 
if ethanol use is increased which I support then we need to ensure that 
States do not lose Federal highway funding because of their use of 
ethanol to help meet air quality standards.
    Mr. Chairman, I look forward to today's testimony.

    Senator Inhofe.We'll have a couple rounds of questions now.
    I'd like to just ask for a brief answer from each member of 
the panel. I know you all heard my opening statement, which 
cited the Blue Ribbon Panel's call for more research and the 
California Report's call for more research, and I realize that 
some of you already stated today that more research is 
necessary, but, just so we can get it on the record, I'd like 
to go down the line and just ask if you believe that more 
research should be conducted on ethanol before making these 
decisions.
    We'll start with Mr. Greenbaum. Just yes or no is fine.
    Mr. Greenbaum. Mr. Chairman, I reminded the panel in my 
testimony of the recommendations of the Blue Ribbon Panel 
calling for additional research. I think it is important, 
however, to not suggest that no action be taken on the mandate 
and on the oxygenate issue and on getting rid of MTBE while we 
wait for that, so we need to balance that. But clearly we need 
to do more research on ethanol.
    Senator Inhofe. Yes, sir.
    Mr. Early.
    Mr. Early. Mr. Chairman, we would support more research on 
ethanol and all substitutes for MTBE, as Senator Boxer 
suggested.
    Senator Inhofe. Yes. Doctor?
    Mr. Graboski. I agree. Yes.
    Senator Inhofe. Mr. Slaughter.
    Mr. Slaughter. We're in favor of pervasive research on what 
would be going into a pervasive product. We're definitely in 
favor of it.
    Senator Inhofe. All right. Mr. Huggins.
    Mr. Huggins. I think we have had thousands of years of 
research on ethanol. Brazil uses ethanol in all of their fuel. 
More research is nice, but I think we need to decide what we 
want to learn from that research.
    Senator Inhofe. OK.
    Mr. Grumet. Certainly more research is always helpful, but 
we face a choice of varying approaches to mandating ethanol, 
and, in the face of the dire circumstances of those choices, I 
don't think we have the luxury of sitting back and awaiting 
that research before Congress acts.
    Senator Inhofe. Yes.
    Mr. Gatto. I think that a lot is known about ethanol. We 
drink it when we drink wine. We drink it when we drink beer and 
alcohol. To talk about the peculiarities of how it will behave 
compared to gasoline, which we all know what the reactions 
would be for whatever reason of human ingestion, or what have 
you, of that product, we need to make sure that we're looking 
at this in an apples and apples comparison.
    I do believe that, to the extent that anything is going 
into the gasoline supply, all things such as alkylates need to 
be tested and looked at, as does gasoline, as a whole.
    Senator Inhofe. All right.
    Mr. Proctor.
    Mr. Proctor. Mr. Chairman, I couldn't qualify or couldn't 
be qualified to comment on the health effects of the research, 
but, in terms of research into making it economical, to 
integrate it into the infrastructure of the transportation 
system, we would certainly be supportive of such research.
    Senator Inhofe. All right.
    During the opening statements, three of you--Mr. Early, Mr. 
Slaughter, and Mr. Grumet--all referred to legislative 
principles. I'd like to just briefly, in a one-sentence form on 
each section, summarize the bill that I have introduced. I 
think some of you are familiar with it, but I'll just go ahead 
and read this.
    Section one, Governors may waive out of oxygenate mandate; 
the anti-backsliding program for toxics in reformulated gas 
areas; development of additional standards for storage tanks; 
administrator may ban oxygenates; MTBE is phased down to pre-
1990 levels; Governors may ban MTBE; MTBE producers are given 
assistance with new permits; and regulations must assure 
adequate fuel supply.
    For the three of you who addressed legislative principles, 
could you respond to the legislation that I am drafting.
    Mr. Early.
    Mr. Early. Well, Mr. Chairman, clearly your legislation 
captures many of the principles and we think is a very good 
starting point for legislation. It is, I think, important that 
that legislation focuses on the most important issues that we 
need to address as we move forward to phasing MTBE out of the 
fuel supply.
    Senator Inhofe. Thank you.
    Mr. Slaughter.
    Mr. Slaughter. Yes, Mr. Chairman, your legislation, as I 
understand it, comports with NPRA's position on how to address 
the problems with the oxygenation mandate.
    Senator Inhofe. Thank you.
    Mr. Grumet.
    Mr. Grumet. Thank you, Mr. Chairman.
    Mr. Chairman, I would agree. I think your legislation is an 
excellent contribution to the discussion. I think it very 
clearly reflects many of the principles that we have been 
promoting.
    I would make a couple of specific comments.
    The legislation does not focus on impacts that could affect 
the conventional gasoline supply, which is two-thirds of the 
Nation's fuel supply, and that is an issue that has been of 
more substantive discussion of late.
    It also doesn't address the fact that the environmental 
requirements for ethanol are less protective than the 
environmental requirements for gasoline because of the RVP 
waiver.
    Finally, the legislation, like most legislation, is 
dependent upon an intricate choreography of EPA rulemakings, 
and I think we want to interact with your staff about whether 
there are ways to back stop some of those obligations.
    The last thing I would say, Mr. Chairman, is that I think 
you would agree the Northeast States have a long history of 
principled advocacy in the face of political impossibility. 
However, I think that, in this case, that absolutism is 
somewhat chastened by two factors. One is the dire impacts that 
will face the Northeast environment and economy if legislation 
does not move forward, and the second is the evolution of what 
appears to us to be some very constructive compromise. I think 
that the efforts in the full committee with Senator Smith to 
look at ways to acknowledge the growth in ethanol that is going 
to happen, as Mr. Early and Mr. Slaughter indicated, and find a 
way to enable that ethanol to be sold in ways that are 
consistent with environmental and economic principles and the 
extent to which we can bring a broader suite of fuels into that 
competition really holds promise.
    We have learned that legislation requires the courage to 
compromise, and I think we stand here with you.
    Senator Inhofe. It is. I wish this were an easy solution, 
but there isn't one out there, and so we're just looking to see 
what will grab a consensus.
    Senator Boxer.
    Senator Boxer. I just had one question.
    Mr. Chairman, I was interested to hear the principles of 
your legislation, and I think that you have come a long way to 
recognizing some of the things that we have been talking about 
in terms of MTBE, but I just would like to state that when I 
started this several years ago, when we started to see the 
horrible problems from MTBE, I looked at the thought of, well, 
going back to just how much we used at certain years and so on, 
and then I thought, well, a poison is a poison is a poison, and 
a little bit of poison isn't good and a lot of poison is worse.
    So for me to stand up in front of my constituency and say, 
``I did a lot for you. I took some of the poison out of the 
water''--I would much prefer to stand up and say, ``I got rid 
of the poison.''
    I guess that's where I differ with you, Mr. Chairman.
    Mr. Greenbaum, I have a question for you. I also think 
research is good on everything that is a commonly used thing, 
and clearly we are going to move to ethanol one way or the 
other, but ethanol has been out there since, as I understand 
it, the 1970's; is that correct? About 12 percent of the 
gasoline supplies have it right now?
    Mr. Greenbaum. Yes.
    Senator Boxer. So the question I have is, we know what has 
happened with MTBE. We know it has shut down water supplies. 
People can't drink it. They won't touch it. It is ruining Lake 
Tahoe. We know all these things. What stories do we have about 
ethanol in the places where it is used? For example, in Ohio, 
Senator Voinovich says--what is it, 40 percent of your fuel has 
got ethanol in it?
    Mr. Proctor. Yes.
    Senator Boxer. What stories do we have? Did it ever poison 
a well? Did it ever explode? Did it ever leak? What are the 
problems? And what are these problems that you have seen that 
causes you to believe we need more research?
    I love more research, but what are the problems we have 
that would cause to human health and the environment that you 
think we need to look further at?
    Mr. Greenbaum. First off, let me be clear that the Blue 
Ribbon Panel's recommendations clearly called for action, and 
action soon, because of the need to deal with----
    Senator Boxer. Action to ban MTBE, phase it down?
    Mr. Greenbaum. We called for the action to substantially 
reduce it, and members of the panel called for phasing out the 
use of MTBE, flexibility in blending the fuel--i.e., removing 
the mandate so you could do it cost effectively around the 
country--and tightened air quality standards. So we wanted 
action.
    Research, at the same time, needed to be done, because 
while you're doing the phase-in of whatever takes the place, 
you need to know what the effects are going to be.
    Senator Boxer. That's not my question.
    Mr. Greenbaum. So therefore----
    Senator Boxer. I agree with the research, but----
    Mr. Greenbaum.--I was not saying----
    Senator Boxer.--I'm just asking you is there any--have we 
ever had a public health problem such as we've had with MTBE 
with ethanol? Have we ever had a leakage, a poisoning of the 
water, shut down of drinking water?
    Mr. Greenbaum. But let me be clear. I was getting to that, 
and I did intend to answer that. We've never--what the panel 
found is that we've never, in the areas where we have used it, 
asked the question in the right way. The issue will not be 
ethanol contaminating groundwater, itself, and contaminating 
drinking water wells. The issue will be, if there is one, that 
it might increase benzene and other things in gasoline getting 
to wells where it has been used.
    What we called for--and I reiterated it in my testimony--is 
very clearly getting out there in the areas where we have been 
using it and start monitoring and testing whether we have seen 
an increase, for example, in benzene contaminations in the 
areas of the country where it has been used compared to areas 
where it wasn't used.
    We have never done that. That isn't done. And you could do 
that right now, even if you foresaw a 4- or 5-year time table 
out there for increased use of it, but I think you need to--
that's the kind of information we called for getting.
    Senator Boxer. I really appreciate that. So, in other 
words, you want to see how it reacts with other compounds and 
if it has a bad effect on that, but you don't know that it 
does?
    Mr. Greenbaum. It will be ethanol, itself, that will be 
the----
    Senator Boxer. It isn't the ethanol, itself; it's the 
effect on other things that you want to look at.
    How long would it take to study that?
    Mr. Greenbaum. Well, I----
    Senator Boxer. I think that's very important for us to 
know.
    Mr. Greenbaum. Yes. We called for immediately getting into 
the data bases that we currently have. I think it is a matter 
of 2 to 4 years of getting out there, getting the data, putting 
it----
    Senator Boxer. OK.
    Mr. Greenbaum. We do not call for all of that research to 
be done before any action is taken.
    Senator Boxer. I totally understand. I totally get it.
    Mr. Greenbaum. But we have said that it needed to move 
forward, and it hasn't moved forward, and I think it is very 
important that any action that Congress takes spur that 
activity, as well as anything else that it chooses to do.
    Senator Boxer. Thank you.
    Thank you, Mr. Chairman.
    Senator Inhofe. All right. We're going to be having three 
Senators as the next panel, and I thought, since two of them, 
Senator Harkin and Senator Grassley, are from Iowa, I'm going 
to read excerpts of two editorials that appeared in a couple 
Iowa newspapers--one, the Des Moines Register, and the other is 
the Quad City Times. And I'm going to ask each one of you to 
respond to these, so you may want to make a couple of notes as 
I'm reading these editorials. I thought this would be a way to 
set up the next panel.
    From the Des Moines Register: ``An ethanol mandate would 
deny Iowans a choice of fuels and short circuit the process of 
ethanol establishing its own worth in the marketplace. The 
justification is to marginally boost the price of corn. Cleaner 
air is offered as a reason, too, but that's an afterthought. If 
that were the goal, other measures would be far more 
effective.'' I'm skipping around now. ``Let Iowans make their 
own choices and let ethanol prove itself in the marketplace.''
    Then, in the Quad City Times: ``Chuck Grassley and Tom 
Harkin may have--'' this is a bipartisan statement here, by the 
way--``Chuck Grassley and Tom Harkin may have the best of 
intentions, but their proposal to boost ethanol use in Iowa is 
seriously misguided. The Cato Institute estimates that every 
dollar of profit now earned by ADM's ethanol operation is 
costing taxpayers $30 in lost revenues.
    ``As for claims that ethanol helps the environment, the 
National Academy of Science, the Congressional Budget Office, 
the Department of Energy, and even the USDA have each reported 
that ethanol, which is less efficient than gasoline, provides 
no significant environmental benefit and may even add to air 
pollution.
    ``There is an abundance of evidence that indicates ethanol 
is not all that it is cracked up to be--not for consumers, not 
for the environment, and not for farmers.''
    They conclude, ``Ethanol might be worth some level of 
Government support, but it never will be so valuable as to 
justify scrapping our system of free enterprise.''
    I know that's a lot I'm throwing at you there, but I'd just 
like to get a comment. We'll start at the opposite end, Mr. 
Proctor, and any comment you'd make about the two editorials 
that appeared in Iowa.
    Mr. Proctor. Mr. Chairman, I guess it does refer to 
economic and tax policy tied into the use of ethanol and that 
economic and tax policy is tied into our transportation funding 
system, so, as there have been unintended consequences when 
MTBE was mandated there were health consequences, there are 
unintended financial consequences tied into the intervention 
into the market. I guess we would just caution that Congress be 
aware of what those tax implications are and be fully aware of 
them.
    I do not in any way, shape, or form want to imply that 
health issues and highway funding issues are equal. They're 
not. We understand the importance of the health issues. We're 
just asking that Congress be aware that there are ripple 
effects when there are going to be changes in the fuel 
structure in the transportation sector in this country, and 
those consequences may not be apparent until all the 
calculations are done through the highway funding formulas.
    Senator Inhofe. Yes, sir.
    Mr. Gatto.
    Mr. Gatto. I agree that there is an economic impact, and I 
think it is important to point out, as I believe was noted by 
the Congressional Budget Office, that about $6 of return to the 
Treasury was a result of ethanol in this country for every $1 
spent on the credit.
    I think we need to keep this in perspective. There's a 
battle----
    Senator Inhofe. Excuse me. What was your comment about the 
$30?
    Mr. Gatto. I think that the Cato Institute's information 
fails to look at all of the specifics in this particular arena.
    Senator Inhofe. I see.
    Mr. Gatto. Especially the CBO report that looks at the 
impacts, positive impacts, especially of ethanol.
    I think it is important to keep in mind that this is a 
battle over market share, not necessarily what is best for the 
environment or best for imported oil. Anything that we can do 
today, looking at the high prices, especially in the Midwest, 
to reduce our dependence on imported oil I think goes a long 
way to addressing the public's concerns and issues as we go 
forward into this century.
    Senator Inhofe. Mr. Grumet.
    Mr. Grumet. Thank you, Mr. Chairman.
    As I mentioned in my prepared remarks, Mr. Chairman, we 
firmly believe that it is time to make a transition from market 
protection to product quality in designing the future of the 
ethanol industry, because, of course, this leaves us with a 
logical inconsistency that ethanol is so good that it can't 
compete.
    That said, Mr. Chairman, I think the headline, ``Let 
Ethanol Prove Itself'' is worth reflecting upon. Ethanol has 
proved a lot about itself. In fact, I think ethanol has 
demonstrated that it maintains a full house of national 
environmental benefits. Upon closer scrutiny, that full house 
is three aces and a pair of twos--energy security and national 
defense, ace in the hole. Ag policy is an ace. Climate change, 
especially if we use biomass ethanol, is an ace. Urban air 
quality is a pair of twos.
    The problem that we have, Mr. Chairman, is that the ethanol 
mandate suggests that we focus our ethanol policy on that pair 
of twos. We believe ethanol is going to grow by leaps and 
bounds without any further protection. That makes us wonder why 
it is necessary to have further protection at the same time it 
also makes us less resistant to a security blanket for ethanol 
which would give the ethanol community the security it needs to 
be part of a legislative solution.
    Senator Inhofe. All right.
    Mr. Huggins. First I'd like to talk about the pricing. 
We've heard a lot about that. I happen to live in Illinois. I 
live in Peoria. I'm 150 miles from Chicago that has been in all 
the press. Chicago prices since April have risen 34 percent. 
Peoria prices have risen 30 percent. We don't have RFG in 
Peoria. We have conventional gasoline. In fact, if you go into 
a gas station you can buy mid-grade with ethanol for $1.75. You 
buy conventional unleaded for $1.79. Ethanol is not the problem 
with the prices there. And, in fact, RFG is not the problem 
with the prices there. There are other problems, and I wish I 
could tell you what they were, but it is clearly not ethanol 
and it is not RFG with ethanol.
    Senator Inhofe. Good.
    Mr. Huggins. Relative to the Des Moines Register, at that 
time the State of Iowa was looking at passing a requirement 
that all fuel sold in Iowa contain ethanol, a law similar to 
Minnesota's, but Minnesota had a large part of the State 
required oxygenate to satisfy the carbon monoxide problem they 
have. Iowa doesn't have that problem, so it would have been a 
mandate without any environmental reason.
    I think what we are looking at with the Clean Air Act is 
significantly different because, in fact, oxygenates have been 
proven and RFG has been proven to help air quality 
tremendously. I think if we are going to change that formula, 
that's where we put the research. Is it like lead, where you 
drop lead and increase aromatics? Is it like oxygenates, you 
drop oxygenates and increase alkylates? Those are the fuels you 
should suggest.
    Ethanol has been blended in fuel in this country--well, the 
Model T was designed to run on ethanol, so it has been around a 
long time and it is in all the fuel in Brazil. So let's focus 
the research on where it needs to be done.
    And, relative to the cost of ethanol, we have got studies 
that suggest that, in fact, ethanol is a gainer for the 
Treasury. We talk about Government support and Government 
interference in the market. My son was in Desert Storm. There 
is massive Government interference in that market, because that 
is the only reason we were there, so governments will interfere 
with markets in a variety of ways.
    Senator Inhofe. Mr. Slaughter.
    Mr. Slaughter. Yes, Mr. Chairman. You know, the ethanol 
subsidy program, which has cost billions of dollars over the 
years it has been in effect, has always involved a shifting of 
costs, and I think that's one of the things that was alluded to 
in the articles that you read.
    Interestingly enough, I believe I heard today that the 
State of Ohio, which has very large usage of ethanol, is not 
totally happy with the fact that they are paying for that 
through the highway trust fund reduction that is affecting 
their State, and what is being talked about with this national 
scheme is that the cost will be distributed across the United 
States and everyone will have to pay for the ethanol, 
regardless of whether or not they use it. So I think the logic 
of the two articles that you've read is fairly compelling.
    Senator Inhofe. All right.
    Mr. Graboski. I would disagree with the statement that 
there are no environmental benefits to the use of ethanol that 
came from at least one of these articles. You know, the Clean 
Air Act addresses performance standards and it addresses 
general standards, and all we've talked about today are 
performance standards issues and not the things that benefit us 
that result from the oxygen requirement and general standards.
    Because of the general standards, we have less fine 
particulate emission from motor vehicles, and fine particulate 
emission is a substantial contributor to the PM2.5 
inventory in cities, and we have reduced potency-weighted air 
toxics, and we have reduced ozone because of carbon monoxide 
benefits. So I think these things are real and they are not 
weighted into the debate.
    My interest is not necessarily trying to make a larger 
market for ethanol, which, of course, is the interest of my 
sponsor. My interest is in maintaining equal public health. And 
so, as we go down the road, I mean, I really think we seriously 
need to look at this, and when I addressed the issue of 
research before that's what I was talking about--trying to 
figure out what the public health impacts of any of these 
replacement items are.
    I'm also an author of USDA's study that looked at the 
efficiency of the conversion of ethanol from corn, and the 
statement in one of these articles that said that this is a 
less-efficient process than gasoline is totally wrong and it 
doesn't agree with our findings or the findings of the 
Department of Energy.
    Basically, from an energy point of view, you get about 
three BTUs of ethanol out from every two BTUs total that you 
put in, but that really doesn't tell the true story. In today's 
ethanol business, a majority of the energy that goes into 
making ethanol really is in a form of coal used in electric-
generating and heat-generating facilities to produce the 
ethanol, and in terms of natural gas which goes into making 
fertilizer to produce ethanol.
    Really, when you look at ethanol, what you're doing is 
using lesser-grade fossil fuels in solid and gaseous form and 
you are converting those into a very, very useful liquid fuel, 
and on that basis, when you look at all of the alternative fuel 
type process that the Department of Energy and others have 
looked at over the years, this really turns out to be the most 
efficient way of converting our fossil resources into liquid 
fuels.
    Finally, we're talking about prices going up, and prices 
are going up for gasoline primarily because crude prices are 
going up, and those crude prices are not really within our 
control. They are within the control of others. But I would 
point out that removing 100,000 barrels a day of ethanol supply 
from the gasoline chain, like removing several hundred thousand 
barrels a day of MTBE supply also from the gasoline chain, is 
not going to decrease gasoline prices, it is going to increase 
gasoline prices.
    Those would be my comments.
    Senator Inhofe. Thank you, Doctor Graboski.
    Mr. Early.
    Mr. Early. Well, Mr. Chairman, the portions of those 
editorials which confirm my testimony, obviously I agree with, 
which is using ethanol does not guarantee you an air quality 
result. Congress may choose to mandate ethanol in gasoline for 
other reasons, either energy security or other reasons, but we 
think it is very important that, if Congress chooses to do 
that, that we ensure that the use of that ethanol--that there 
are protections so that the use of that ethanol doesn't 
increase air pollution instead of decreasing air pollution, 
because that's the result we want when we're cleaning up fuels.
    Thanks.
    Senator Inhofe. Thank you.
    Mr. Greenbaum.
    Mr. Greenbaum. Just briefly, to speak to the comments and 
the editorials from the perspective of the Blue Ribbon Panel, 
we called specifically for flexibility, the ability to deal 
with a reduction in the use of MTBE without dramatic new 
mandates so that one could see the most cost-effective 
solution.
    We assumed that that would result in an increase in the use 
of a number of other products, including ethanol, and not in 
substantial increase in the use of those products. I think we 
saw that mix of solutions defined by the marketplace dealing 
with the complex issues of what you needed to blend fuels for 
clean air in different parts of the country, what you needed 
for cost effectiveness in terms of infrastructure, etc., in 
different parts of the country would be the preferred way of 
addressing this.
    We did acknowledge, as well, as has been the case for 
decades in Congress, that there are sets of interests aside 
from the fundamental clean air and clean water issues that have 
called for increased use of ethanol, and that those might need 
to be considered in this process. We thought that there would 
be some increase in use, even under any circumstances, if one 
moved to get rid of the MTBE, kept tight air quality standards, 
and removed the mandate.
    Senator Inhofe. Thank you.
    Mr. Grumet. Mr. Chairman, can I make one point about 
gasoline prices? I would agree with everybody that there is a 
feeding frenzy, with consumers at the bottom of the food chain, 
but, lest we place all of the blame on OPEC, I think it is 
worth noting that the spot price for ethanol sold by Archer 
Daniels Midland has gone up $0.15 per gallon in this same time 
period that we are concerned about.
    Senator Inhofe. From what to what?
    Mr. Grumet. I think it was about--this is without the 
subsidy--I think about $1.45, closer to about $1.60.
    Mr. Huggins. That's not correct.
    Mr. Grumet. Well, it has been reported in some articles 
which I can submit for the record.
    Mr. Huggins. I compete in the marketplace daily. I can tell 
you the spot price in the Midwest right now is about $1.35. In 
the start of April it was about $1.20. There's your $0.15.
    Mr. Grumet. OK. Well, the only point I would make, Mr. 
Chairman, is that we are all in this together, and I think we 
need to be cautious about creating any policies which would 
give any one product, and particularly any one company, 
monopolistic control over the Nation's gasoline.
    Senator Inhofe. Mr. Grumet, since you are speaking now, you 
made the comment during the course of this hearing that maybe 
the Smith bill would be a good compromise. The question I would 
ask you, which of your Northeastern States would agree with an 
ethanol mandate?
    Mr. Grumet. Mr. Chairman, as I would expect, you are 
probably ahead in this debate than I am. I am only aware that 
there is a Smith discussion piece. If he has introduced 
legislation, I would commend that.
    With regard to the clean alternative transportation fuel 
program, I can only refer to the testimony that I submitted, 
and provide some input on behalf of Governor Jeanne Shaheen, 
who, when commenting upon the renewable fuel standard in the 
Daschle bill, which does not provide the Northeast with the 
flexibility that the Smith discussion piece I think is 
imagining, indicated that a properly designed renewable fuels 
requirement ``holds great promise and represents a wise 
precedent for the Nation to establish.'' That was a comment by 
Governor Shaheen in a letter that I have submitted into the 
record.
    More recently, Governor Shaheen expanded upon that 
statement in a letter to Senator Daschle and Senator Lugar in a 
letter of May 5 commending the introduction of the Renewable 
Fuels Act of 2000.
    Again, this is not a statement that Governor Shaheen, I 
think, offers lightly. It, again, was in the shadow of what we 
understand to be the results of Congressional inaction, which 
would be the worst possible type of mandate--a mandate that, in 
essence, provided monopolistic control for one company.
    So I think we don't feel like we have the luxury of 
entrenchment, and in that regard we commend Senator Smith for 
taking what we know to be a courageous and uncomfortable 
position, to support further requirements for the sale of 
renewable and clean alternative fuels.
    Senator Inhofe. We all thrive on discomfort around here.
    [Laughter.]
    Senator Inhofe. You've adequately answered the question and 
I appreciate it. I wanted that clarification.
    Mr. Early, I just have one last question to you. You 
appeared before this committee in 1994, I guess it was, I 
believe, didn't you? I thought you did. Anyway, I'm reading 
from some testimony of a previous testimony. I'm quoting now. 
It says, ``Potentially''----
    Mr. Early. Senate Natural Resources Committee.
    Senator Inhofe. Is that it? OK.
    Mr. Early. I think so.
    Senator Inhofe. I'm going to ask you if your opinion has 
changed since this time. You said, ``Potentially increasing 
global warming, increasing smog, increasing air toxics, and 
increasing water pollution and damages to erodible and 
sensitive habitat areas.'' I should have read the first part of 
it. You describe ``increases in ethanol use as potentially 
increasing global warming, increasing smog, increasing air 
toxics, increasing water pollution, and damage to erodible and 
sensitive habitat areas, all of this at the increased cost to 
the reformulated gasoline consumer and a significant decrease 
in highway trust fund revenues.''
    Is that accurate? And would that still reflect your 
opinion?
    Mr. Early. It is clear that some improvements have been 
made in ethanol production that changed the energy balance in a 
positive way from 1994. I think it would also reduce the impact 
on water pollution and erodible land. It's simply a function of 
the fact that corn production rates have been improving and 
ethanol production facilities have been reducing their energy 
use.
    But there are still important problems associated with 
mandating ethanol in the fuel supply, some of which I cover in 
that testimony, but the proportions have clearly changed and I 
think that's something that is worth noting.
    Senator Inhofe. All right. Thank you very much.
    We have our second panel here. With the panel's indulgence, 
I'd like to give Senator Voinovich his shot at this panel for 5 
minutes and then we'll get to you. Is that all right?
    Senator Voinovich, questions of the first panel?
    Senator Voinovich. Yes. I'll try to make them brief.
    Dr. Graboski, in your testimony you discussed the effects 
oxygenates, particularly ethanol, have on particulate 
emissions. You stated that removing oxygenates from gasoline is 
likely to lead to an increase in fine particulate matter 
emissions. Could you elaborate on that point briefly?
    Mr. Graboski. Sure. When we talk about fine particulates, 
we're talking about PM2.5 material, which is a 
subset of the PM10, which is currently regulating--I 
guess the PM2.5 regulation right now has stayed in 
the courts, but I'm sure EPA will move forward.
    PM2.5 emissions basically come from combustion 
sources, whereas a lot of the PM10 material comes 
from grinding up soils. When you look at PM2.5, a 
number of studies tend to indicate that a major contributor to 
the PM2.5 inventory are cars and trucks on the road, 
light-duty cars and trucks on the road as well as diesel 
trucks.
    The light-duty cars and trucks on the road do respond to 
oxygenates in the fuel, and a number of studies have shown that 
between 30 and 60 percent, depending upon whether they are 
normal-emitter or high-emitter cars, actually have the 
particulate emissions reduced by 30 to 60 percent by putting 10 
percent ethanol in gasoline.
    So if you took oxygenates away, the fine particulate 
inventory is going to go up, and it could go up by a 
significant amount from the point of view of that fuel effect, 
and maybe on the order of 5 percent from these combustion 
sources anyway.
    Senator Voinovich. If I can interrupt you, if we go to the 
new standard that is being contested now in the courts, 
certainly the contribution of oxygenates to that or ethanol 
would be significant in terms of a community reaching their 
attainment of that particular goal.
    Mr. Graboski. Sure. But the issue is, in addition to the 
fact that if you remove oxygen, particulate is going to go up 
from the point of view of removing oxygen. It is also going to 
go up from the point of view that the likely replacement for 
much of the ethanol is going to be aromatics in the fuel, and 
aromatics in the fuel will increase particulate two ways. One 
is by increased particulate made from the aromatics directly 
out of the tailpipe, and second is that in the summertime, in 
the ozone-forming process, aromatic emissions from vehicles are 
converted to ozone, but also quite substantial amount are 
converted to additional fine particulate aerosols.
    So going in the direction of removing oxygenates is going 
to increase, in my mind, and fine particulate inventory is a 
very, very costly issue in terms of future public health, and 
that's a concern to me.
    Senator Voinovich. And States reaching their ambient air 
thing. And I'd like to make the point that I don't think people 
are aware of the fact that automobiles do contribute to the 
particulate matter, the general public.
    Mr. Graboski. Yes. We all think they are diesels, and I'm a 
diesel researcher and I know how bad diesels are, but the fact 
of the matter is, you know, that 95 percent of the vehicles on 
the road are cars and 5 percent of the vehicles on the road are 
diesels, and so even though the amount emitted by cars is a lot 
smaller, they have a very, very substantial impact on the 
inventory.
    Senator Voinovich. The last question I wanted to ask all of 
the panelists is this: there is some allegation today that one 
of the reasons why gasoline has gone up so much in the Midwest 
is that the EPA has mandated the use of reformulated gasoline 
and ethanol is the way they are achieving that, and that the 
price has been jacked up very high to create public furor 
against the use of the oxygenate because it is so expensive, 
and therefore let's get rid of it so we don't need to deal with 
the problem.
    I'd like Mr. Slaughter, or maybe some others, to comment on 
that. There are a lot of rumors floating around out there 
today, and the air needs to be cleared.
    Mr. Slaughter. Senator, as you know, across the Nation 
areas that use RFG are using a new blend of RFG effective June 
1. Chicago and Milwaukee are different from the rest of the RFG 
cities in that they do blend ethanol to reach the oxygenate 
requirement of reformulated gasoline. That does require a 
special blend stock--there is a significant reduction in summer 
RVP--and it is more expensive to handle that type of gasoline 
within the context of the RFG program.
    The refiners that I have talked to say that they are 
experiencing even slightly more problems than they thought they 
would in trying to incorporate ethanol into that RFG-II; 
nevertheless, they are trying to do that.
    Now, that being said--and that is a difficulty and it is a 
source, undoubtedly, of some additional cost--there are other 
factors involved here, too. RFG-II is, across the board, a more 
difficult product to make. Also, there have been some 
logistical problems in the Midwest involving pipeline outages 
and the reduction of some pipeline capacities that contribute 
to that factor.
    So I certainly would not say that the fact that ethanol is 
blended there would account for all of the impacts that people 
are experiencing, but I think it is one part of it. And, as we 
have said here today several times, ethanol does require 
special handling.
    Senator Voinovich. You would deny that there is an attempt 
to jack up the price in order to--for example, I think Governor 
Thompson from Wisconsin has said that he wants to get rid of 
the oxygenate requirement and go back to the other gasoline 
because of the high cost of reformulated gasoline.
    Mr. Slaughter. Well, I know that a number of people are 
looking into what is happening in the Midwest in terms of price 
and supply, and this always happens when there is a disruption, 
and the industry has generally found that it is due to normal 
economic forces and the industry has not been guilty of any 
kind of wrongdoing. I certainly believe this to be the case in 
this instance, too.
    But one thing is true: there are competent organizations 
like the National Research Council that have questioned the 
benefit of oxygenation in gasoline, contrary to Dr. Graboski. I 
take some other issues with how he thinks oxygenates and 
ethanol might be replaced. But there is some question about 
that, but we think normal market forces are occurring in the 
Midwest right now, but we do think that mandates add cost.
    Senator Voinovich. Any other comments?
    Mr. Gatto.
    Mr. Gatto. Senator, I appreciate the opportunity to talk 
about this. I think this is probably one of the most or the 
largest misconception in the industry.
    Let's put this in perspective. Mr. Grumet talked about a 15 
percent increase in the price----
    Mr. Grumet. Fifteen cents.
    Mr. Gatto.--Fifteen-cent increase in the price of ethanol 
over the course of the last months. In a 10-percent blend, that 
is $0.015 per gallon of RFG. When you start looking at it in 
context of the movement in prices in the Midwest, alone, we 
don't even compare to the $0.40 or so increase that has 
resulted. When you talk about the blend stocks impact, for 
example, this was analyzed very carefully in California where 
all of the different refiners sat around a room and talked with 
the California Resources Board and the California EPA with 
respect to the impact on the refiners to make the blend stock. 
The outcome of that was roughly $0.01 to $0.03 just in terms of 
some of the removals that would come as a result.
    So what we're talking about here, in perspective, with 
respect to what we believe would be an inflated price of $0.15 
per gallon--we don't agree with that, but necessarily using it 
would result in about a $0.015 per gallon increase, so I don't 
believe it contributes in any way, shape, or form.
    Senator Voinovich. Do you think then that somebody has 
deliberately jacked up the price of this in order to send a 
signal to discourage the use of ethanol?
    Mr. Gatto. I think absolutely.
    Senator Voinovich. You are convinced of that?
    Mr. Gatto. Absolutely.
    Mr. Huggins. Senator, if I could?
    Senator Voinovich. Mr. Huggins?
    Mr. Huggins. I think you were out when I made earlier 
comments. I live in Illinois. In fact, I live in Peoria. The 
price of gasoline in Chicago has gone up 34 percent since 
April. The price of gasoline in Peoria has gone up 30 percent. 
We don't use RFG in Peoria.
    Senator Voinovich. I'm sorry?
    Mr. Huggins. We don't use reformulated gasoline in Peoria. 
In fact, a gallon of mid-range gasoline with ethanol blended in 
it is $1.75 in Peoria. A gallon of conventional 87 octane is 
$1.79. So it is clearly not just the RFG perception out there. 
Illinois seems to be having a massive disruption, for some 
reason, and I'm not sure what that reason is.
    Mr. Early. Senator, I would just observe that, if you look 
at the big picture, what has happened is creating a lot of 
public discontent in the Midwest with the reformulated gasoline 
program. As Dr. Greenbaum observed, you want to have 
flexibility as we modify this program to provide air quality 
benefits at a reasonable cost. This problem in the Midwest, the 
Lung Association does not have expertise to say what the cause 
is. But if you reduce the flexibility of the program, in 
general, you are going to have more of these kinds of problems. 
In the context of maintaining the oxygen requirement and 
limiting MTBE so that it is an ethanol mandate, and you are 
shipping two billion gallons of ethanol to the east and the 
west coasts, there are going to be disruptions. There are going 
to be problems. What we fear is that the entire RFG program is 
at risk under those circumstances.
    Senator Voinovich [assuming the chair]. I think that I'm 
going to have to--I've just been informed that we've got a vote 
at 11:30, and we have three Senators here, very important 
Senators, and I noticed that they were interested in the 
answers to your questions.
    Senator Grassley, will you start out the statements?

STATEMENT OF HON. CHARLES GRASSLEY, U.S. SENATOR FROM THE STATE 
                            OF IOWA

    Senator Grassley. Good morning, Senator Voinovich and 
Senator Inhofe. I appreciate the opportunity to be here to 
discuss the benefits of using ethanol as an oxygenate in 
reformulated gasoline.
    As a Senator representing the No. 1 corn-producing State, I 
am a firm believer in ethanol, and with good reason. Ethanol 
not only helps our farmers by providing $4.5 billion per year 
value added market for their commodities, but also it improves 
our air quality and our energy security by reducing our 
reliance upon OPEC.
    With today's high gasoline prices and with economic 
analysts' predictions of oil company profits exploding by 200 
percent over last year's second quarter, it just makes sense 
that we should be looking seriously at displacing some of our 
imported oil with home-grown energies. And from reading the 
press releases that--the Senator from Oklahoma is not here, but 
we had a chance to read press releases that he posted on his 
Senate website. I know that he shares my concern about 
dependence upon foreign energy imports and that he would 
support establishing a limit on these imports.
    But let me share with you what I have learned from my past 
legislative battles regarding limits on imports. Even though 
oil companies have sought and obtained market mandates to 
protect domestic production in the past, now that the majors 
have moved major investment employees overseas, it doesn't seem 
that they are any longer keen on limiting imports.
    But today we are here to talk about ethanol. What is odd 
about all the new national scrutiny of ethanol is that it is 
being driven almost entirely by the fact that oil companies are 
being told they can no longer use MTBE. MTBE is contaminating 
our Nation's water supply. Ethanol is not hurting our water, 
it's the MTBE. In fact, even though I am not a drinker, I know 
that ethanol is little different than corn whiskey, so if 
ethanol gets in the water, the worst that can happen is that 
you might want to add ice, tonic, and soda. MTBE and ethanol 
are adding to gasoline to meet the Clean Air Act's oxygenate 
requirements for RFG.
    For the most part, refiners have chosen to use MTBE, a 
petroleum-derived chemical. Frankly, to put it more bluntly, 
the oil industry did everything in its power, through the 
regulatory and legal system, after the enactment of the Clean 
Air Act in 1990 and during the enactment of that, that only 
MTBE would be used. The oil industry worked for an MTBE 
mandate, and it was very successful.
    Moreover, had it not been for the insistence of officials 
from the upper Midwest, no RFG-containing ethanol would have 
been sold anywhere in America, not even in Chicago and 
Milwaukee.
    Now the Petroleum Institute has the gall to blame ethanol 
for the high gasoline prices in these cities. The truth is that 
ethanol that is delivered to Chicago and Milwaukee has a net 
cost of $0.71 per gallon, which is $0.81 less than the price of 
gasoline. This morning in Des Moines the wholesale price of 
gasoline was $0.05 higher than the wholesale price of gas plus 
ethanol.
    So today MTBE is showing up in our water supplies across 
the country, including in Iowa, where we don't even use RFG. 
MTBE renders water undrinkable.
    Now the oil companies would like us to eliminate the 
oxygenate requirement and trust them to produce a cleaner-
burning gasoline without oxygenates. Trust the same folks that 
brought us MTBE? Trust the folks who manipulated the courts and 
regulatory process to make certain consumers had no option to 
buy either MTBE or ethanol in reformulated gasoline? I don't 
think so.
    I am here today to tell you that there is a clean air and 
clean water substitute for MTBE that is available this very 
day, and that's ethanol, and it is made by American farmers, 
not by OPEC, which is driving up our gasoline prices.
    The use of RFG with oxygenates has significantly reduced 
harmful smog-forming vehicle emissions. According to a report 
of the California Air Resources Board Clean Fuels Development 
Commission Technical Committee, oxygenates and RFG have reduced 
air toxics by 28 percent. It has reduced carbon monoxide by 13 
percent. Sulfur oxides have been reduced by 11 percent, and 
particulate matter by 9 percent. Carbon monoxide reductions are 
even greater--up to 25 percent reduction if you use 10 percent 
ethanol blends. And the American Lung Association has pointed 
out that carbon monoxide reduces the blood's ability to carry 
oxygen, which is especially harmful to unborn babies, infants, 
and people with heart disease. So why would we want to 
eliminate then the oxygenate requirement?
    The problem is MTBE in our water, not oxygenates in our 
gasoline.
    So, Mr. Chairman, replacing MTBE with ethanol in RFG would 
protect our water supply from further damage, maintain air 
quality gains of the Clean Air Act, reduce our energy imports, 
and provide much-needed markets for American agriculture.
    Replacing MTBE with ethanol means increased farm income. 
According to the USDA, completely replacing MTBE with ethanol 
by 2004 would provide a boost to American family farmers to the 
tune of $1 billion per year, demand for corn would increase by 
over 500 million bushels per year, and higher crop prices would 
reduce the need for energy assistance payments and lower loan 
program spending.
    Replacing MTBE with ethanol improves our trade balance. 
According to the USDA, the average U.S. agriculture net export 
value would increase by over $200 million per year, while MTBE 
imports would decrease. The overall impact would be to improve 
the United States balance of trade by $1\3/10\ billion per 
year.
    Replacing MTBE with ethanol means American jobs. It would 
create 13,000 new jobs across the country.
    Mr. Chairman, it is very important that Congress proceed 
cautiously and with serious deliberation. First, we should 
demand that the Administration, meaning President Clinton, 
offer us not merely a press conference articulating a vague 
outline. We should demand that it present to us a specific 
detailed legislative draft. There is no consensus among Members 
of Congress at this point, and the Administration has a 
responsibility to provide this leadership.
    You know that--well, I'm not going to say anything more 
political.
    [Laughter.]
    Senator Grassley. So insisting that the Administration 
place its specific legislative proposals in our hands should be 
a bare minimum starting point for Congress.
    Second, we must not let ourselves be brainwashed into 
thinking that the RFG oxygenate standard is the cause of the 
MTBE water contamination. To do so will result in Congress 
squandering its time and effort in pushing legislation that 
will do little or nothing to protect Americans from MTBE.
    What would eliminating the oxygenate standard do to protect 
citizens from States like mine? It would do absolutely nothing, 
because, you see, not a drop of reformulated gasoline is sold 
in Iowa, not a drop; nevertheless, 29 percent of Iowa's water 
supply tested were found to have serious MTBE levels.
    So, Mr. Chairman, MTBE is not only used in RFG, it is used 
all over the country as an octane enhancer, and I do not 
believe for one moment that there is a safe level of MTBE.
    Again, Iowa is a perfect example. For several years now, no 
gasoline containing more than 1 percent MTBE could be sold in 
Iowa without first posting warning labels. Let me tell you, no 
warning labels have been posted, so no gasoline sold in Iowa 
has contained more than 1 percent MTBE. Yet, you look at the 
enormous damage even a minuscule amount of MTBE has brought to 
Iowa's water supplies.
    Whatever we do, we must protect States like Iowa from MTBE 
water contamination. We should be encouraging States to ban 
MTBE altogether and not encouraging them to gut one of the most 
successful components of the Clean Air Act.
    Third, Mr. Chairman, some argue that ethanol should not 
replace MTBE as an oxygenate until there is a greater 
understanding of the benefits and possible adverse impacts. I 
say this argument is a red herring promoted by petroleum 
companies who do not want to use a product like ethanol, which 
they and OPEC don't control. Nevertheless, aside from the fact 
that I believe ethanol has been thoroughly scrutinized and has 
passed with flying colors, I would request that the Environment 
Committee use the same cautious standard in addressing whether 
or not to eliminate or allow waivers to the oxygenate 
requirement.
    How can we rush to eliminate a program which has been 
proven so beneficial toward cleaning the air when one and only 
one oxygenate has proved to contaminate our water?
    So, Mr. Chairman, with ethanol we can have clean air and 
clean water. We can help American agriculture and we can reduce 
our dependence on OPEC. That is why I co-sponsored S. 2546, 
legislation introduced by Kit Bond and Dick Durbin. This bill 
would preserve the oxygen requirement and clean air gains that 
we have made under the Clean Air Act while banning MTBE, 
because that is the problem. It must be banned. We can't allow 
it to continue to use even small amounts. We've seen firsthand 
in Iowa--ethanol is clean air, clean water alternative to MTBE.
    I would ask unanimous consent that a statement by Senator 
Fitzgerald be placed in the record, as well.
    Senator Voinovich. Without objection.
    Senator Grassley. Thank you.
    Senator Voinovich. The panel is adjourned. I know you have 
enjoyed this testimony. We thank you very much for coming here 
this morning.
    Senators we have 12 minutes left for the vote. What would 
you like to do? Go vote and come back, or would you rather----
    Senator Harkin. No. I'd like to ask unanimous consent, Mr. 
Chairman, that my full statement be made a part of the record, 
and I'll just take a couple of minutes here.

 STATEMENT OF HON. TOM HARKIN, U.S. SENATOR FROM THE STATE OF 
                              IOWA

    Senator Harkin. All I want to say is that you have to look 
at the history of this. We first--the oil companies first 
started putting lead into gasoline. Why did they put the lead 
into gasoline? Octane enhancer. This went on for years and 
years until finally we found out that lead was poisoning our 
kids, poisoning the atmosphere, and so we told the oil 
companies, ``You've got to take the lead out of gasoline.'' 
Well, they said, ``Well, we've got to have octane enhancers.'' 
And they came up with what they called the ``VOCs,'' the 
volatile organic compounds--xylene, toluene and benzene--and 
they put those in there and kept the octane up.
    Well, guess then what we found? After a few years of this, 
we found out they are highly carcinogenic, so we said to the 
oil companies, ``Hey, you've got to do something about this. 
You've got to get rid of that.''
    At about the same time, around 1990, we had the Clean Air 
Act. Senator Daschle and I offered an amendment on the Clean 
Air Act in the Senate side for a mandate of oxygen requirement 
of 3.1 percent, Mr. Chairman, 3.1 percent. It passed the 
Senate, 3.1 percent. Then it went to Conference Committee. The 
oil companies then started ganging up. The oil companies 
realized that they had to replace the VOCs. They knew that they 
had something to replace it as an octane enhancer that was 
called ``methyltertiarybutylether,'' MTBE. But guess what? MTBE 
couldn't reach the 3.1 oxygen requirement. So guess what they 
did? They got in our Conference Committee and they knocked the 
3.1 percent down to 2 percent. That's what we finally came out 
with was a 2 percent oxygen requirement. MTBE could meet that. 
It was made out of petroleum. Oil companies were happy. 
Everybody walked out the door.
    Well, now guess what we found out? MTBE is polluting our 
water supplies. We had lead, we had VOCs, now we've got MTBE 
polluting our water supplies.
    All I'm saying, Mr. Chairman, now the oil companies are 
saying, ``Get rid of the oxygen standard.'' They were happy 
with 2 percent when they could use MTBE. Now they're saying, 
``Get rid of this. Trust us. We'll come up with something else. 
We've got alkylates. We're going to come up with some other 
kind of witches' brew here that we're going to put into 
gasoline that will keep the octane up and will keep our air 
quality standards high.''
    Fooled once, fooled twice, fooled three times. Are we going 
to be fooled another time by the oil companies while we've got 
something that will both enhance the octane and at the same 
time clean up the air and won't pollute the water?
    Now, if I had my 'druthers, we would have had a 3.1 percent 
oxygen requirement, but we passed it in the Senate, but they 
knocked it out in the Conference Committee and we had to pass 
it 2 percent, and that's why we got MTBE.
    So the oil companies have fooled us time and time and time 
again. We shouldn't be fooled again.
    There are benefits to the RFG program. It is cleaning up 
the air. I have a bunch of charts. I'm just going to show one. 
I know Dick Durbin wants to speak, too. This is just the first 
chart I had here, which shows EPA estimates that the RFG 
program is equivalent to taking 16 million vehicles off the 
road annually. RFG will bring about an accumulated reduction of 
over 400,000 tons of pollutants from 1995 to this year, a 
tremendous benefit.
    So why do away with that? I think we ought to keep it. We 
ought to enhance it. We ought to make sure we keep this RFG 
program, maintain it. As Senator Grassley said, eliminate MTBE. 
Just ban it. Maintain the air quality benefits. Don't let the 
oil companies say, ``We can meet the performance standards.'' 
That's what they want to do. They want to meet performance 
standards, but we have to meet the air quality standards and 
water quality standards at the same time, and to take into 
account the benefits we get from the oxygen rule that reduces 
fine particulate matter, carbon monoxide, toxic compounds that 
we don't have right now, and those are the things that are not 
being taken into account now and we have to take those into 
account, aside from all of the other economic benefits that my 
colleague from Iowa talked about.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you.
    Senator Durbin.

 STATEMENT OF HON. RICHARD DURBIN, U.S. SENATOR FROM THE STATE 
                          OF ILLINOIS

    Senator Durbin. Thank you, Mr. Chairman. I will be very 
brief and make my statement a part of the record, with the 
permission of the committee.
    My two colleagues from Iowa believe, as I do, that ethanol 
is critically important. I think they've made a strong case, 
both Senator Grassley from a policy viewpoint and Senator 
Harkin from a historic viewpoint.
    Let me just say that I thank Senator Grassley for his kind 
words about the bill that I am co-sponsoring with Senator Bond. 
I think this is the way out. It is a bill that will ban MTBE 
and establish the oxygenate standard using ethanol. That's the 
answer, as far as we are concerned, and it is a proven 
response.
    This Administration has been very strong in favor of 
ethanol from day one. They now find themselves in a predicament 
because of the deadly aspects of MTBE, and they have to act on 
requests for waivers because Governors around the country are 
definitely concerned about the environmental impact of 
continuing to use this additive.
    Let me just close by making one reference to a point that 
you raised and the panel addressed partially.
    When I flew in to O'Hare Sunday night and got on the 
Kennedy Expressway to go downtown, I took a look at the gas 
stations as I went by near the airport. Gas prices there are a 
little higher than usual, because that's right on the 
expressway--$2.29, $2.39, $2.49. And that is not unusual. 
Throughout the city of Chicago and the Chicago land area, 
gasoline is over $2 a gallon.
    As we've gone to the oil companies and said, ``Explain this 
to us,'' they cannot explain it. The oil companies have 
overplayed their hand in the Midwest with gasoline prices. If 
they are trying to protest this hearing and the policies in 
Washington, it isn't going to work. There is no market 
explanation for the run-up of gas prices in the Midwest. They 
are using excuses.
    The first excuse is ethanol has gone up in cost. Well, as 
the gentleman here, Mr. Gatto, said earlier, you can't use that 
as an explanation. That's $0.015 cents. ``Oh, no. It is costing 
more to make the reformulated gas.'' Well, that's only $0.05 or 
$0.06. How are you going to explain the $0.30, $0.40, or $0.50 
increase in prices? When it comes to increase in oil prices, 
these companies take the basic philosophy, ``Any excuse will 
do.''
    When the Persian Gulf war was announced over energy, 
gasoline prices skyrocketed instantly, and it was an attempt to 
price gouge and to take advantage of consumers and families and 
businesses.
    We are the last institution that can stand up for 
consumers, can stand up for the environment, and do the right 
thing.
    As Senator Harkin has gone through the history here, the 
oil companies have led us down the wrong path time and time and 
time again, and now they are penalizing businesses and families 
across America in a fit of pique. I think the U.S. Senate and 
this committee should show some leadership. Eliminate MTBE and 
make ethanol the oxygenate standard.
    Senator Voinovich. Thank you, Senator Durbin.
    I just would like to point out to my three colleagues that 
we have the Director of the Department of Transportation of 
Ohio here, and we use more ethanol than any other State. I 
don't know why, but we do. As a result of that, our share of 
the highway trust fund has gone down. We've got the minimum, 
but we haven't grown, and it is because $0.031 of the tax on 
ethanol does not go into the highway trust fund, and I would 
think that it might be very good, you know, for those of us 
that feel the way we do, that--I think it is about $400 
million, so it's not a whole lot of money, but it would be very 
good, if we are pushing this, that, in order to take care of 
that problem, that we ought to direct that that $0.031 ought to 
go into the trust fund rather than going in the general fund. 
Just an editorial comment that I think we need to deal with.
    If there are no further comments, this hearing is 
adjourned.
    [Whereupon, at 12:46 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]

   STATEMENT OF HON. RICHARD J. DURBIN, U.S. SENATOR FROM THE STATE 
                              OF ILLINOIS

    Mr. Chairman, I appreciate the opportunity to appear before the 
Subcommittee and to speak about the positive effects of renewable 
ethanol fuel and its benefits to our nation's environment.
    I'm sure this will come as no surprise to my colleagues, but I'm a 
strong supporter of ethanol. Illinois is the nation's largest ethanol 
producer. One in every six rows of Illinois corn--280 million bushels--
goes to ethanol production. But, an expanded role for this renewable 
fuel is more than a boost to industry, it's jobs to rural America, and 
it's energy security. As we look for solutions to rising oil prices, we 
must remember that ethanol is a viable alternative fuel--domestically 
produced and environmentally friendly. In fact, every 23 gallons of 
ethanol displaces a barrel of foreign oil.
    In Illinois, we don't just talk about the importance of ethanol, we 
practice what we preach. The Chicago reformulated gasoline (RFG) market 
accounts for 400 million gallons of ethanol demand. It is the 
foundation of the domestic ethanol industry today. The State enjoys a 
very successful RFG program. Air quality has improved and refiners 
support the program. The reason for this success is clear--Chicago's 
RFG is ethanol-based. Last year, the Chicago chapter of the American 
Lung Association released a report which lauded the Chicago RFG program 
and concluded that ethanol RFG has reduced ground level ozone more than 
any other pollution control strategy. Clearly, Illinois wants the 
ethanol RFG program to be maintained.
    In this 106th Congress, we have several ethanol-related issues 
before us. Not in many years has the future of the Clean Air program 
been so clearly on the legislative front-burner on Capitol Hill and at 
the White House.
    First, let me say that this Administration led by President Clinton 
and Vice President Gore deserves high marks for their continuing 
commitment to ethanol and to our environment.
    This Spring's announcement that U.S. EPA will seek legislative 
changes to the Clean Air Act to phase out and eventually ban MTBE is 
good news. We all know the dangers of MTBE to our environment, our 
water supply, and our communities. Although this additive has only been 
widely used for about five years, it is now one of the most frequently 
detected volatile organic chemicals in drinking water supplies across 
the nation. In fact, MTBE contamination has affected a number of 
Illinois communities, raising many public health concerns.
    Last month, Senator Kit Bond, a Member of the full committee, and I 
introduced legislation that would ban the gasoline additive MTBE and 
promote the use of renewable ethanol fuel. The Clean Air and Water 
Preservation Act of 2000 (S. 2546) addresses MTBE's serious problems by 
banning it within three years and urging refiners to replace it with 
ethanol. The bill also improves consumer protection by requiring 
gasoline stations to label pumps that still sell MTBE. And the 
Environmental Protection Agency is directed to assist States in getting 
the chemical out of their groundwater.
    Furthermore, the Clean Air and Water Preservation Act of 2000 
includes strict anti-backsliding provisions to ensure we do not lose 
the air quality benefits that we have already achieved. Protection from 
toxic chemicals and environmentally sound emission levels will not be 
compromised.
    Specifically, this legislation upholds the air quality benefits of 
the reformulated gasoline (RFG) program by maintaining the oxygenate 
standard. Adding oxygen to our gasoline has helped clean the air in 
many cities across the nation. With the use of ethanol, the Chicago RFG 
program, as I mentioned, has proven highly successful in improving the 
air quality in Illinois, Indiana and Wisconsin.
    I commend the Clinton administration and Senators Tom Daschle (D-
SD) and Richard Lugar (R-IN) for their efforts aimed at solving the 
problems associated with MTBE and opening a dialogue on renewable fuel 
content standards. However, I strongly feel we need to maintain our 
commitment to preserving the oxygenate standard, which has proven to be 
integral to achieving the goals of the Clean Air Act.
    The Clean Air and Water Preservation Act of 2000 will preserve what 
is working in the Clean Air Act, protect our groundwater, and encourage 
ethanol use. It is good for our environment and public health and a 
boost for rural economies and I will work for its consideration as we 
seek to address the MTBE problem.
    Mr. Chairman, thank you again for holding this hearing and for 
giving me the opportunity to speak this morning. I look forward to 
working with you to continue to promote and expand the use of ethanol 
in our nation's clean air strategy.
                               __________

   STATEMENT OF HON. ROBERT F. BENNETT, U.S. SENATOR FROM THE STATE 
                                OF UTAH

    Mr. Chairman, thank you for holding this important hearing. As our 
Committee has faced the challenge presented by changing the oxygen 
standard, much has been made of the potential for ethanol to replace 
MTBE. And yet, it is so important that we know exactly what we are 
getting into before we run from what we know.
    MTBE has served well as an additive producing substantial air 
quality benefits while extending gasoline supplies at a reasonable 
cost. In this time of escalating fuel prices, MTBE has played its part 
in maintaining adequate supply.
    Ethanol, by contrast, cannot be counted upon to moderate the price 
of fuel. Even with its 54 cent per gallon tax credit, it is still too 
expensive to compete in the marketplace. Furthermore, ethanol is not 
helpful from an environmental perspective.
    First, because ethanol is highly volatile, it cannot be counted 
upon to be as effective in controlling emissions of ozone and its 
precursors.
    Second, because ethanol has a net negative energy balance, we 
cannot expect its widespread use to either assist with energy security 
or control greenhouse gases.
    Third, because ethanol is highly soluble, it takes the most toxic 
parts of gasoline, including cancer-causing benzene, and spreads it in 
water.
    Fourth, because ethanol has been listed as a carcinogen by the 
World Health Organization, the State of California, and the National 
Toxics Program, it may be of greater public health concern than MTBE.
    Finally, because combustion of ethanol releases harmful aldehydes, 
it is of little assistance in controlling air toxins.
    On the whole, caution is in order. Mr. Chairman, your hearing is a 
step in the right direction and I thank you for pursuing this issue.
                               __________

      STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE STATE OF
                             NEW HAMPSHIRE

    Good Morning. Thank you Senator Inhofe and thanks to all of the 
witnesses for appearing before us here today.
    Ethanol is one factor to be considered while solving the very 
complicated MTBE problem. I am currently crafting MTBE legislation that 
will attempt to balance the interests of all stakeholders. A discussion 
draft is available and I hope to bring a bill before the committee in 
the very near future.
    According to the Department of Energy, the United States uses about 
900 million gallons of ethanol in gasoline per year. There is no 
question that ethanol plays an important role in America's fuel supply.
    Ethanol, as a fuel additive, has many positive aspects. It reduces 
carbon monoxide emissions and provides clean octane. With continuing 
advancements in biomass ethanol production, it is becoming more cost 
effective and energy efficient to make. As a renewable fuel source, 
ethanol is an important part of a sustainable energy approach.
    Although there are many positives, we should not treat ethanol as a 
remedy for the MTBE problem. There is a serious problem with ethanol: 
it makes gasoline evaporate more quickly which can increase smog in 
certain areas of the country. While some gasoline suppliers voluntarily 
use ethanol, it would be unwise for us to force it into America's 
smoggiest areas, including New England.
    Let's not create new air quality problems while trying to solve an 
existing environmental dilemma. I look forward to the testimony of 
today's witnesses.
                               __________

    STATEMENT OF A. BLAKEMAN EARLY, ENVIRONMENTAL CONSULTANT TO THE 
 AMERICAN LUNG ASSOCIATION, ON BEHALF OF THE AMERICAN LUNG ASSOCIATION

    Good morning Mr. Chairman and members of the committee. My name is 
Blakeman Early. I am an environmental consultant appearing on behalf of 
the American Lung Association. I was invited to discuss the benefits 
and problems associated with the use of ethanol in gasoline under the 
Clean Air Act. While the American Lung Association has been accused of 
being anti-ethanol, we consider our position to be neither anti nor pro 
ethanol. Our view is that ethanol should be used in gasoline when it 
can help provide useful properties to reduce air pollution and it 
should be discouraged from being used if the result is increased air 
pollution.

         ETHANOL IN GASOLINE HELPS REDUCE CARBON MONOXIDE (CO)

    Ethanol's greatest attribute is its ability to provide oxygen to 
the fuel which can reduce carbon monoxide. Therefore, the ALA supports 
the use of ethanol in the wintertime oxy-fuel program to help reduce 
unhealthy levels of carbon monoxide. The oxy-fuel program is mandatory 
under the Clean Air Act for areas that are classified ``moderate'' non-
attainment for carbon monoxide. But as you know, the air pollution 
effort against CO is being won and the number of these areas is 
diminishing. This is due primarily to improvements in emissions control 
equipment on new cars. Ethanol helps to reduce CO tailpipe emissions 
from older vehicles.

                     ETHANOL PROVIDES CLEAN OCTANE

    Ethanol is a good source of octane and contains no aromatics and 
modest levels of sulfur. These three attributes make it useful as a 
blending component in gasoline. As a result, refiners use ethanol to 
help achieve limits on toxic aromatics and sulfur in the RFG program. 
We anticipate refiners will also use ethanol to help meet sulfur limits 
in EPA's recently promulgated Tier II sulfur limits for conventional 
gasoline which begins in 2004.
    While ethanol can help achieve limits to aromatics and sulfur, they 
do not guarantee that result, which is in part why the ALA does not 
support mandatory use of ethanol in RFG. Looking at Figure B2, taken 
from the Blue Ribbon panel report, you can see that the RFG sold in 
Chicago in 1998 achieved among the smallest reduction of air toxics, 
despite the presence of 10 percent ethanol.\1\ Further, looking at the 
attached Figures 15, 16, and 17 taken from an analysis of 1996-1998 
gasoline quality, you can see that sulfur levels in RFG sold in Chicago 
in 1996 and 1997 were among the highest in the Nation despite the use 
of ethanol. However, in 1998 sulfur levels in Chicago dropped by 40 
percent even though oxygen mandate was still being met with relatively 
the same amounts of ethanol.\2\ Ethanol can help lower sulfur level but 
does not guarantee it.
---------------------------------------------------------------------------
    \1\ Achieving Clean Air and Water, The Report of the Blue Ribbon 
Panel on Oxygenates in Gasoline, September 1999, p. 43.
    \2\ An Analysis of 1996-98 Gasoline Quality in the United States, 
SAE 199-01-3584, October 1999.
---------------------------------------------------------------------------
    The findings above demonstrate why the ALA does not support 
mandating ethanol to achieve any other outcome besides CO reductions in 
the wintertime. The ALA and many environmental organizations supported 
a 2 percent oxygen requirement for RFG in the Clean Air Act Amendments 
of 1990 based on the assumption at the time such requirement would 
guarantee reductions of VOCs, and toxics. We now know we were wrong. 
Clearly, the best way to obtain reductions of specific pollutants from 
gasoline is to mandate them--set performance standards--and let 
refiners meet such requirements however they choose to.

                 ETHANOL INCREASES GASOLINE VOLATILITY

    Now let me turn to the problems caused by mandating ethanol in 
gasoline. Quite simply the big problem with ethanol use in gasoline is 
that it significantly increases volatility when mixed in gasoline at 
levels above 2 percent by volume. Reducing gasoline volatility during 
hot summer weather is one of the most important strategies for 
improving summertime gasoline in order to reduce smog. That is because 
with the advance of pollution equipment on automobiles, evaporation of 
gasoline hydrocarbons is now a greater contributor to smog in most 
areas than the tailpipe hydrocarbon emissions. The volatility increases 
that ethanol causes in summertime can overwhelm any benefit it provides 
in reducing CO tailpipe emissions, sulfur dilution or aromatics 
dilution. That is why the ethanol industry only talks about the 
tailpipe emissions benefit from ethanol in RFG. The ethanol industry 
often quotes last year's National Research Council study of 
reformulated gasoline as finding that CO reduction credit should be 
included for ethanol in EPA's complex model for RFG because CO tailpipe 
emissions contribute to ozone formation. But they fail to acknowledge 
what we believe to be a more important finding. The NRC report stated, 
`` . . . the increase in the evaporative emission from the ethanol-
containing fuels was significantly larger than the slight benefit 
obtained from the lowering of the CO exhaust emissions using the 
ethanol-containing fuel.''\3\ The NRC also acknowledged that ethanol 
increases NOx tailpipe emissions relative to non-ethanol 
containing fuel. These NOx emissions also contribute to 
greater ozone and particulate formation.\4\ The bottom line: the 
reduction in CO tailpipe emissions obtained by using ethanol in 
summertime gasoline are not worth the increase in evaporation and the 
increases in NOx tailpipe emissions from a smog contribution 
point of view. Incidentally, the increases in evaporation do not just 
contribute to ozone formation. Since the gasoline also contains toxic 
aromatics, such as benzene, these will evaporate more readily along 
with the ethanol. While ethanol may dilute the amount of benzene in a 
gallon of gasoline, the amount of benzene that ends up in the ambient 
air due to increased evaporation from the fuel may be greater than if 
the ethanol were not added at all.
---------------------------------------------------------------------------
    \3\ Ozone-forming Potential of Reformulated Gasoline, May 1999, p. 
158.
    \4\ California Environmental Protection Agency Air Resources Board, 
Air quality Impacts of the Use of Ethanol in California Reformulated 
Gasoline, December 1999.
---------------------------------------------------------------------------
    It is argued that if ethanol is mandated in RFG, air quality is 
protected because refiners are required to limit the volatility by the 
RVP limits of EPA's RFG regulations. Thus the impact of ethanol on 
volatility is not a factor. This is not true. First, while it is clear 
refiners can off-set the volatility effect of ethanol by blending it 
with super low volatility blend-stock, we do not know what potential 
air quality benefits may be lost by changing other parameters of the 
fuel to meet the RVP limit. For instance, a refiner might actually 
increase aromatics because they need a sulfur-free component that is 
low in volatility to help off-set volatility increases from using 
ethanol. For example, turning back to Table B2, if ethanol were 
required in RFG sold in Rhode Island where MTBE has been used to 
provide oxygen, the significant toxics reductions achieved might 
decline to the same level achieved in Chicago as refiners increase 
aromatics to help off-set the volatility effect of the ethanol.

LOW VOLATILITY RFG WITH ETHANOL CAN CAUSE INCREASED EVAPORATION OF FUEL

    Even RFG with low RVP that contains ethanol may cause increases in 
evaporation compared to non-ethanol containing RFG in two ways: through 
increased permeation of ``soft parts'' in auto engines and also through 
co-mingling with ethanol free fuel.
    EPA in its Tier 2 Final Rule identified permeation as a problem 
that can increase evaporation of gasoline. Essentially, alcohol in 
fuels promote the passage of hydrocarbons through the ``soft products'' 
in cars, such as plastic fuel tanks, hoses, and ``o'' ring seals. As a 
result, all new cars subject to Tier 2 evaporative emissions 
requirements have to demonstrate that they are using materials that 
resist the permeability effect by testing them with fuel containing 10 
percent ethanol.\5\ But of course this does nothing to protect the 
vehicles on the road today. Only vehicles being made since 
approximately 1994 have been consistently using alcohol resistant soft 
materials. How much will an ethanol-containing RFG meeting RVP limits 
increase evaporation from vehicles on the road today? Probably a great 
deal. The Toyota Corporation presented test data to the California Air 
Resources Board that showed a high RVP fuel increased evaporation from 
gaskets, plastic fuel tubes and plastic gas tank material by 500, 1300, 
and 800 percent, respectively (See Tabs 1, 2, 3). Even if a fuel 
meeting RVP limits caused permeation at a half or quarter of the rate 
of the non-complying fuel tested, this would have a major adverse 
impact on vehicle evaporative emissions. This concern is of special 
relevance to a renewable fuel mandate that would apply in areas that 
are in non-attainment for ozone where conventional gasoline is used. I 
will discuss this in a moment.
---------------------------------------------------------------------------
    \5\ See discussion at 64 Federal Register, 26084, May 13, 1999.
---------------------------------------------------------------------------

       ETHANOL FUEL CAN INCREASE VOLATILITY OF NON-ETHANOL FUELS

    Finally, I must note the impact that ethanol volatility can have 
through a mechanism referred to as ``co-mingling''. Essentially when 
two fuels with the same RVP, one ethanol free and one containing 
ethanol, are mixed together the volatility of the entire mix is 
substantially raised. In a circumstance where consumers purchase 
ethanol free fuel, use a portion and then purchase fuel with ethanol in 
it, even if the ethanol blend is low RVP RFG, volatility can raise as 
much as \8/10\th of a pound RVP.\6\ In essence the adverse 
volatility effect of ethanol is not limited to the absolute volume sold 
in a given market area. It can be greatly magnified, depending how much 
consigners switch back and forth in purchasing the two types of fuels. 
Whenever the volume of ethanol in the gas tank exceeds 2 percent, the 
volatility of the entire tank-full of gasoline will be increased. The 
``co-mingling'' might occur between ethanol containing RFG and 
conventional fuel among drivers who frequent the areas on the border 
between non-RFG and RFG areas; among purchasers of ethanol-containing 
and ethanol-free conventional gasoline in non-attainment areas for 
ozone; or even within an RFG area where there is ethanol-free and 
ethanol containing RFG. The volatility increases that could be caused 
by the permeation and co-mingling effects of ethanol in RFG, under some 
conditions, could potentially offset the entire lower volatility 
benefit of moving from Phase 1 RFG to Phase 2 RFG.
---------------------------------------------------------------------------
    \6\ In-use Volatility Impact of Co-mingling Ethanol and Non-ethanol 
Fuels, SAE 940765, February 1, 1994.
---------------------------------------------------------------------------

     ETHANOL SHOULD NOT BE MANDATED IN SUMMERTIME GASOLINE USED IN 
                              SMOGGY AREAS

    All this leads the ALA to the conclusion that ethanol should not be 
mandated for use in summertime gasoline--RFG or conventional--in areas 
with smog problems. To the extent that refiners are allowed to use 
ethanol in summertime on a widespread basis, we must develop ways of 
calculating and off-setting the adverse effect from increased 
evaporation that will occur either from permeation, co-mingling, or 
both. For instance, California has lowered the RVP of its Phase 3 
CalRFG by one tenth of a pound in an effort to offset the co-mingling 
effect. California is studying the need to provide a greater off-set. 
If ethanol is mandated through a renewable fuel standard such as is in 
Senator Daschle's S. 2053, which will triple the amount of ethanol in 
the National fuel supply, appropriate measures need to be taken to 
protect areas with smog problems. Congress should eliminate the one 
pound RVP waiver (Section 211 (h)(4)) currently available for 
conventional gasoline containing 10 percent ethanol sold in the 
summertime in areas that are non-attainment for ozone. The RVP waiver 
for 10 percent ethanol fuel also should be eliminated from use in areas 
designated as non-attainment under the 8-hour National Ambient Air 
Quality Standard for ozone promulgated in July 1997. The waiver could 
be retained for ethanol-containing gasoline sold in areas that do not 
have smog problems. This also happens to be the region of the country 
where much of the ethanol is currently produced. Given what I have 
described today, refiners must at a minimum meet the same RVP limits 
that apply to ethanol-free conventional gasoline so that higher 
volatility ethanol-containing gasoline does not contribute to increased 
smog in areas that already have unhealthy levels of smog. This, of 
course, would not prevent the evaporative effects caused by co-mingling 
that I described previously. It would encourage refiners to avoid 
selling ethanol-containing gasoline in areas with smog problems during 
the designated ozone season because meeting lower volatility limits 
would increase refining costs. Of course, during the rest of the year 
refiners would be free to sell ethanol-containing gasoline in these 
areas, as no RVP limits apply.
    Congress should also modernize the anti-dumping provisions for 
conventional gasoline in Section 211 (k)(8) to prevent increases in 
aromatics and other air pollution increasing constituents as they 
modify RFG. The ALA suggests substituting 1999 for the current 1990 
baseline as a simple means of up-dating this provision to protect 
conventional gasoline.

           ETHANOL INCREASES NOX AND PARTICULATES

    Most test data show that ethanol in RFG increases NOx 
tailpipe emissions. In California, the Air Resources Board asserts that 
these NOx increases are converted in the atmosphere to 
particulate pollution, thus making it more difficult to achieve the PM-
1C National Ambient Air Quality Standard.\7\ The ethanol industry 
asserts that ethanol in RFG actually reduces particulate emissions 
based on a test conducted by the Colorado Department of Health and 
Environment. Since this test involved higher RVP wintertime fuel and 
wintertime temperatures, the ALA sees it as supporting the use of 
ethanol in wintertime oxyfuel, but not useful in judging the benefits 
of ethanol in RFG. We believe that the NOx increases from 
ethanol in RFG add to the body of evidence indicating mandatory ethanol 
use in RFG may increase rather than decrease air pollution levels from 
fuel.
---------------------------------------------------------------------------
    \7\ Letter from Michael P. Kenney, Executive Officer, California 
Air Resources Board to Robert Perciasepe, Assistant Administrator of 
U.S. Environmental Protection Agency, February 7, 2000.
---------------------------------------------------------------------------

               ETHANOL USE IN GASOLINE AND RFG WILL GROW

    Much discussion has been generated about mandating the use of 
ethanol in gasoline for air quality reasons, which the ALA opposes. 
However, we do believe there will be a large role for ethanol in 
gasoline without any mandate for one simple reason: octane. Assuming 
that MTBE is either phased down or eliminated from gasoline, which the 
ALA supports, refiners face a dramatic shortage in clean octane even if 
every MTBE plant in the nation is converted to produce iso-octane or 
alkylates, the most logical substitutes for MTBE. This is because MTBE 
plants converted to produce iso-octane or alkylates lose about 30 
percent volume and produce a product that contains 15 percent less 
octane per gallon. This octane shortage is magnified by EPA's Tier 2 
low-sulfur gasoline standard which will be in full effect in 2006. 
Refiners will lose modest amounts of octane in conventional gasoline, 
as they treat it to reduce sulfur in order to meet the new 30 ppm 
sulfur average requirement. As a result of these two impacts, a rough 
calculation indicates that demand for ethanol needed to supply octane 
in gasoline should increase to 3.4 to 3.8 billion gallons per year by 
2006, depending upon whether MTBE is totally eliminated from gasoline. 
(See Tab 4 and Tab 5) This is at least twice the baseline volume of 
ethanol projected by the Department of Agriculture to be produced in 
2006.\8\ Should Congress fail to lift the oxygen mandate for RFG so 
that all the octane currently provided by MTBE be replaced by ethanol 
in order to simultaneously meet the oxygen requirement, the demand for 
ethanol would reach 4.6 billion gallons per year in 2006. This would 
appear to exceed the ability of the ethanol industry to supply ethanol, 
based on a study conducted for the Governors' Ethanol Coalition.\9\ 
(See Tab 6) Such an outcome would undoubtedly lead to shortages, price 
spikes, and disruptions which could only lead to reductions in the air 
quality benefits provided by the RFG program.
---------------------------------------------------------------------------
    \8\ U.S. Department of Agriculture, Economic Analysis of Replacing 
MTBE with Ethanol in the United States, March 2000.
    \9\ John Urbanchuk, Ability of the U.S. Ethanol Industry to Replace 
MTBE, March 20, 2000.
---------------------------------------------------------------------------
    Clearly, we will need large increases of ethanol in gasoline, as we 
phase out MTBE. From an air quality perspective, it is best to set air 
quality performance requirements for gasoline and allow refiners to use 
ethanol when and where they need to while meeting performance 
requirements, taking into account evaporation effects from permeation 
and co-mingling. Should Congress decide to mandate ethanol in gasoline, 
we urge that additional air quality protections be put in place that 
would encourage ethanol use in ways that benefit air quality and not 
add to the air pollution burden.



















  STATEMENT OF HON. PETER G. FITZGERALD, U.S. SENATOR FROM THE STATE 
                              OF ILLINOIS

    Good morning, Mr. Chairman. I want to thank you for this 
opportunity to testify before your hearing to discuss the potential 
effects of the widespread use of reformulated gasoline blended with 
ethanol.
    As a senator representing the number one ethanol producing state, I 
have been, and will continue to be, a strong advocate of ethanol use. 
Ethanol not only encourages our nation's rural economy by bolstering 
the farm economy by approximately $4.5 billion per year in commodities, 
but also encourages the reduction of greenhouse gases and particulate 
emissions produced by automobiles.
    Additionally, in my capacity as a member of the Senate Energy and 
Natural Resources Committee, I have become increasingly aware of the 
problems that our reliance on foreign oil has caused this country. I 
believe this is a dependence that can be substantially alleviated by 
increasing ethanol and biofuels research, production and use in energy 
markets across the country.
    Despite the many tangential subjects that the reformulated gasoline 
debate has spawned this year in Congress, the reason we are here today 
is to talk about ethanol. I find it curious that public scrutiny of 
ethanol has been sparked almost entirely by congressional and 
administrative attention to the need to eliminate methyl tertiary butyl 
ether (MTBE) from commercial use.
    The elimination of the use of MTBE in reformulated gasoline should 
not mean the removal of the oxygenate requirement set forth under the 
Clean Air Act of 1990 which requires reformulated gasoline to contain 
two percent oxygen by weight. I believe it to be reasonable for our 
nation to expect both clean air and clean water, without having to 
eliminate the reformulated gasoline market or sacrifice our national 
health.
    According to a Department of Agriculture study entitled ``Economic 
Analysis of Replacing MTBE with Ethanol in the United States,'' 
replacing MTBE with the corn-based oxygenate additive ethanol would 
create approximately 13,000 new jobs in rural America and reduce farm 
program costs and loan deficiency payments through an expanded value-
added market for grain. Furthermore, the Department of Agriculture has 
concluded that within three years, ethanol can be used as a substitute 
oxygenate for MTBE in nationwide markets without price increases or 
supply disruptions.
    Ethanol has proven to be a viable, environmentally friendlier 
alternative to MTBE. The use of ethanol in reformulated gasoline 
significantly reduces exhaust emissions of hydrocarbons and carbon 
monoxide, reduces particulate emissions, reduces the occurrence of 
aromatics in gasoline, and also reduces overall greenhouse gas 
emissions. The Chicago reformulated gas program (RFG) has used ethanol 
for years, and according to the American Lung Association, Chicago has 
established one of the most successful RFG programs in the country. 
Ethanol is vitally important to my home State, since Illinois is the 
number one producer of ethanol in the Nation. Each year, 274 million 
bushels of Illinois corn are used to produce about 678 million gallons 
of ethanol. At a time when agricultural prices are at depression-era 
lows, this increased demand is sorely needed.
    Mr. Chairman, I believe that Congressional action is absolutely 
necessary in the oil industry. Skyrocketing prices and widespread 
pollution have taken an enormous toll on our country's well-being and 
security. I am also very aware of the potential for Congress to act 
rashly and pass serious mandates without proper deliberations.
    As you are aware, I have proposed legislation (S. 2233) to phase 
out MTBE use across the United States over the next three years, ensure 
proper labeling of all fuel dispensaries containing MTBE-enriched 
reformulated gasoline, provide grant awards for MTBE research, and 
express the sense of the Senate that the Administrator of the 
Environmental Protection Agency should provide assistance to 
municipalities to test for MTBE in drinking water sources, as well as 
provide remediation where appropriate. This bill represents an 
important first step toward safer and healthier drinking water 
throughout the nation.
    Mr. Chairman, the oxygenate requirement is not the problem with our 
gasoline, the problem is MTBE. Ethanol is not only in the best 
interests of my State of Illinois, but also in the best interests of 
our entire nation's environment, and our nation's energy security. 
Again, thank you for allowing me time to share with the committee my 
views on the benefits of ethanol in our nation's gasoline supply.
                               __________

           STATEMENT OF STEPHEN GATTO, PRESIDENT AND CEO, BC 
                       INTERNATIONAL CORPORATION

    My name is Stephen Gatto. I am the President and CEO of BC 
International Corporation, a company that is utilizing new technologies 
to manufacture ethanol from cellulosic biomass wastes, such as wood 
waste, crop residue, urban waste, and non-energy intensive dedicated 
crops.
    I would like to thank Chairman Inhofe, Ranking Minority Member 
Senator Graham, and the Subcommittee on Clean Air, Wetlands, Private 
Property and Nuclear Safety (Subcommittee) for providing me with this 
opportunity to testify today. I would like to thank Senator Barbara 
Boxer for the continued leadership she has shown on this issue. I would 
also like to compliment the Subcommittee for the work that it has been 
doing to address the use of MTBE in gasoline and explore ethanol as an 
alternative.
    This is a very exciting period for the biomass ethanol industry and 
BC International. We are currently closing financing for a 23 million-
plus gallon commercial biomass ethanol manufacturing facility in 
Jennings, Louisiana that will use sugar cane residue as a feedstock. I 
expect our financing to close any day now, and for the plant to be 
fully operational in less than 2 years. BC International also has 
signed a letter of intent with the city of Gridley, California to 
develop a second facility that will use rice straw and wood chips as 
its feedstock. In addition, we are planning to develop a facility in 
Chester, California that will utilize wood waste from a sawmill to 
produce ethanol. We are also exploring the feasibility of developing 
plants in the Northeast. The potential capacity of our initial projects 
is over 150 million gallons of ethanol per year. We expect to double 
our capacity within 6 months after each plant is constructed. However, 
the biomass ethanol industry's ability to grow exponentially depends in 
part on the nation's commitment to providing renewable fuels with 
sustainable markets, such as the market for ethanol as a gasoline 
additive.
    It is through recent technological advances, developed in 1987 by 
Dr. Lonnie Ingram, a microbiologist at the University of Florida's 
Institute of Food and Agriculture Sciences, that today we are able to 
efficiently and effectively produce ethanol from hemi-cellulose (mostly 
5-carbon sugars), as well as cellulose (6-carbon sugars). The process 
works by replacing the yeast-based fermentation process with a 
genetically engineered bacterium that was awarded U.S. Patent 5,000,000 
in a special Congressional ceremony.
    The use of ethanol, particularly biomass ethanol, is a win-win 
environmental and economic solution to the MTBE problem. Ethanol use 
contributes to improved air quality and does not pose the same dangers 
to our water resources as does MTBE, proven by decades of ethanol fuel 
use in the Midwest. This is why gasoline suppliers in California and 
the Northeast, such as Tosco and Getty, feel confident enough to 
displace most of their MTBE with ethanol. For the same reasons, cities 
such as Chicago and Denver have relied upon ethanol to improve local 
air quality. Ethanol is also favorable because, unlike petroleum-based 
alternatives, such as alkylates, ethanol means increased use of 
renewable resources, and reduced reliance on imported oil and ensuing 
gasoline price spikes. Equally important, our technology enables us to 
turn regional waste problems, such as the air pollution caused from the 
open-field burning of rice straw in California, into economic growth 
opportunities for rural communities.
    I would like to elaborate on some of the benefits of biomass 
ethanol. But first, I would like to address a misconception about the 
use of ethanol-blended gasoline--that ethanol use is bad for air 
quality. This accusation is not supported by scientific community 
consensus, and has in fact been disproved by many scientists.
    Real life examples and research show that ethanol is not bad for 
air quality, and that it in fact provides air quality benefits that are 
consistent with and extend beyond the goals of Federal reformulated 
gasoline. The California Air Resources Board (CARB) report, ``Air 
Quality Impacts of the Use of Ethanol in California Reformulated 
Gasoline,'' found that the use of ethanol in gasoline is entirely 
consistent with the clean air goals of the Clean Air Act. The report 
showed that the use of ethanol-blended gasoline (2.0 percent wt or 3.5 
percent wt oxygen) in 2003 would provide for significant reductions in 
every emission of concern relative to 1997 baseline levels, when MTBE 
was the primary gasoline additive. In addition, the use of ethanol-
based gasoline (2.0 percent wt oxygen) compared with 2003 MTBE and 2003 
non-oxygenated fuel would provide for: (1) similar CO and 
NOx emissions; (2) reduced benzene, butadiene, and 
formaldehyde emissions; and (3) only a slight increase in acetaldehyde 
emissions, which unlike formaldehyde is non-carcinogenic. Also, 
ethanol-blended gasoline in 2003 would result in the same average ozone 
levels as 2003 MTBE and 2003 non-oxygenated fuel. In summary, the 
report said the substitution of ethanol for MTBE in California's fuel 
supply ``will not have any significant air quality impacts.'' In 
addition, compared with conventional fuel, the use of biomass ethanol, 
such as agricultural waste, can reduce greenhouse gas emissions, 
specifically CO2, by 68 percent or more.\1\
---------------------------------------------------------------------------
    \1\ Argonne National Laboratory, Center for Transportation 
Research, U.S. Department of Energy. ``Effects of Fuel Ethanol Use on 
Fuel-Cycle Energy and Greenhouse Gas Emissions.'' Argonne, IL. January 
1999.
---------------------------------------------------------------------------
    In addition, several projects demonstrate that the benefits of 
ethanol extend beyond the air quality improvements that can be achieved 
through its use in gasoline. In Gridley, California, BC International's 
planned biomass ethanol plant will use agricultural waste from rice 
straw farms in the Sacramento Valley as feedstock. The use of rice 
straw waste will help reduce the need for the annual open-field burning 
of more than 500,000 tons of rice straw waste, resulting in 
significantly decreased local air pollution. Past comments by the 
American Lung Association (ALA) reflect the seriousness of this 
problem. According to Earl Withycombe, an air pollution engineer and a 
Director of the Sacramento chapter of the ALA, ``We know that many 
residents of this area point to rice straw burning as the cause of 
significant health effects,'' including asthma. Jane Hagedorn, 
Executive Director of the Sacramento chapter of the ALA, added, ``We 
take very seriously that we must get alternatives on line so we can use 
rice straw in commercially productive ways besides burning. The Lung 
Association is very supportive and appreciative of the people who are 
making this happen.'' This model can also be applied to other 
problematic crop residues that are currently burned. Later this summer, 
BC International plans to begin construction of a similar plant in 
Jennings, Louisiana that will use sugar cane waste as feedstock, 
helping to alleviate a waste disposal problem now faced by Gulf of 
Mexico states.
    Waste problems also pervade other parts of the nation. For 
instance, in the Northeast, as long-term contracts for electricity from 
biomass energy facilities expire or are bought out, a number of sawmill 
waste facilities, which currently provide feedstock for biomass energy 
facilities, face the possibility of closure. Sawmills currently receive 
$7.1 million in revenue from wood sales to biomass energy plants. If 
sawmill operators were forced to dispose of their waste in landfills, 
potential annual costs between $46 million and $59 million per year 
would result, according to biomass industry consultant Lloyd Irland. In 
addition, the transport of biomass waste supports a number of jobs, 
which would also disappear with plant closure. BC International is 
currently exploring the development of facilities in the Northeast to 
address this problem.
    The disposal of municipal solid waste is another growing problem 
across the country. Biomass ethanol provides a sustainable alternative 
to the burning or landfill disposal of municipal solid waste, such as 
urban yard waste, wood waste, and other paper waste. Arkenol is 
developing a plant in Southern California to convert municipal solid 
waste into ethanol. The Masada Resource Group is developing a facility 
in New York that will both serve as a recycling center and produce 
about 10 million gallons of ethanol per year.
    I would also emphasize that there is more to biomass ethanol than 
environmental benefits. Both corn starch ethanol and biomass ethanol 
provide a positive net energy balance. This means that the amount of 
energy contained in a gallon of ethanol is greater than the amount of 
fossil fuel energy required to produce that gallon of ethanol. 
Cellulosic biomass ethanol provides more than four units of energy for 
every unit of fossil fuel energy used to produce it. Its 4.75 to 1 
ratio is significantly higher than the 1.5 to 1 energy balance ratio 
for starch-based ethanol.\2\ The large positive net energy balance for 
biomass ethanol is due to the fact that relatively little fossil energy 
is used in the creation of cellulosic biomass and in the biomass to 
ethanol conversion process itself.
---------------------------------------------------------------------------
    \2\ Argonne National Laboratory, Center for Transportation 
Research, U.S. Department of Energy. ``Effects of Fuel Ethanol Use on 
Fuel-Cycle Energy and Greenhouse Gas Emissions.'' Argonne, IL. January 
1999.
---------------------------------------------------------------------------
    The economic potential of the biomass ethanol industry is also 
enormous. Without a doubt, the nation's corn ethanol industry will 
serve as the initial foundation for the further development of a 
domestic renewable fuels industry. However, starch-based crops, such as 
corn and barley, represent only a fraction of the total resources that 
can now be used to make ethanol. In addition, there is only a finite 
amount of starch from crops available in the U.S. for ethanol 
production, with estimates of maximum starch crop supply peaking at 
about double today's ethanol capacity.
    With your support, the biomass ethanol industry's potential 
capacity can extend beyond the limits faced by the starch-based ethanol 
industry. Realizing this potential would have a huge impact on our 
nation's transportation fuels industry. According to the U.S. 
Department of Energy's National Renewable Energy Laboratory, over the 
long-term, an average of 2.45 billion metric tons of cellulosic biomass 
could be available annually for ethanol production in the U.S. This 
translates into enough biomass to produce over 270 billion gallons of 
ethanol--approximately two times the level of current U.S. gasoline 
consumption. Two studies have further quantified readily available 
biomass resources in California and in the Northeast.
    The California Energy Commission (CEC) found that California has 
more than enough biomass resources in the near term both to meet local 
demand for biomass ethanol as an alternative to MTBE and to become a 
national leader in the renewable fuels industry. Near term production 
potential is estimated at 2.5 billion gallons per year.\3\
---------------------------------------------------------------------------
    \3\ California Energy Commission. ``Evaluation of Biomass-to-
Ethanol Fuel Potential in California.'' December 1999.
---------------------------------------------------------------------------
    Conservative estimates by the Coalition of Northeast Governors 
Policy Research Center (CONEG) find that there is enough readily 
available biomass in the region to produce over 1.3 billion gallons of 
ethanol each year.\4\ Similar to California, the Northeast region has 
more than enough biomass ethanol potential to replace MTBE in gasoline.
---------------------------------------------------------------------------
    \4\ Donovan, CT, Lee Rybeck. (1994) . The Potential for Producing 
Ethanol From Biomass In the Northeast: A Resource Survey. Northeast 
Regional Biomass Program. CONEG Policy Research Center Washington, D.C.
---------------------------------------------------------------------------
    For the Nation to achieve meaningful fuel independence, it will 
need to encourage development of a cellulosic biomass ethanol industry. 
For this reason, I would like to pledge my support for S. 2503, ``The 
Renewable Fuels Act of 2000,'' introduced on May 4, 2000 by Senators 
Daschle and Lugar. I firmly believe that the renewable fuels standard 
(RFS) contained in S. 2503, specifically the provision that credits 
cellulosic biomass ethanol with 1.5 times as much value as starch-based 
ethanol for purposes of compliance with the standard, would help this 
country develop a meaningful domestic renewable fuels industry.
    The provision to support cellulosic biomass ethanol would help 
provide developers and potential investors with the incentives and 
confidence necessary to develop a domestic biomass ethanol industry. 
Sound policies combined with continuing biomass ethanol technology 
improvements, can provide the framework for transforming the Midwest-
based corn ethanol industry into a national renewable fuels industry 
with key production centers where biomass resources are located. These 
areas happen to be mostly on the periphery of the U.S., as opposed to 
in the Midwest where ethanol is primarily produced and used today. In 
turn, the biomass ethanol industry would provide jobs and economic 
prosperity in rural communities.
    In consideration of job creation, operating a single, 15-million 
gallon per year biomass ethanol plant would create at least 28 
permanent operational jobs, and an additional 63 to 100 feedstock-
related jobs. These jobs would be augmented by an additional 93 to 122 
indirect jobs. The payroll for direct jobs related to plant operations 
and feedstock supply is estimated to be more than $2.6 million 
annually. Payroll for combined direct and indirect jobs is estimated to 
be more than $4.8 million annually. Facility construction itself would 
create an additional 88 jobs, with an estimated payroll of 
$2,000,000.\5\ Once the biomass ethanol industry capacity grows to just 
1 percent of the gasoline market, or about 1.5 billion gallons per 
year, it would provide 26,000 jobs with an annual payroll of about $480 
million in rural regions across the country. Consider the renewable 
fuels standard to be an investment in our nation's economic and 
environmental well-being and prosperity.
---------------------------------------------------------------------------
    \5\ California Energy Commission, Quincy Library Group, California 
Institute of Food and Agricultural Research, Plumas Corporation, TSS 
Consultants & National Renewable Energy Laboratory. ``Northeastern 
California Ethanol Manufacturing Feasibility Study.''
---------------------------------------------------------------------------
    Having said all this, the question arises: What will these benefits 
cost gasoline customers? Simply stated, the use of ethanol in gasoline 
does not and will not significantly impact the price of gasoline. A 
1999 study by the California Energy Commission compared the economic 
costs of replacing MTBE with ethanol to the cost of replacing MTBE with 
petroleum-based alkylates in California (which, like other states is 
seeking to phaseout MTBE). The results showed that using ethanol would 
cost approximately the same, and potentially less over the long-term, 
as replacing MTBE with alkylates. Using ethanol to replace MTBE would 
cost approximately 1.9 to 2.5 center per gallon, while the cost of 
replacing MTBE with alkylates would cost up to 3.7 cents.\6\ In 
addition, we would be using an indigenous renewable fuel versus 
increasing our dependence of imported petroleum, which historically has 
led to gasoline price spikes.
---------------------------------------------------------------------------
    \6\ California Energy Commission. ``Supply and Cost of Alternatives 
to MTBE in Gasoline.'' February 1999.
---------------------------------------------------------------------------
    In the Northeast, Getty is currently replacing MTBE with ethanol. 
Getty cites environmental issues and customer satisfaction as reasons 
for its commitment to use over 40 million gallons of ethanol each year. 
Vince DeLaurentis, President and COO of Getty, forecasts that the cost 
of replacing MTBE with ethanol-blended gasoline in the Northeast, and 
specifically in Maine, would cost no more than 1.5 to 2.0 cents per 
gallon more than using alkylates to replace MTBE. I should note that 
Mr. DeLaurentis said that this figure assumes that ethanol-blended 
gasoline would receive a waiver from the Reid Vapor Pressure 
requirement that recognizes the reduced carbon monoxide emissions and 
resulting decrease in ozone forming potential of ethanol-blended 
gasoline. Consistent with his point, S. 2503 would require the U.S. 
Environmental Protection Agency to consider the development of a carbon 
monoxide credit program that would provide appropriate carbon monoxide 
credits to offset possible emissions increases due to increased 
volatility.\7\
---------------------------------------------------------------------------
    \7\ Conversation with Vince DeLaurentis, President and COO, Getty 
Petroleum Marketing Company, May 2000.
---------------------------------------------------------------------------
    Moving forward, through the development of local renewable fuels 
production centers across the country, we will see further reductions 
in the cost of producing and transporting ethanol. BC International 
recently announced the startup of its New Product and Process 
Development Laboratory at the University of Florida's Sid Martin--
Biotechnology Lab. This Laboratory will serve as a critical component 
in the continuing drive to improve technology for the wide-scale 
production of ethanol from biomass. Due to technology advancements, the 
National Renewable Energy Laboratory projects cost reductions for 
biomass ethanol of about 50 cents per gallon by 2005, and about 60 
cents per gallon by 2010.\8\ Biomass ethanol plants also produce a 
variety of saleable co-products, which in the long term, will help to 
reduce costs even further.
---------------------------------------------------------------------------
    \8\ NREL. ``Bioethanol Multi-Year Technical Plan, fiscal year 2000 
and Beyond.'' July 6, 1999 draft, 21.
---------------------------------------------------------------------------
    With the introduction of S. 2503, Senators Daschle and Lugar are 
seeking to reduce reliance on imported fuel by growing a domestic 
renewable fuels industry. The bill's provision to support biomass 
ethanol ensures that the industry will continue to expand beyond the 
limited capacity of the starch-based ethanol industry. The provision to 
support cellulosic biomass ethanol would help biomass ethanol companies 
secure the investments they need to establish local biomass ethanol 
industries and bring the benefits of renewable fuels to the Nation as a 
whole. I firmly believe that this vision will make for a better, more 
sustainable economy and cleaner air and water for our children and our 
grandchildren.
    Thank you for the privilege and opportunity of speaking before the 
Subcommittee.
                               __________

  STATEMENT OF MICHAEL S. GRABOSKI, DIRECTOR, COLORADO INSTITUTE FOR 
   FUELS AND HIGH ALTITUDE ENGINE RESEARCH, COLORADO SCHOOL OF MINES

    I am Dr. Michael S. Graboski, Director of the Colorado Institute 
for Fuels and High Altitude Engine Research, a part of the Department 
of Chemical Engineering at the Colorado School of Mines. I am here 
today on behalf of the National Corn Grower's Association.
    Mr. Chairman, I appreciate the honor of providing testimony to you 
and your distinguished Subcommittee on the environmental benefits of 
using oxygenates, particularly ethanol, under the Clean Air Act. In 
addition to my testimony brief, I have provided the committee with 
Technical Supporting Material that I would like included in the record.
    I will use the brief time I have today to summarize the results of 
my analysis. In my analysis I look at the effects of removing oxygen 
from reformulated gasoline on emissions of ozone-forming volatile 
organic compounds, carbon monoxide, toxic air pollutants, and 
particulate matter. The following environmental and public health 
benefits result from the use of oxygenates in comparison to gasoline 
produced without oxygenates.

                EFFECT OF OXYGENATES ON TOXIC EMISSIONS

    Based upon the 1998 EPA Reformulated Gasoline (RFG) compliance 
survey, I have estimated how refiners will produce phase 2 reformulated 
gasolines (RFG2) with ethanol and without oxygen and compared the 
resulting potency weighted toxic emissions to those from RFG2 
containing MTBE. Because the various air toxics pose different cancer 
risks, potency weighting allows us to compare one toxic compound with 
another. Using these potency weightings, we can add all the toxic 
emissions together and compare the relative toxicity of one fuel 
formulation with another. Potency weighting uses benzene as the 
reference giving it a value of 1 and weighing other compounds against 
benzene. For example, if a compound has been shown to be twice as toxic 
as benzene, its potency weighting is 2.
    Figure 1 shows how I expect refiners to produce RFG2 fuels if they 
were to also satisfy the 28.1 percent reduction in average mass toxic 
emission from RFG1 surveyed in 1998. Based upon public statements by 
refiners, I expect new alkylate production to replace most of the lost 
gasoline volume resulting from the removal of MTBE with aromatics being 
used to balance octane.
    Figure 1 shows that oxygenated fuels with ethanol provide a greater 
reduction in potency weighted toxic emissions compared to the MTBE fuel 
where benzene is used as the reference weight. The non-oxygenated fuel 
in figure 1 has increased aromatic content. Increased aromatics are 
necessary to meet octane requirements. In this case, the only way for 
the refiner to also produce the same benzene-equivalent potency 
weighted toxic emissions is if olefins are reduced but there is no 
economic incentive for such a reduction. Therefore, we can reasonably 
expect refiners to increase aromatics when oxygenates are removed from 
the gasoline pool.
    If refiners make non-oxygenated RFG with the same mass toxics 
reduction as oxygenated gasoline there will be a negative impact on 
public health because potency weighted toxic emissions will increase. 
These increases will be due to increases in aromatics that will be used 
to meet octane and other performance requirements of the fuel when 
oxygenates are removed.

               IMPACT OF REMOVING OXYGEN ON SUMMER OZONE

    I recently examined the impact of removing oxygen from RFG in a 
typical RFG area, Philadelphia-Wilmington-Trenton using EPA inventories 
and modeling tools. Removing oxygen will increase exhaust emissions of 
carbon monoxide (CO) from light duty vehicles. In the case of off-road 
engines, volatile organic compounds (VOC) and CO will both increase as 
a result of removing oxygen.
    Both VOC and CO has been proven to be ozone-forming agents. Figure 
2 shows my estimate of how removing 2 percent oxygen from RFG will 
impact the VOC and CO inventory. Figure 2 shows that ozone-forming 
emissions may increase by almost 3 percent when oxygenates are removed 
from RFG. Figure 3 relates the increases to the total combined VOC and 
CO emissions benefit for the on-road fleet when RFG2 replaced RFG1 on 
January 1, 2000.
    The impact of removing oxygen from RFG2, either as ethanol or as 
MTBE, is to lose as much as 35 percent of the additional ozone benefits 
attributable to RFG2 compared to RFG1.

             IMPACT OF OXYGEN ON FINE PARTICULATE EMISSIONS

    I am also investigating the impact of oxygenates, especially 
ethanol, on reducing fine particulate emissions, commonly called PM2.5. 
I would like to share some of my preliminary observations. PM2.5 has 
been identified as a public health hazard, and EPA is currently 
attempting to regulate PM2.5. Fine particulate from light duty vehicles 
is a major contributor to PM2.5 in metropolitan areas and will be so 
for the foreseeable future. Studies show that ethanol reduces PM2.5 
emissions and heavy carcinogenic aromatics emitted from cars and trucks 
by 30 percent for clean, normal emitting cars, and 60 percent for 
dirty, high emitting cars.
    Scientists have also identified aromatics as significant 
contributors to the formation of fine mists (aerosols) during the ozone 
forming process. One recent analysis estimates that aromatics are 
responsible for 20 percent to 30 percent of the yearly average PM2.5 in 
the California South Coast Air Basin. Removing oxygenates, MTBE or 
ethanol from gasoline, as we have already said, is likely to raise the 
use of aromatics in gasoline and lead to more PM2.5 pollution.
    Removing oxygen from RFG is likely to result in an increase in 
direct emissions of particulate matter from automobile tailpipes, and 
the subsequent formation PM2.5 in the atmosphere through a complex 
series of chemical reactions, potentially harming public health.
    I believe that the use of oxygen in gasoline has important 
environmental and public health benefits that must be maintained in any 
changes in the Clean Air Act. I hope that this discussion will be of 
value to you in your legislative actions. Thank you for your attention. 
I will now be happy to answer any questions you may have.





STATEMENT OF HON. CHARLES GRASSLEY, U.S. SENATOR FROM THE STATE OF IOWA

    Good morning, Mr. Chairman. I want to thank you for this 
opportunity to testify at your hearing to discuss the benefits of using 
ethanol as an oxygenate in reformulated gasoline.
    As a Senator representing the No. 1 corn producing state, I am a 
firm believer in ethanol. And with good reason. Ethanol not only helps 
our farmers by providing a $4.5 billion per year value-added market for 
their commodities, but also it improves our air quality and our energy 
security by reducing our reliance on OPEC.
    With today's high gasoline prices, and with economic analyst 
predictions that oil company profits will explode by 200 percent over 
last year's second quarter, it just makes sense that we should be 
looking seriously at displacing some of our imported oil with home-
grown energy.
    And from reading your press releases posted on your Senate web 
site, I know, Mr. Chairman, that you share my concerns about dependence 
upon foreign energy imports, and that you support establishing a limit 
on these imports.
    But let me share with you what I have learned from my past 
legislative battles regarding this subject. Even though oil companies 
have sought and obtained market mandates to protect domestic production 
in the past, now that the majors have moved their investments and 
employees overseas, they are no longer so keen on limiting imports.
    But, today, we are here to talk about ethanol. What is odd about 
all the new national scrutiny of ethanol is that it is being driven 
almost entirely by the fact that oil companies are being told they no 
longer can use MTBE.
    MTBE is contaminating our Nation's water supply. Ethanol is not 
hurting our water, it's MTBE. In fact, even though I am not a drinker, 
I know that ethanol is little different than corn whiskey. So, if 
ethanol get's in the water, the worse that could happen is you might 
have to decide whether you want to add some ice, tonic or soda.
    MTBE and ethanol are added to gasoline to meet the Clean Air Act's 
oxygenate requirement for reformulated gasoline (RFG). For the most 
part, refiners have chosen to use MTBE, a petroleum-derived chemical. 
Frankly to put it more bluntly, the oil industry did everything in its 
power through the regulatory and legal system to guarantee that ONLY 
MTBE would be used. The oil industry worked for an MTBE mandate, and it 
was successful.
    Moreover, had it not been for the insistence of officials from the 
upper Midwest, no RFG containing ethanol would have been sold anywhere 
in America--not even in Chicago and Milwaukee.
    And now, the American Petroleum Institute has the gall to blame 
ethanol for the high gasoline prices in these cities. The truth is that 
ethanol delivered to Chicago/Milwaukee has a net cost of 71 cents per 
gallon, which is 81 cents less than the price of gasoline!
    So, today MTBE is shown in our water supplies across the country, 
including in Iowa where we don't use RFG. MTBE renders water 
undrinkable.
    Now the oil companies would like us to eliminate the oxygenate 
requirement and trust them to produce a cleaner-burning gasoline 
without oxygenates.
    Trust the same folks that brought us MTBE?
    Trust the folks who manipulated the courts and regulatory process 
to make certain consumers had no option to buy either MTBE or ethanol 
in reformulated gasoline?
    I say no.
    I am here today to tell you there is a clean air and clean water 
substitute for MTBE that is available this very day--ethanol--and it's 
made by American farmers, not by OPEC, which is driving up our gasoline 
prices.
    The use of RFG with oxygenates has significantly reduced harmful 
smog-forming vehicle emissions.
    According to a report by the California Air Resources Board's Clean 
Fuels Development Coalition Technical Committee, oxygenates in RFG have 
reduced air toxics by 28 percent. It has reduced carbon monoxide by 13 
percent. Sulfur oxides have been reduced by 11 percent and particulate 
matter by 9 percent.
    Carbon monoxide reductions are even greater--up to 25 percent 
reduction--if you use 10 percent ethanol blends. And the American Lung 
Association has pointed out that carbon monoxide reduces the blood's 
ability to carry oxygen which is especially harmful to unborn babies, 
infants and people with heart disease.
    So why would we want to eliminate the oxygen requirement?
    The problem is MTBE in our water, not oxygenates in our gasoline.
    Mr. Chairman, replacing MTBE with ethanol in RFG would protect our 
water supply from further damage, maintain the air quality gains of the 
Clean Air Act, reduce our energy imports and provide a much-needed 
market for American agriculture.
    Replacing MTBE with ethanol means increased farm income. According 
to the U.S. Department of Agriculture (USDA), completely replacing MTBE 
with ethanol by 2004 would provide a boost to America's family farmers 
to the tune of $1 billion per year. Demand for corn would increase by 
over 500 million bushels per year. Higher crop prices would reduce the 
need for emergency assistance payments and lower loan program spending.
    Replacing MTBE with ethanol improves our trade balance. According 
to USDA, the average U.S. agricultural net export value would increase 
by over $200 million per year, while MTBE imports would decrease. The 
overall impact would be to improve the U.S. balance of trade by $1.3 
billion per year.
    Replacing MTBE with ethanol means American jobs. USDA estimates 
that 13,000 new jobs across the economy would be created by 2010. While 
over a third would be in the ethanol industry itself, another 6,400 
jobs are created in the trade, transportation and service sectors. Farm 
sector jobs also increase, as do jobs in the food processing and energy 
industries.
    Mr. Chairman, it is very important that Congress proceed cautiously 
and with serious deliberation.
    First, we should demand that the Clinton administration offer us 
not merely a press conference articulating a vague outline. We should 
demand that it present to us a specific, detailed legislative draft. 
There is no consensus among Members of Congress at this point, and the 
administration is ducking its responsibility by refusing to provide 
leadership. You know the games they play: as Congress attempts to 
resolve this problem, the administration will stick its finger in the 
wind of public opinion and take pot shots at everything we try to do.
    So, insisting that the administration place its specific 
legislative proposal in our hands should be the bare minimum starting 
point for Congress.
    Second, we must not let ourselves be brainwashed into thinking that 
the RFG oxygenate standard is the cause of MTBE water contamination. To 
do so will result in Congress squandering its time and efforts in 
pushing legislation that will do little or nothing to protect Americans 
from MTBE.
    What would eliminating the oxygenate standard do to protect 
citizens from states like Iowa? Absolutely nothing!
    You see, not a drop of reformulated gasoline is sold in Iowa. Not a 
drop!
    Nevertheless, 29 percent of Iowa's water supplies tested were found 
to have serious levels of MTBE!
    Mr. Chairman, MTBE is not only used in RFG, it is used all over the 
country as an octane enhancer. And do not believe for one moment that 
there is a safe level of MTBE.
    Again, Iowa is a perfect example. For several years now, no 
gasoline containing more than 1 percent MTBE could be sold in Iowa 
without first posting warning labels. Let me tell you, no warning 
labels have been posted so no gasoline sold in Iowa has contained more 
than 1 percent MTBE.
    Yet look at the enormous damage even a minuscule amount of MTBE has 
brought to Iowa's water supplies!
    Whatever we do, we must protect states like Iowa from MTBE water 
contamination. We should be encouraging states to ban MTBE altogether, 
and not encouraging them to gut one of the most successful components 
of the Clean Air Act.
    And third, Mr. Chairman, some argue that ethanol should not replace 
MTBE as an oxygenate until there is a greater understanding of its 
benefits and possible adverse impacts. I say this argument is a red 
herring promoted by petroleum companies who do not want to use a 
product like ethanol which they and OPEC don't control.
    Nevertheless, and aside from the fact that I believe ethanol has 
been thoroughly scrutinized and has passed with flying colors, I would 
request that the Environment Committee use this same cautious standard 
in addressing whether or not to eliminate or allow waivers to the 
oxygenate requirement.
    How can we rush to eliminate a program which has been proven so 
beneficial toward cleaning the air, when one, and only one, oxygenate 
has proven to contaminate our water?
    Mr. Chairman, with ethanol, we can have clean air and clean water. 
We can help American agriculture and we can reduce our dependence on 
OPEC. That is why I am a co-sponsor of S. 2546, legislation introduced 
by my colleagues Kit Bond and Dick Durbin. This bill would preserve the 
oxygen requirement and the clean air gains we've made under the Clean 
Air Act, while banning MTBE. MTBE is the problem. It must be banned. We 
can't allow it to continue to be used even in small amounts. We've seen 
that first-hand in Iowa. Ethanol is the clean air, clean water 
alternative to MTBE.
    Thank you.
    Mr. Chairman, Senator Fitzgerald has asked me to request that the 
record be left open so that he may submit testimony later today.
                               __________

 STATEMENT OF DANIEL S. GREENBAUM, PRESIDENT, HEALTH EFFECTS INSTITUTE

    Mr. Chairman, and members of the Committee, it is a pleasure to 
appear before you today to speak on the health consequences of using 
ethanol in gasoline. I speak today as both the President of the Health 
Effects Institute--an independent scientific institute funded by both 
government and industry to provide impartial science on the health 
effects of air pollution--and as the former Chair of the Blue Ribbon 
Panel on Oxygenates in Gasoline, which provided its recommendations for 
the Nation's use of oxygenates late last year.
    In 1996, at the request of the White House Office of Science and 
Technology Policy, the U.S. EPA, and the Centers for Disease Control, 
HEI published a comprehensive review of the health effects of both 
ethanol and MTBE. For the record I am submitting here today copies of 
our report--I will summarize our findings in the brief time allotted.
    In assessing the health effects of using ethanol in gasoline, we 
must look both at the effects of likely increased exposure to ethanol 
itself, and to the range of other substances which are emitted from 
motor vehicles and whose emissions will be affected by the use of 
ethanol, including, the air toxics acetaldehyde and peroxyacetyl 
nitrate (PAN), the air pollutants carbon monoxide and ozone, and other 
substances.
    We have substantial scientific evidence on the health effects of 
ingesting ethanol. Pregnant mothers ingesting relatively high volumes 
can see their infants suffer from Fetal Alcohol Syndrome; lower levels 
of maternal alcohol consumption result in Fetal Alcohol Effects. 
Consumption of ethanol in the form of alcoholic beverages has been 
shown to increase the risks of certain cancers, leading the National 
Toxicology Program, in its recent Report on Carcinogens, Ninth Edition 
(May 2000), to designate alcoholic beverage consumption as a ``known 
human carcinogen.'' For all of these effects, there are not firmly 
defined thresholds below which effects are not expected, although some 
investigators have identified an apparent threshold for the fetal 
effects of about one-half ounce of alcohol per day.
    Although we know much about these effects of ethanol at high 
levels, it is likely that exposure of citizens to ethanol through 
either inhalation while refilling their fuel tanks, or through 
ingestion of ethanol-contaminated drinking water, will be substantially 
below levels at which effects have been seen. In the case of 
inhalation, HEI's estimate, based on limited exposure testing done to 
date, is that the dose of ethanol delivered to the body would be below 
the level of ethanol normally produced internally within the body.
    The use of ethanol also results in changes in the exhaust and 
evaporative emissions from vehicles, in particular an increase in 
emissions of acetaldehyde and the chemical PAN, a decrease in emissions 
of carbon monoxide, and the potential for an increase in volatility of 
the fuel. While we have information on all of these, I will focus today 
on two key issues--acetaldehyde and volatility.

         Acetaldehyde, which is designated as ``reasonably 
        anticipated to be a human carcinogen'' by the National 
        Toxicology Program, would, according to a recent analysis by 
        the California Air Resources Board (February 2000), increase in 
        the atmosphere in 2003 when compared to the use of fuel 
        oxygenated with MTBE. However, there would be an overall 
        decrease in acetaldehydes when compared to 1997 levels due to 
        tightening California fuel requirements. While these results 
        are reassuring, similar analyses have not been performed for 
        the rest of the Nation where federal RFG is in effect.
         The addition of ethanol to gasoline can result in an 
        increase in the volatility of the fuel, and in the potential 
        for increased formation of ozone. The base fuel can be 
        reformulated to lower its inherent RVP so as to offset this 
        effect, although there are some continuing questions about the 
        possible impacts of commingling ethanol-blended fuels with non-
        ethanol fuels.
         PAN, which is an eye irritant, has been declining in 
        the atmosphere, but is likely to continue at levels which could 
        have significant effects with the use of both ethanol and MTBE.
         There have been benefits from the use of ethanol and 
        MTBE for the reduction of carbon monoxide emissions.

    Beyond these effects, the use of ethanol as an oxygenate in RFG 
provides the ability, as do other oxygenates, to replace more toxic 
octane-providing substances (such as benzene) with cleaner octane. 
However, the Blue Ribbon Panel identified that it is also possible to 
achieve these improvements using non-oxygenated reformulated fuels.
    One further key question is the potential for ethanol to 
contaminate groundwater. Both the Blue Ribbon Panel, and more recently 
the Lawrence Livermore Laboratory, examined this issue. Although there 
are still many questions about these potential effects, two general 
conclusions can be drawn:

         First, the high biodegradability of ethanol would 
        suggest that the chances of an ethanol spill or leak finding 
        its way to any significant degree into drinking water is small;
         at the same time, the degradability of ethanol appears 
        to retard the degradation of other components (e.g. benzene) 
        resulting in the likelihood that plumes of these other 
        substances, and the risk of water contamination, would increase 
        somewhat. Precise estimates of the size of this risk do not 
        exist.

    In conclusion, we know much about the significant health effects of 
drinking ethanol, but should recognize that the likely exposure of the 
public to ethanol either through breathing or ingestion would be low. 
At the same time, there are continuing questions about the threshold 
below which we would not see such effects, and about the potential for 
ethanol in gasoline to increase the risk of water contamination from 
other components of the fuel. Based on these questions, the Blue Ribbon 
Panel recommended:
        EPA and others should accelerate ongoing research efforts into 
        the inhalation and ingestion health effects, air emission 
        transformation byproducts, and environmental behavior of all 
        oxygenates and other components likely to increase in the 
        absence of MTBE. This should include research on ethanol, 
        alkylates, and aromatics, as well as of gasoline compositions 
        containing those components. (Recommendation 13)
        EPA, in conjunction with USGS, the Departments of Agriculture 
        and Energy, industry, and water suppliers, should move quickly 
        to:
         Conduct short-term modeling analyses and other 
        research based on existing data to estimate current and likely 
        future threats of contamination;
         Establish routine systems to collect and publish, at 
        least annually, all available monitoring data on:
                --use of MTBE, other ethers, and ethanol,
                --levels of MTBE, ethanol, and petroleum hydrocarbons 
                found in ground, surface and drinking water,
                --trends in detections and levels of MTBE, Ethanol, and 
                petroleum hydrocarbons in ground and drinking water;
         Identify and begin to collect additional data 
        necessary to adequately assist the current and potential future 
        state of contamination. (Recommendation 14)

    In closing, the decision to greatly increase any one component of 
the fuel supply is a major one, with potential widespread implications 
for exposure and public health. Although the current information on 
ethanol and its effects is somewhat reassuring, it is critical that 
accelerated efforts be made to fill key information gaps before 
widespread increases in use of any additive have been accomplished.
    Thank you for the opportunity to submit this testimony. I would be 
pleased to answer any questions.
                               __________

   STATEMENT OF JASON S. GRUMET, EXECUTIVE DIRECTOR OF THE NORTHEAST 
          STATES FOR COORDINATED AIR USE MANAGEMENT (NESCAUM)

    Thank you Mr. Chairman. My name is Jason Grumet and I am the 
Executive Director of the Northeast States for Coordinated Air Use 
Management (NESCAUM). NESCAUM is an association of State air pollution 
control agencies representing Connecticut, Maine, Massachusetts, New 
Hampshire, New Jersey, New York, Rhode Island and Vermont. The 
Association provides technical assistance and policy guidance to our 
member states on regional air pollution issues of concern to the 
Northeast. We appreciate this opportunity to address the Environment & 
Public Works Committee regarding the use of ethanol as a fuel additive.
    Our region has much at stake in the debate over RFG, MTBE and 
ethanol. Seven of our eight states have or are participating in the 
Federal RFG program. The use of RFG in the Northeast has provided 
substantial reductions in smog forming emissions and has dramatically 
reduced emissions of benzene and other known human carcinogens found in 
vehicle exhaust. However, substantial evidence has emerged to suggest 
that the unique characteristics of MTBE pose an unacceptable risk to 
our region's potable water supply. Groundwater testing conducted 
throughout the Northeast has detected low levels of MTBE in roughly 15 
percent of the drinking water tested. Nearly 1 percent of samples 
contained MTBE at or near State drinking water standards. MTBE's 
unpleasant taste and odor at higher concentrations and the frequency of 
MTBE detections poses a disproportionate and unacceptable threat to our 
region's drinking water.
    The challenge facing us all is to mitigate the environmental and 
economic harm caused by MTBE contamination without sacrificing the 
environmental and public health benefits provided by RFG. Adding to 
this substantive challenge, is the need to address diverse regional 
interests in promoting a secure and growing market for ethanol and the 
opportunity to direct much needed support to a broad array of 
environmentally beneficial transportation fuels and advanced propulsion 
technologies. Of course, all this must be accomplished without 
exacerbating already skyrocketing gasoline prices.
    Unfortunately, the law as currently written prevents both the U.S. 
Environmental Protection Agency (EPA) and the states from effectively 
addressing this challenge. The good news is that a diverse group of 
interests have come together to promote a set of legislative principles 
that will protect our air and water quality, ensure substantial growth 
in ethanol usage, and provide refiners with the flexibility needed to 
prevent gasoline price spikes or supply shortages. I would like to 
submit to the record copies of the legislative framework the Northeast 
states introduced in January of this year and subsequent statements 
endorsing this framework submitted by the American Lung Association, 
the Natural Resources Defense Council and the American Petroleum 
Institute. Since that time, the unprecedented coalition of interests 
supporting these legislative principles has grown to include several 
neighboring Mid-Atlantic states and the independent oil refiners Sun 
Oil Company and TOSCO.
    Allow me to first review the legislative approach supported by our 
unique alliance. I will then directly address how this approach and 
other scenarios will affect the demand for renewable and 
environmentally beneficial transportation fuels.

                    REVIEW OF LEGISLATIVE FRAMEWORK

I. Repeal or waive the 2 percent oxygen mandate for RFG in the Clean 
        Air Act
    It is simply not possible to protect air quality, water quality and 
ensure gasoline price stability unless the oxygen mandate is lifted or, 
at a minimum, modified to require EPA to waive this requirement upon 
State request. Unless the oxygen requirement is lifted or waived, a 
substantial reduction in MTBE use creates a de facto summertime ethanol 
mandate. Ethanol usage is far preferable to MTBE from a groundwater 
perspective and promotion of ethanol can further a host of energy, 
agricultural, and environmental goals. However, we do not believe that 
an ethanol mandate in the summertime reformulated gasoline program 
represents sound environmental or economic policy for the Northeast. 
Due to its high volatility and the resulting increase in evaporative 
emissions, the use of ethanol during the summer ozone season may 
actually exacerbate urban and regional smog problems, absent further 
statutory or regulatory protections.
    The growing outcry over skyrocketing gasoline prices demands that 
any legislative solution to the MTBE problem be mindful of effects on 
fuel price and supply. The economic impact of mandating the use of 
ethanol in the Northeast, California and the Gulf Coast is simply 
unknown. Setting aside the wisdom of coupling mandates with subsidies, 
serious questions remain about the cost and environmental impacts of 
transporting and distributing billions gallons of ethanol to regions of 
the country where it is not produced. There is no question that it is 
possible to dramatically increase ethanol production. Similarly there 
is no question that it is possible to ship massive quantities of 
ethanol to the Northeast by barge, rail and truck. The question is at 
what cost. While our region embraces the goal of increasing renewable 
fuels nationally and sees great promise in the development of a biomass 
ethanol industry in the Northeast, we are convinced that there are 
policy approaches to achieve these legitimate ends that are far 
preferable to mandating the use of ethanol in summertime RFG.
    We are surprised and disappointed by legislative efforts to 
maintain the oxygen mandate and ban MTBE. These efforts seek short-term 
economic enrichment for one region of the country at the economic and 
environmental expense of all others. Simply stated, this approach holds 
no promise to build the consensus necessary to craft effective national 
legislation. We hope that this Committee will reject such shortsighted 
efforts to perpetuate the oxygen mandate and instead work toward 
building a national ethanol market that emphasizes product quality over 
market protection.

II. Severely curtail or eliminate MTBE use as a fuel additive
    We propose a three step approach to reduce, and if necessary, 
eliminate MTBE from the fuel supply. This approach requires a reduction 
in MTBE use to historic levels and empowers both EPA and the states to 
further regulate MTBE while minimizing the potential for a patchwork of 
varying State requirements that could result in increased fuel prices.
    (a) Compel EPA to regulate or eliminate MTBE use as a fuel additive 
if necessary to protect public health, welfare or the environment from 
air or water pollution.--Neither EPA nor the states, with the notable 
exception of California, have clear authority under Federal law to 
prevent MTBE from harming drinking water supplies or the environment. 
EPA's recent efforts to explore existing authority under the Toxic 
Substances Control Act (TSCA) as a ``safety net'' in the absence of 
Congressional action does little to allay our concern over the 
inadequacy of existing Agency authority. Even a cursory review of the 
TSCA provisions suggests that its application to the question at hand 
will be arduous, inelegant and tangled in years of litigation. The 
Northeast states share EPA's frustration over the inadequacy of our 
mutual authority. Our inability to address public concern over MTBE 
contamination is eroding public confidence in the commitment and 
competence of all levels of government and exaggerates public anxiety 
over the risks posed by MTBE. While EPA's strained interpretation of 
TSCA is understandable against this public backdrop, only Congressional 
action that both authorizes and obligates EPA to reduce MTBE to 
whatever levels are necessary to protect public health, welfare or the 
natural environment will provide the protection the public demands and 
deserves. While our states and alliance partners do not believe that 
the currently available data supports a statutory ban of MTBE, we agree 
that EPA must be required to eliminate MTBE as a fuel additive if the 
Agency concludes through rulemaking that such action is necessary to 
protect public health, welfare or the environment.
    (b) Compel EPA to reduce MTBE usage in all gasoline to historic 
(Pre-1990) levels.--At minimum, within 1 year from enactment of 
legislation, EPA must be required to complete a rulemaking that limits 
MTBE usage in all gasoline to the levels in use prior to the Clean Air 
Act Amendments of 1990. Data on MTBE contamination prior to the 
adoption of the oxygen requirements in 1990, suggest that this severe 
curtailment of MTBE use coupled with the tremendous improvements in 
underground storage tanks that has occurred since 1990 will effectively 
mitigate the risks posed by MTBE contamination. However, I must stress 
that if EPA determines that even this severe curtailment of MTBE usage 
is not adequate to protect public health, welfare or the environment, 
the Agency is obligated to further reduce or eliminate MTBE in gasoline 
all together.
    (c) Authorize states to regulate MTBE beyond EPA requirements.--If 
EPA fails to act in a timely manner or fails to effectively mitigate 
the harms posed by MTBE, states must be empowered to further regulate 
MTBE sold within their borders. In order to balance the need for 
measured State authority against the desire for maximum consistency in 
fuel specifications, we propose to adhere to the State petition process 
found in the current clean air statute. As in current law, State 
ability to implement independent fuel requirements would remain 
predicated upon EPA granting a State petition demonstrating the need 
for such action. Unlike current law which limits the grounds for State 
petitions to a demonstration that the action is necessary to attain a 
National Ambient Air Quality Standard (NAAQS), State MTBE petitions 
would be required to demonstrate that further regulation of MTBE is 
necessary to protect public health, welfare or the environment.

III. Enhance the RFG performance standards to reflect the stricter of 
        real world RFG Phase 1 performance or the existing RFG Phase 2 
        requirements for VOC, NOx and toxic emissions
    The RFG program has produced dramatic air quality improvements. 
Reductions in airborne tonics have substantially surpassed the 
performance standards of both Phase 1 RFG and the more stringent Phase 
2 requirements that take effect this year. We believe that a 
substantial portion of these benefits has been provided by the high 
volume of oxygenates currently mandated in RFG. As we seek to provide 
refiners with the flexibility to reduce the use of MTBE, it is 
necessary to ensure that this flexibility does not result in higher 
polluting gasoline. For toxic emissions, this approach will require EPA 
to substantially enhance the RFG toxic performance standard over that 
currently required in the Phase 2 program. To date, the Northeast and 
Gulf Coast have achieved far greater air toxic reductions than the 
Midwest under the RFG program. Hence, we believe that setting enhanced 
air toxic requirements on a regional basis is the most accurate and 
equitable approach to ensuring that there is no loss of toxic emission 
benefits once the oxygen mandate is lifted or waived. This approach 
ensures that the environmental gains achieved across the country will 
be protected while acknowledging the circumstances that have resulted 
in the disparate toxic reductions provided by the RFG program to date. 
This approach is also consistent with the EPA's historic application of 
different regional RVP requirements in ``northern'' and ``southern'' 
grade gasoline. Our proposed approach would only apply in those states 
that opt to waive the oxygen requirement. We fully expect that several 
states will opt to maintain the oxygen requirement as a further 
incentive for ethanol use. In these states, there is no risk of air 
quality ``backsliding'' resulting from a reduction in oxygenate use and 
hence these enhanced regional toxic standards would not apply.
    (a) Maintaining VOC and NOx Benefits.--The Phase 2 
standards that take effect this year are more protective than the 
actual VOC and NOx reductions achieved under the RFG program 
to date. Hence, the phase 2 standards would remain in force. By 
combining the actual toxic emissions performance of Phase 1 RFG with 
the more protective Phase 2 standards for VOC and NOx, we 
believe we can equitably and effectively maintain the full air quality 
benefits provided by the RFG program.
    (b) Maintaining Carbon Monoxide Benefits.--While the carbon 
monoxide (CO) reductions provided by oxygenates have and will continue 
to diminish as newer technology vehicles enter the national fleet, 
oxygenates continue to provide important benefits in the few areas of 
the country that exceed the CO NAAQS. We do not propose any changes to 
the statutory requirements for oxygenate use affecting CO nonattainment 
areas. Recent evidence indicates that CO reductions also play a 
relatively minor but measurable role in ozone reduction. The Northeast 
states support recognition of these modest and decreasing benefits so 
long as we count them only once. Since EPA is currently seeking to 
account for these benefits in a regulation that would provide ethanol 
blends with a further relaxation of RVP requirements, we do not believe 
that it is necessary or credible to take account of these same benefits 
a second time in legislation.
    (c) PM Emissions.--Advocates of the oxygen mandate have suggested 
that a comprehensive anti-backsliding approach must also include 
provisions to maintain reductions in particulate matter attributable to 
oxygenate use. While an ardent advocate of the need to reduce both 
direct PM emissions and PM emission precursors, NESCAUM does not 
believe there is adequate scientific evidence to justify addition of a 
new PM reduction obligation at this time. We urge EPA and academia to 
conduct the research necessary to build a general scientific consensus 
around the impact of oxygenates on PM emissions. However, we cannot 
delay efforts to enhance the environmental performance requirements for 
toxic emissions while we await the result of future studies. The 
inadequacy of our understanding of the relationship between oxygenates 
and PM is evident by the fact that there is currently no requirement 
for PM reductions in the RFG program. Unlike in the case of VOC, 
NOx and tonics, where there are existing performance 
requirements and intricate regulatory compliance regimes already in 
place, we believe it is premature to include PM reductions in the 
discussion of air quality backsliding.

IV. Promote consistency in fuel specifications through the timely 
        implementation of effective Federal requirements
    The Northeast states understand and support the need to provide 
refiners and fuel suppliers with a consistent and coordinated set of 
regulatory requirements. The most effective means of achieving this 
consistency is to authorize and require timely action of the part of 
EPA. Our states are committed to working with other regions and EPA to 
develop a Federal regulation that meets our collective needs.

V. Provide adequate lead time for the petroleum infrastructure to 
        adjust in order to ensure adequate fuel supply and price 
        stability
    At present, the gasoline system in the Northeast and much of the 
Nation is dependent upon the presence of high volumes of MTBE. As much 
as we need immediate action to address MTBE contamination and 
reinvigorate the RFG program, we recognize that a severe curtailment in 
MTBE use cannot be completed overnight. Depending on the ultimate 
extent of required reductions, our states anticipate that 2 to 4 years 
will be necessary to complete the phase down or elimination of MTBE in 
the Northeast. We are committed to working with our partners in the 
Federal Government and the refining industry to ensure that fuel 
quality, supply and price are protected as we reduce our current 
dependence on MTBE.

                      IMPACT ON RENEWABLE FUEL USE

    As stated earlier, implementation of legislation based on these 
principles will result in a substantial increase in ethanol use over 
the coming decade. The severe curtailment and/or elimination of MTBE as 
a fuel additive coupled with maintenance of the mass toxic benefits 
achieved in Phase I RFG will force refiners to substantially increase 
their current use of ethanol. Key among the market factors leading to 
this increased demand is the need to replace the loss of octane in the 
fuel supply without increasing air toxic emissions. While experts vary 
on the exact magnitude of growth in ethanol demand, every analysis we 
have seen agrees that the competitive future for ethanol is very 
bright. The Exhibit 1 illustrates our best assessment of the growth in 
ethanol as a fuel additive if states are given the authority to lift 
the oxygen mandate and MTBE is phased down to pre 1990 levels. If MTBE 
is further reduced or eliminated, the growth of ethanol will be even 
greater. This projection reflects analysis conducted by NESCAUM, API 
and ALA using data generated by the USDOE, the USDA, and two leading 
consulting firms, MathPro and Downstream Alternatives. The more 
conservative estimate, assumes that the ethanol needed to satisfy PADD 
1 and PADD 3 demand is met by pulling existing ethanol out of the 
Midwest markets, leaving national ethanol demand outside of California 
unchanged. It adds to this static 49-state assumption, the growth that 
would occur in the California market provided by MathPro's analysis 
conducted for the California Energy Commission.\1\ The MathPro study 
indicates that 40 to 60 percent of California gasoline would be blended 
with ethanol at 2.7 weight percent resulting in nearly one billion 
gallons of new ethanol demand annually. The assumption that all ethanol 
demand outside of California will be satisfied by shifting ethanol out 
of Midwest markets is an unreasonably conservative projection of the 
impact of our legislative approach. First, it assumes no additional 
policies are adopted by Midwest states to promote or require ethanol 
use and second it assumes that Midwest states opt to waive the oxygen 
standard. The alternative scenario that projects ethanol use more than 
doubling over the next decade was derived by combining the same MathPro 
analysis for California with the DOE estimate for ethanol growth in the 
Northeast\2\. As you can see, this analysis projects that ethanol use 
will fully double by 2004 growing from 1.5 to over 3 billion gallons 
per year.
---------------------------------------------------------------------------
    \1\ Analysis of California Phase 3 RFG Standards, Submitted to the 
California Energy Commission by MathPro Inc., Subcontract No. LB60 100, 
December 7, 1999.
    \2\ Estimating Refining Impacts of Revised Oxygenate Requirements 
for Gasoline, Oak Ridge National Laboratory, Studies for the U.S. DOE 
Office of Policy May-August 1999.



    In order to promote a truly secure future for ETOH, it is time to 
shift our collective emphasis away from efforts at further market 
protection and toward to a rejuvenated focus on product quality. While 
mandates provide a level of absolute security that is never possible in 
a free market, this security comes at a considerable cost to the 
ethanol industry. Mandates undermine the public's confidence in the 
quality of ethanol as a motor fuel. As we have heard from a diverse 
number of government and private sector experts today, ethanol presents 
a host of compelling domestic economic and environmental benefits. The 
imposition of a sales quota, contradicts these expert sentiments by 
embracing the intuitive contradiction that ethanol is so good for the 
country that it cannot compete. I firmly believe that the renewable 
fuels market will never achieve its full market potential so long as 
that market is understood to depend on political power and not product 
quality. Moreover, markets that appear contingent upon politics will 
constantly face the insecurity of political change. Product quality 
will forever remain the only true security in a democratic Nation with 
a free market economy.
    As an advocate of a set of policies that are projected to more than 
double ethanol use within 4 years of enactment, I proudly embrace the 
label of ethanol advocate. At the same time, I recognize that ethanol 
like all products presents benefits and liabilities. Regardless of 
whether ethanol use flourishes under a free market or national sales 
quota, there are a host of economic and environmental considerations 
that must be accounted for as ethanol use expands.

Key Environmental Considerations from expanded ethanol use

            Air Quality
    Without further statutory or regulatory protections, the widespread 
use of gasoline containing ethanol will increase evaporative emissions 
of VOCs due to it high volatility characteristics. The obvious first 
step to address this problem is to remove the 1 lb. RVP waiver for 
conventional gasoline containing ethanol. Increased evaporative 
emissions have a deleterious impact on ambient levels of ozone and 
increase emissions of toxic pollutants such as benzene. Also of concern 
is the so-called ``co-mingling'' effect. When ethanol blends mix with 
non-ethanol blends they increase the volatility of the entire volume of 
fuel. Consequently, even if the ethanol fuel itself complies with RVP 
limits, its presence in a diverse fuels market will have consequences 
whenever a vehicle that has recently been fueled with an ethanol blend 
is re-fueled with an ethanol free gasoline.
    The combustion of ethanol-blended gasoline results in a 50 to 70 
percent increase in acetaldehyde emissions compared to MTBE blends. 
Ambient levels of this pollutant currently exceed health-based 
standards by a substantial amount in many areas in the Northeast. 
Increased ethanol use is also likely to cause some increase in 
NOx emissions in the Northeast. There are direct and 
indirect components to this anticipated NOx increase. Some 
engines have been shown to directly emit increased levels of 
NOx when burning fuel containing ethanol. In addition, the 
fact that ethanol blends cannot be shipped through gasoline pipelines 
will create indirect but potentially substantial increases in 
NOx and particulate emissions from the diesel truck, rail 
and barges used to move hundreds of millions of gallons of product from 
Midwest production facilities to markets in the Northeast.

            Groundwater
    There is broad agreement that the potential groundwater impacts of 
gasoline blended with ethanol are far less significant than those 
associated with MTBE blends. Nevertheless, the presence of ethanol in 
gasoline raises some concern with regard to groundwater contamination. 
In short, there is evidence to suggest that the microbes that 
biodegrade benzene, toluene and other volatile organic compounds are 
preferentially attracted to ethanol. The good news is that ethanol is 
quickly biodegraded when present in groundwater. The bad news is that 
the bacteria fails to degrade benzene and the other VOCs present in 
gasoline plumes until the ethanol is consumed. Hence, BTEX compounds 
are predicted to persist longer in groundwater when gasoline mixtures 
containing ethanol are leaked or spilled. Evidence presented to the 
Blue Ribbon Panel suggests that this effect, while not insubstantial, 
pales in comparison to the groundwater threat posed by MTBE.

Key Economic Considerations from Expanded Ethanol use

            Transportation and Distribution
    As stated above, gasoline blends with ethanol cannot be transported 
via existing pipelines due to ethanol's affinity for water. 
Consequently, unless dedicated ethanol pipeline capacity emerges, the 
widespread use of ethanol in the Northeast will require transporting 
hundreds of millions of gallons of ethanol by rail, truck or barge. New 
storage tank capacity and blending facilities will also be needed in 
our region to accommodate increased demand. While there are broad 
differences of opinion about the magnitude of this logistical 
challenge, it is imprudent to support a market mandate that would 
require the Northeast to use disproportionate amounts of ethanol 
compared to the rest of the Nation until these logistical impediments 
and their associated economic and environmental impacts are better 
understood.

            Gasoline Cost Impacts
    Detailed studies by the U.S. Department of Energy and the 
California Energy Commission suggest that any major shift from MTBE to 
ethanol should be phased in over 3 to 4 years to avoid dramatic price 
spikes or fuel shortages.
    The Northeast states do not support a waiver of the Reid vapor 
pressure (RVP) requirements to accommodate the increased volatility of 
gasoline blended with ethanol. In order to meet the existing volatility 
requirements, the base gasoline into which both conventional and 
reformulated gasoline must be more severely refined. While opinions 
differ on the costs of this additional refining, they will not be 
insubstantial when incurred across the national fuel market.

            Ethanol Subsidies
    The fact that ethanol receives a 54 cent per gallon subsidy--in the 
form of a partial exemption from the Federal fuel excise tax and an 
income tax credit--has important one implications for the Highway Trust 
Fund in the Northeast. Currently, this subsidy reduces the nation's 
Highway Trust Fund by approximately $870 million dollars annually. A 
doubling or tripling of ethanol use in gasoline will have the effect of 
further reducing highway revenue by a substantial amount. While we are 
not seeking to address the validity of the ethanol subsidy if market 
conditions are allowed to determine future ethanol growth, an 
evaluation of ethanol tax policy is surely warranted if we impose a 
national ethanol sales mandate.

            Renewable Fuels Standard
    Many, though not all, of these concerns are mitigated if ethanol is 
used at the right time and in the right places. Not surprisingly, 
approaches that enable the market to determine how and where ethanol is 
used go long way toward encouraging the most economical and 
environmentally beneficial uses of ethanol. To the contrary, the 
constraints of a de facto summertime ethanol mandate in RFG legislative 
efforts to reinforce this outcome provide the worst possible 
environmental and economic scenario for a growing ethanol industry. 
Under this nonsensical approach, the national interest in promoting 
renewable fuels is imposed on regions of the country farthest away for 
the source of ethanol production at the one time of the year when 
ethanol's volatility leads to considerable public health concerns.
    Compared against this looming disaster in national policy, our 
region has previously expressed interest in the concept of a Renewable 
Fuels Standard (RFS) approach. While we maintain a principled 
apprehension about the imposition of an overarching sales quota for the 
reasons stated above, the RFS takes a strong step toward free market 
principles by enabling economic and environmental considerations to 
influence when and where ethanol is sold. Moreover, an RFS legitimately 
emphasizes the national security, agricultural, and global 
environmental benefits that are furthered by an increased use in 
ethanol. The logic of these interests provides a far more compelling 
rational than the pretense that ethanol is necessary to protect urban 
air quality. Efforts to perpetuate the oxygen mandate must justify this 
position on the basis of ethanol's ability to improve summertime urban 
air quality which is on one of the weakest rationales for growth in 
ethanol use.
    In July of last year, Senator Daschle wrote to NESCAUM and the 
region's Governors seeking to explain his support for replacing the 
oxygen mandate with a 2.1 percent RFS and seeking Northeast State 
input. I would like to submit to the record copies of my response as 
well as the responses from Governor Shaheen from New Hampshire and 
Governor King from Maine. While all three responses expressed 
apprehension regarding many of the issues outlined above, each letter 
expressed the belief that the flexibility provided by a properly 
designed RFS would better respond to our stated concerns about ethanol 
than Congressional inaction. Key to the proper design of an RFS, is the 
ability of refiners to avail themselves of market-based approaches to 
meet their ethanol sales quota. By enabling refiners to average 
internally and with other fuel suppliers to meet their annual renewable 
content minimums, we believe that ethanol will be used where it is 
cost-effective to do so. We simply don't know whether it will be cost 
effective to transport and distribute ethanol produced in the Midwest 
throughout the Northeast market. Unlike the oxygen mandate that would 
force refiners to sell a disproportionate amount of ethanol volume in 
Northeast regardless of economic considerations, a properly designed 
RFS enables refiners to sell ethanol where it makes economic sense.
    From both an environmental and economic standpoint, a properly 
designed RFS must also enable refiners to use ethanol if and when it 
makes sense to do so. The version of the RFS that was provided for our 
review last year allowed refiners to comply on an annual average basis. 
This flexibility is critical to ensure that ethanol is only used 
sparingly in cities that suffer from summertime ozone nonattainment. I 
am concerned that the more recent incarnations of the RFS seek to 
impose a quarterly averaging regime. Requiring one-quarter of our 
national ethanol use to occur during the summer months is unsound 
environmentally and will lead to increased fuel prices since refiners 
will be required to reduce to overall volatility of their blendstock to 
accommodate ethanol within allowable RVP limits. While I recognize that 
small ethanol producers do not presently maintain the tank capacity to 
store ethanol produced during the summer season, expanding this tank 
capacity seems far preferable than forcing the sale of ethanol in the 
summer months.
    Of course the most important feature of a properly designed RFS is 
the magnitude of sales requirement itself. When Governor Shaheen stated 
that, ``a renewables fuel requirement--accompanied by elimination of 
the Federal oxygenate mandate--holds great promise and represents a 
wise precedent for the Nation to establish,\3\ she was evaluating a 2.1 
percent RFS that was understood to represent a doubling of ethanol 
production over the next 10 years. We now understand Senator Daschle's 
approach to contemplate more than tripling ethanol use in this same 
time period. This contemplated increase from a statutory doubling to a 
tripling of ethanol under an RFS will greatly increase opposition to 
the RFS in our region.
---------------------------------------------------------------------------
    \3\ Letter for Governor Jeanne Shaheen to Senator Tom Daschle, 
September 16, 1999
---------------------------------------------------------------------------
    While it is awkward to offer suggestions on how to design a sales 
quota that on balance we deem unnecessary, one thing that I have 
learned from this debate is that those who can't imagine creative 
compromises are quickly left behind. If we are going consider adoption 
of policies that encourage ethanol use, these policies should be 
optimized to encourage entrepreneurial innovation and growth among 
small businesses and farmers and seek to remedy market barriers and the 
failure of financial markets effectively internalize the full social 
costs and benefits of different actions. Toward this end, we wish to 
applaud Senator Daschle and Senator Lugar's recognition of the additive 
environmental and potential economic attributes of biomass ethanol in 
fashioning a differential credit for biomass in their current RFS 
proposal.
    Obviously, the opportunity to cure ``market failures'' through 
quotas and mandates can be quite seductive. Hence, before I abandon 
this creative flourish, I also suggest that RFS supporters consider 
broadening the universe of fuels that could count toward RFS compliance 
to include fuels that enable extremely low emission performance. The 
Northeast states have long advocated for policies that reward advanced 
transportation technologies like electric and hybrid electric vehicles, 
compressed natural gas in urban bus fleets and ultimately fuel cell 
technologies. These technologies promote many of the same national 
security and fuel diversification goals that we understand form the 
substantive foundation of the RFS. Moreover, those technologies that 
rely on electric drive trains achieve far greater reductions in air 
pollution emissions than internal combustion engines regardless of the 
volume percentage of renewable fuels. We as a Nation have failed 
woefully to achieve the laudable Energy Policy Act goal of diminishing 
our reliance on petroleum transportation fuels by 10 percent this year. 
If we are truly committed to decreasing our reliance on foreign 
petroleum, it seems worth contemplating a flexible national approach 
that will inspire the ingenuity and creativity that our Nation has to 
offer.

                               CONCLUSION

    In conclusion, let me stress that the preferred approach of the 
Northeast states is to: (1) lift the oxygen mandate; (2) severely 
curtail and if necessary eliminate MTBE; (3) maintain the VOC, 
NOx, and toxic emission benefits, and (4) allow ethanol to 
grow on the basis of its legitimate and considerable attributes. I am 
pleased to learn that many of the strongest traditional advocates of a 
growing ethanol industry recognize that it is possible to support 
ethanol while opposing ethanol mandates. I would like to submit a set 
of six editorials from newspapers in Nebraska and Iowa commenting on 
State efforts to mandate the use of ethanol over the last year. The 
headlines demonstrate that our interest in promoting ethanol on the 
basis of product quality is shared by many of our Midwest neighbors:
     From the Des Moines Sunday Register, September 19, 1999--
``Let ethanol prove itself: Iowa farmers need help, but coercion at the 
gas pump is wrong.''
     From the Quad City Times, September 19, 1999, ``Ethanol-
only proposal doesn't help consumers.''
     From the Omaha World Herald, March 9, 2000--``More 
Alcohol, Less Choice''
    Obviously, we are troubled that having failed to impose ethanol 
mandates in their own states, several prominent Midwest officials now 
seek Congressional action to impose ethanol mandates on the Northeast. 
Still, I remain optimistic that by emphasizing market principles in the 
effort to promote the use of renewable and clean fuels we can fashion a 
workable solution to the legislative challenges that lie ahead. Thank 
you for the opportunity to appear before the Committee. I welcome the 
opportunity to respond to any questions you may have.
                                 ______
                                 
 Northeast & Mid-Atlantic States, Gasoline/MTBE Task Force,
                                                        Boston, MA.

  Principles for Effective Federal Legislation Regarding Reformulated 
                           Gasoline and MTBE

                               OBJECTIVES
     Maximize the air quality and public health benefits of 
reformulated gasoline.
     Reduce the volume concentrations of MTBE in the gasoline 
supply to protect water resources.
     Promote a regionally consistent reformulated gasoline 
program.
     Minimize impact of fuel quality changes on regional 
refiners and on gasoline supply and price.
     Ensure that alternatives to MTBE do not pose new threats 
to public health or environmental quality.

              PRINCIPLES FOR EFFECTIVE FEDERAL LEGISLATION

     Repeal or waive the 2 percent oxygen mandate for RFG.
     Clarify State and Federal authority to regulate, and/or 
eliminate, MTBE or other oxygenates if necessary to protect public 
health or the environment.
     Phase-down and cap MTBE content in all gasoline.
     Impose the stricter standard of Phase 1 RFG performance or 
Phase 2 requirements for VOC, NOx and toxic emissions.
     Promote consistency in fuel specifications through the 
timely implementation of effective Federal requirements.
     Provide adequate lead time for the petroleum 
infrastructure to adjust in order to ensure adequate fuel supply and 
price stability.
                                 ______
                                 
       Northeast States for Coordinated Air Use Management 
                                                 (NESCAUM),
                                                        Boston, MA.

            Northeast States Announce Unified MTBE Strategy

                        (Contact: Cindy Drucker)

                Call for Immediate Congressional Action

    January 19, 2000 (Boston, MA)--The Northeast States for Coordinated 
Air Use Management (NESCAUM) representing the eight states of New York, 
New Jersey, Massachusetts, New Hampshire, Vermont, Rhode Island, 
Connecticut and Maine today urged Congress to enact effective Federal 
legislation regarding reformulated gasoline and MTBE. In launching a 
call for Federal action, the Northeast states set forth six core 
principles that will protect the region's air and water quality while 
maintaining an adequate fuel supply and price stability.
    The unified principles were developed by the Northeast Regional 
Fuels Task Force, consisting of State air and water officials. The 
Northeast Regional Fuels Task Force was formed to implement the 
recommendations included in a comprehensive RFG/MTBE study conducted by 
NESCAUM last summer at the request of the Northeast Governors.
    Under Federal law passed in 1990, Congress required reformulated 
gasoline to contain oxygenates such as MTBE or ethanol. Only 
Congressional action to lift the oxygen mandate can provide an adequate 
solution to concerns over current levels of MTBE use. Absent changes in 
Federal law, states are effectively prohibited from addressing this 
significant public concern.
    The Northeast states' principles for changes to the current 
reformulated gasoline program include:
    1. Repeal the 2 percent oxygen mandate for reformulated gasoline 
(RFG) in the Clean Air Act.
    2. Phase-down and cap MTBE content in all gasoline.
    3. Clarify State and Federal authority to regulate, and/or 
eliminate, MTBE or other oxygenates if necessary to protect public 
health or the environment.
    4. Maintain the toxic emission reduction benefits achieved to date 
by the Federal RFG program.
    5. Promote consistency in fuel specifications through the timely 
implementation of effective Federal requirements.
    6. Provide adequate lead-time for the petroleum infrastructure to 
adjust in order to ensure adequate fuel supply and price stability.
    Jason Grumet, Executive Director of NESCAUM stated, ``The Federal 
oxygenate mandate is outdated and inappropriate national policy. These 
unified principles call on Congress to grant states and industry the 
flexibility to preserve clean air benefits while balancing other 
environmental resource concerns.''
    Connecticut DEP Commissioner Arthur Rocque, Jr. stated, ``The 
challenge facing the Northeast states and the Nation is to identify a 
program that effectively mitigates the environmental risks posed by 
MTBE while maintaining the public health benefits of the current RFG 
program. We simply can no longer accept Federal mandates that are 
barriers to that goal.''
    Under present Federal law, gasoline sold in states must contain a 2 
percent oxygenate. Robert Varney, DES Commissioner of New Hampshire 
remarked, ``In calling for a repeal of the current oxygenate mandate, 
we are seeking the authority to design consistent regulations that 
respond to our region's environmental and economic needs.''
    Steve Majkut, Air Director of Rhode Island, stated, ``We need to 
make sure that we are not throwing the baby out with the bath water. We 
must maintain the air quality benefits of MTBE while we allow 
sufficient time for the refining and distribution systems to develop an 
adequate supply of alternatives. We simply cannot afford a short-term 
quick fix that sacrifices the clean air benefits in the process.''
    NESCAUM also commended two recent legislative initiatives that are 
consistent with the principles announced today. Grumet added, 
``Legislative measures, such as those proposed by Congressman Greenwood 
(R-PA) and Senators Feinstein (D-CA), Inhofe (R-OK) and Smith (R-NH) 
provide a sound foundation for legislation this session. We commend 
their efforts to date and urge others to join in fashioning a necessary 
solution.'' Grumet also credited early initiatives by Congressmen 
Pallone (D-NJ), Franks (R-NJ) and Bilbray (R-CA) for raising the MTBE 
issue to the legislative forefront.
    Editors' Note: Copies of NESCAUM's RFG/MTBE report may be obtained 
through the Internet at www.NESCAUM.org or by calling (617) 367-8540.
                                 ______
                                 
                                 American Lung Association,
                                                    Washington, DC.
                      (Contact: Diane Maple, ALA)

     ALA, NRDC Call on Congress To Enact Clean Fuel Fix To Protect 
                             Water Supplies

    Washington, DC, February 1, 2000.--With Congress back in session 
and public concern mounting over the water pollution and health threats 
posed by methyl tertiary butyl ether (MTBE), a widely used fuel 
additive, the American Lung Association and the Natural Resources 
Defense Council are calling for action by Congress and the 
Environmental Protection Agency to ``fix'' the problem while 
maintaining the air quality benefits of the nation's reformulated 
gasoline program.
    ``Six months ago, an expert panel recommended these changes. It's 
time for Congress to put clean air and clean water at the top of its 
agenda,'' said John R. Garrison, CEO of the American Lung Association 
(ALA). ``Congress should adopt the necessary changes in time for the 
summer smog season.''
    The 1990 Clean Air Act Amendments require the ``reformulation'' of 
gasoline to reduce vehicle emissions. Reformulated gasoline (RFG) is 
currently required in nine major U.S. metropolitan areas with the worst 
ozone pollution problems and many other areas have voluntarily chosen 
to use RFG. MTBE or other oxygenates are required to be included in the 
reformulated fuel. Recent health concerns focus on gasoline leaking 
into public water supplies.
    ``While there have been huge pollution reductions in smog and 
cancer-causing air toxics from the switch to reformulated gasoline, 
Congress can no longer ignore the harm being done by gasoline and MTBE 
leaking into drinking water supplies,'' said Janet Hathaway, Senior 
Attorney with the Natural Resources Defense Council (NRDC). ``Oil 
refiners have the ability to produce gasoline that achieves just as 
much air pollution reduction without oxygenates such as MTBE. but the 
law currently mandates their use. Congress should act immediately to 
repeal the mandate.''
    Congress would have to amend the Federal Clean Air Act before RFG 
without oxygen could be sold in states other than California.
    It is also critical that Congress prohibit oil companies from 
producing a fuel that is less effective at reducing smog and toxic air 
pollutants than the RFG sold today when they remove oxygenates. We do 
not need to take a step backward in combating air pollution in order to 
protect groundwater,'' said the Lung Association's Garrison.
    The American Lung Association and NRDC plan to meet with Sen. Bob 
Smith (R-NH), newly named chairman of the Senate Environment and Public 
Works Committee, to support his leadership in the push for rapid 
legislation. Smith has already announced that holding hearings on the 
oxygen requirement in RFG is a top legislative priority. ``Given the 
MTBE contamination from RFG already found in New Hampshire, Chairman 
Smith is the logical choice to lead this effort,'' said the NRDC's 
Hathaway.
    The two groups also are asking the EPA to grant a request from 
California to exempt RFG sold in the State from the Clean Air Act's 
mandatory oxygen requirement. ``California is the only State where, 
under the law, EPA could grant a waiver tomorrow to allow gasoline sold 
in the State to contain little or no MTBE. For the sake of clean air 
and water, they should do it,'' said Hathaway.
    American Lung Association and NRDC representatives served on an 
expert panel, called the Blue Ribbon Panel on Oxygenates in Gasoline, 
appointed by EPA to explore the MTBE problem. Both organizations have 
endorsed changes in the RFG program that were recently adopted by the 
Northeast States for Coordinated Air Use Management (NESCAUM), which 
represents the eight Northeast states that currently participate in the 
RFG program.
    The NESCAUM principles are as follows:
     Repeal the 2 percent oxygen mandate for RFG in the Clean 
Air Act.
     Phase-down and cap MTBE content in all gasoline.
     Clarify State and Federal authority to regulate, and/or 
eliminate, MTBE or other oxygenates if necessary to protect public 
health or the environment.
     Maintain the toxic emissions reductions benefits achieved 
to date by the RFG program.
     Promote consistency in fuel specifications through the 
timely implementation of effective Federal requirements.
     Provide adequate lead time for the petroleum 
infrastructure to insure adequate fuel supply and price stability.
                               __________

                      American Petroleum Institute

                 API Supportive of MTBE Recommendations

               (Contacts: Susan L. Hahn and Chris Kelly)
    WASHINGTON, January 20.--The American Petroleum Institute issued 
the following statement today in support of the recommendations just 
released by the Northeast States for Coordinated Air Use Management 
(NESCAUM) on MTBE (methyl tertiary butyl ether), a gasoline oxygenate 
additive:
    ``The U.S. oil and natural gas industry supports clean air and 
clean water for all Americans. The recommendations released today by 
NESCAUM on MTBE provide a useful focus for resolving the problems 
resulting from the requirement to include oxygenates in Federal 
reformulated gasoline (RFG).
    ``NESCAUM proposes a multi-component strategy that calls primarily 
upon the Federal Government to resolve the MTBE issue in a way that 
addresses air and water quality issues while preventing gasoline supply 
and market disruptions. This solution would be better than a patchwork 
of State fuel regulations.
    ``API supports NESCAUM's call for the repeal of the oxygen content 
mandate for Federal reformulated gasoline. API also supports NESCAUM's 
recommendations that any phase down of MTBE use occur on a time 
schedule that allows refiners and markets to make an orderly 
transition. Repeal of the Federal oxygenate mandate and adequate time 
for any phase down of MTBE are critical steps to avoid disruption of 
the supply and distribution chain of gasoline to consumers.
    ``API looks forward to continuing to work with NESCAUM, EPA and 
Congress to resolve these difficult issues.''
                                 ______
                                 
                                               U.S. Senate,
                                     Washington, DC, July 28, 1999.
Jason Grumet,
Executive Director,
Northeast States for Coordinated Air Use Management (NESCAUM),
Boston, MA
    Dear Jason: For more than 20 years, I have believed that a healthy 
domestic ethanol industry can contribute to a variety of national 
policy objectives. Most obviously, it enhances farm income and 
strengthens our rural economy. But it also improves air quality, 
reduces oil imports and lowers net budget outlays.
    The creation of the Reformulated Gasoline (RFG) program as part of 
the 1990 Clean Air Act Amendments established a minimum oxygen standard 
that has significantly increased demand for ethanol and other 
oxygenates. The benefits of this program for the Nation have been 
impressive. Since taking effect in 1995, the RFG program has exceeded 
the emissions reduction goals set by Congress, reduced oil imports by 
over 250,000 barrels per day and increased substantially demand for 
agricultural and other domestic raw materials.
    The presence of MTBE in water supplies in California and elsewhere 
now poses a serious threat to the RFG program. Questions have been 
raised about the continued utility of the oxygen requirement, and the 
suggestion has been made that refiners be granted additional 
flexibility in making clean-burning RFG.
    In recent months, Senators Feinstein and Boxer have been working 
with me to explore alternatives to the RFG oxygen requirement that 
would provide the necessary flexibility for California and other states 
to address their MTBE water contamination problem, while providing a 
solid future for ethanol. This process, which is on going, has produced 
a proposal that addresses the legitimate concerns that have been raised 
about MTBE without sacrificing the many proven benefits of oxygenates 
in cleaner burning gasoline.
    In return for allowing states to waive the oxygen requirement, this 
proposal would establish a renewable fuels standard, applicable to all 
gasoline sold in the United States that would more than double ethanol 
production over the next 10 years. In addition, it would empower EPA 
and the states to regulate MTBE and other fuel components.
    As you know, the debate over the future of the oxygen standard is 
approaching a critical juncture. The Blue Ribbon Panel established 
earlier this year by EPA Administrator Carol Browner has recommended 
ways to provide additional flexibility to the RFG program. While 
acknowledging the value of domestic renewable fuels like ethanol in our 
nation's fuel supply, the panel recommended repeal of the RFG oxygen 
requirement.
    The attached draft proposal is the product of months of 
consultation with experts in both the public and private sectors and 
draws upon the deliberations of EPA's Blue Ribbon Panel as well as 
valuable input from many of my colleagues in the Congress. Again, it 
was developed in response to concern about MTBE water contamination and 
is designed to provide states with the flexibility they need to deal 
with this problem without sacrificing the many benefits ethanol and 
other oxygenates provide.
    I recognize you are extremely busy. However, I value your input, 
and things are moving very quickly here in Washington on this issue. 
Consequently, I would appreciate it if you would review these materials 
and let me know your reaction to the proposal as soon as possible. 
Should you have any questions about any of this, please feel free to 
call my Legislative Director, Eric Washburn, at 202/224-2321.
    Thank you in advance for your consideration. I look forward to 
working with you.
            Sincerely,
                                               Tom Daschle,
                                                       U.S. Senate.
                               __________

                  Northeast States for Coordinated Air Use,
                                     Boston, MA, September 3, 1999.

    Dear Senator Daschle: On behalf of NESCAUM's eight member states, I 
welcome this opportunity to share our thoughts on your legislative 
proposal to amend the Federal reformulated gasoline (RFG) requirements 
found in the Clean Air Act.
    As you know, the Northeast region is one of the largest consumers 
of RFG and MTBE in the nation. Despite achieving substantial pollution 
reductions over the past decade, many Northeast states remain in 
nonattainment of the Federal ozone standard. Moreover, all states in 
our region and most in the Nation exceed public health thresholds for a 
host of toxic air contaminants emitted by gasoline powered motor 
vehicles. While the Northeast region clearly needs the air pollution 
benefits of RFG, growing concerns about the presence of MTBE in 
groundwater have caused many to question the merits of the RFG program. 
The lack of flexibility under present law to reduce oxygen content and 
limit MTBE volumes has left Maine no option but to abandon the RFG 
program altogether.
    The Northeast states strongly desire the flexibility and clear 
authority to maintain the substantial air quality benefits of the RFG 
program while limiting the use of MTBE. Toward this end, NESCAUM 
appreciates your effort to build the consensus necessary enable a 
narrow amendment to the 1990 Clean Air Act. We believe that it would be 
counterproductive to initiate a comprehensive revision of the Clean Air 
Act at this time. Therefore, we welcome the opportunity to bring our 
region's political diversity to the challenge of developing the 
bipartisan consensus necessary for legislative success.
    Before providing detailed comments on the draft legislation, I 
would like to share the principal conclusions reached during our 
recently completed study on RFG and MTBE in the Northeast.
     RFG has provided substantial public health benefits to 
millions of Northeast State residents. These public health benefits 
substantially outweigh public health risks from the increased use of 
MTBE in the Northeast. However, the persistence and mobility of MTBE in 
groundwater has convinced us that a reduction in MTBE use is necessary 
to protect water resources.
    In the Northeast, the only immediately available replacement for 
the volume and octane provided by MTBE are highly toxic compounds. 
Several of these compounds, unlike MTBE, are known human carcinogens. 
Moreover, present ambient levels of a number of these toxic gasoline 
constituents (benzene, 1,3 butadiene, acetaldehyde) exceed air quality 
health based thresholds throughout our region and most of the nation. 
The unusual tension between MTBE's benefit to public health and risk to 
environmental quality requires prudence as we seek to diminish MTBE 
use.
     Over the next several years, ethanol and alkylate provide 
opportunities to replace MTBE without posing unacceptable increases in 
air toxics as long as anti-backsliding provisions are enacted. In the 
Northeast, questions about ethanol supply and distribution networks and 
concerns about increased fuel volatility need to be better understood 
before we encourage policies that require the use of ethanol in our 
region. At present, little is known about the environmental fate and 
transport of alkylate and its combustion products. Rigorous testing of 
alkylate, including a thorough public health analysis, is needed before 
we substantially increase the volume of this compound in Northeast 
gasoline.
    The northeast states are committed to charting a pathway that 
effectively mitigates the unacceptable risk MTBE poses to our water 
resources while maintaining the full air quality and public health 
benefits of the RFG program. We know that you share these goals and 
look forward to working with you and your staff in the coming months.
    The following discussion summarizes our thoughts regarding key 
legislative provisions. Detailed comments and suggested revisions are 
attached.
    State Flexibility and Authority to Regulate Oxygenates.--We 
strongly endorse your effort to provide states with the measured 
authority necessary to fulfill our obligation to protect the 
environment and our natural resources from MTBE contamination. In order 
to cost-effectively reduce MTBE use in our region, states must be given 
relief from the 2 percent oxygen mandate. Our preference is to have the 
oxygen mandate lifted outright. However, we believe that a streamlined, 
state-based waiver process designed to avoid bureaucratic delay and 
limit litigation may provide an acceptable alternative for the 
Northeast. We recognize the value of consistent national and regional 
fuel standards. Given the opportunity, the Northeast states will work 
with the U.S. EPA as a region to provide consistent regulation of 
gasoline additives.
    Anti-backsliding Provisions to Protect Air Quality.--We strongly 
support your commitment to maintain the air quality benefits presently 
achieved by the RFG program. At present, RFG in the northeast is 
providing 75 percent greater air toxic reductions than required under 
law. Lifting or waiving the oxygen requirement will enable, and in some 
cases encourage, refiners to increase the volume of high toxicity 
gasoline blending components in RFG at a considerable cost to public 
health. At a minimum, future clean-burning gasoline must maintain the 
actual benefits of the RFG program we are achieving today.
    Conventional gasoline in the Northeast produces 13 percent less 
toxic air pollutants than before the advent of RFG. Changes in the RFG 
program may significantly affect the quality of the conventional 
gasoline pool. Maintaining the last decade's improvement in 
conventional fuel quality must also be a goal of anti-backsliding 
provisions. A continuing concern about conventional gasoline quality 
may be exacerbated by a transition from MTBE to ethanol. The statutory 
one pound Reid vapor pressure waiver for gasoline containing at least 
10 percent ethanol will increase hydrocarbon emissions if ethanol use 
in conventional gasoline increases during the summer months. 
Preservation of current air quality benefits will require either the 
elimination of this waiver, or other measures to offset the expected 
hydrocarbon increases. We offer specific suggestions that address these 
issues in the attached legislative analysis.
    Renewable Fuels Requirement.--We understand from your letter and 
your history of support for renewable fuels and ethanol that your 
willingness to play a leadership role in lifting the oxygen standard is 
linked to ``providing a solid future for ethanol.'' As you are aware, 
at present there is no ethanol produced and hardly any ethanol used in 
our region. Understandably, our lack of ethanol production and 
distribution infrastructure and longstanding concerns about ethanol 
volatility create apprehension about legislative outcomes that would 
force the wide-scale use of ethanol in the northeast.
    While we have several questions about the proposed renewable fuels 
requirement, we recognize that the flexibility provided in your 
legislation may better respond to our stated concerns about ethanol 
than Congressional inaction. Under the 2 percent oxygen mandate, RFG 
states' efforts to regulate or ultimately eliminate MTBE will 
necessitate the use of ethanol during the height of our ozone season. 
Moreover, market barriers and cost considerations will have no effect 
on the volume of ethanol required under the current scenario.
    By comparison, the national average renewable standard proposed in 
your legislation gives us some comfort that ethanol would only enter 
the northeast market if supply and distribution concerns can be 
overcome at a reasonable costs. We appreciate that the scaled back 
renewable standard volumes and 10 year phase-in period are designed to 
ensure a gradual transition for gasoline refiners and states. These 
features in combination with the annual averaging provision have the 
potential to alleviate a majority of the Northeast concerns. If fuel 
suppliers are able to avail themselves of market-based opportunities to 
average internally and with other fuel suppliers to meet the annual 
renewable content minimums, then we believe that ethanol will be used 
where it is cost-effective to do so. If averaging among fuel suppliers 
is not envisioned in your legislation, then we fear that ethanol could 
be required to be used in our region during summer months contrary to 
sound economic and environmental policy.
    Our region maintains considerable interest in pursuing the 
development of bio-mass ethanol production due to its significant 
positive climate change, waste management and energy security 
attributes. If this industry develops during the timeframes 
contemplated in your legislation, we are certain to overcome many of 
the supply and distribution hurdles that have hindered the development 
of a Northeast ethanol market to date.
    From an air quality standpoint, we remain principally concerned 
about ethanol co-mingling and resulting increases in evaporative 
emissions. While evaporative emissions are a concern throughout the 
year, we are principally focused on avoiding volatility increases 
during the 5-month Northeast ozone season. We wish to further explore 
whether the averaging provisions contained in your proposal enable our 
states to ensure that any ethanol that enters the region is sold 
outside of the summer ozone season. Last, we believe that ethanol has 
significant potential to reduce air pollution, particularly greenhouse 
gas emissions. The logic of amending the Clean Air Act to contain a 
renewable fuels requirement would be enhanced if the nexus between the 
use of ethanol and air quality was made explicit. We would be happy to 
work with your staff to explore options for setting minimum thresholds 
for full fuel cycle GHG reductions or other approaches that demonstrate 
the necessary linkage between ethanol and clean air.
    We appreciate your consideration of these initial thoughts and the 
more detailed comments that are attached.
            Sincerely,
                                              Jason Grumet,
                                                Executive Director.
                               __________

                            State of New Hampshire,
                                    Office of the Governor,
                                   Concord, NH, September 16, 1999.
Hon. Tom Daschle,
U.S. Senate,
Washington, DC.

Re: Proposed Amendments to the Federal Reformulated Gasoline Program

    Dear Senator Daschle: Thank you for your letter of August 13, 1999 
and its accompanying recommendations for changes to the Federal 
Reformulated Gasoline (RFG) program. Your letter notes that the air 
quality benefits of RFG in reducing emissions of ozone precursors and 
numerous toxic compounds have been substantial, exceeding expectations 
for the program since its inception in 1995. As you know, however, the 
gasoline additive methyl tertiary-butyl ether (MTBE), which is used 
extensively in the Northeast to meet the Federal oxygenate mandate 
associated with RFG, has been found to present a significant threat to 
the quality of our groundwater and surface water resources.
    Concern about the use of MTBE in the Northeast's regional gasoline 
supply prompted me, in November 1998, as Chair of the New England 
Governors' Conference, to ask the Northeast States for Coordinated Air 
Use Management (NESCAUM) to study the use and effectiveness of MTBE as 
a component of gasoline and the viability of possible alternatives, 
including ethanol. Soon after, the U.S. Environmental Protection Agency 
launched a Blue Ribbon Panel to undertake a similar assessment. The 
conclusions of both of these efforts recommend reducing the use of MTBE 
in RFG dramatically, ensuring that the actual air quality benefits 
currently provided by RFG are retained, and providing States with clear 
authority and greater flexibility to regulate oxygenates and other 
gasoline constituents. I applaud you and Senator Feinstein for crafting 
a proposal that represents significant progress toward achieving these 
outcomes. In particular, I think the concept of a renewable fuel 
requirement--accompanied by elimination of the Federal oxygenate 
mandate--holds great promise and represents a wise precedent for the 
Nation to establish.
    Your letter thoroughly reviews the advantages of renewable fuels, 
from both environmental and economic perspectives. While the economic 
advantages for the agricultural Midwest are clear, I am concerned that 
a renewable fuels mandate could have a significant financial impact on 
consumers in the Northeast who may--at least initailly--find themselves 
subsidizing renewable fuel credits. Implementation of such a 
requirement over an appropriate time period, as your proposal prudently 
contemplates, is this essential. I believe that other important 
implementation issues, such as evaporative emissions, averaging 
provisions, and shoulder season co-mingling, can also be successfully 
addressed. I know that these and other issues have been carefully 
considered by NESCAUM, so your effort to reach out to NESCAUM to review 
and revise this proposal should assist materially in developing a 
solution that is satisfactory to all.
    I must also mention two additional personal concerns regarding our 
joint efforts to find a national solution to the MTBE problem. First, 
we must have a truly national solution. I have recently become aware 
that some in Congress would like to undertake a single-state solution, 
leaving other states--including those in the Northeast--to suffer 
continued contamination of their water supplies. This is simply 
unacceptable.
    Second, we in New Hampshire appear to have a greater sense of 
urgency of the need to reduce the threat of MTBE contamination than 
many jurisdictions. Legislation passed this spring, for example, 
authorized the State to limit MTBE concentrations in gasoline and 
directed the New Hampshire Department of Environmental Services to seek 
from EPA an immediate, temporary waiver from the reformulated gasoline 
program. As you can see, if the oxygenate problem is not solved 
promptly, the entire RFG program--and its significant air quality 
belefits--could be jeopardized. As a result, New Hampshire supports 
moving as expeditiously as possible to determine and implement a 
national solution, including an aggressive schedule for reducing and/or 
phasing out MTBE as a gasoline additive.
    I congratulate you and Senator Feinstein for your efforts to 
balance environmental quality, economic well being, and energy supply 
and sufficiently in shaping a national resolution to these complex fuel 
issues. We appreciate your interest in helping all States retain the 
demonstrated public health benefits of cleaner burning gasolines and 
minimize the environmental threats posed by the continued usage of 
MTBE. Please let me know of any way that I can help to ensure the 
prompt passage of this important legislation to preserve clean, healthy 
air and protect our precious water resources.
            Very truly yours,
                                                    Jeanne Shaheen.
                               __________

                    State of Maine, Office of the Governor,
                                   Augusta, MA, September 28, 1999.
Hon. Thomas Daschle,
U.S. Senate,
Washington, DC.
    Dear Senator Daschle: Thank you for sharing your legislative 
proposal to amend the Reformulated Gasoline (RFG) oxygen standard in 
the 1990 Clean Air Act Amendments. Let me first say that I am very 
encouraged that a Federal solution may emerge within the next year to 
help Maine and other states combat the problem of MTBE contamination in 
groundwater. After reviewing your proposal, I believe it can help 
establish the proper foundation upon which each State or region can 
achieve its respective goals.
    While the RFG program has provided significant air pollution 
benefits, there is clear evidence that the use of MTBE in this fuel has 
contributed to widespread groundwater contamination. I cannot, in good 
faith, advocate the increased use of MTBE to reduce air pollution, 
while increasing the contamination of groundwater. Maine, for example, 
relies on groundwater for the majority of its drinking water, and 
therefore, widespread contamination of our groundwater with MTBE is 
simply unacceptable. For these reasons, and the lack of flexibility 
under Federal law to reduce the oxygen content and limit MTBE, Maine 
has abandoned the RFG program in its entirety. The recent Environmental 
Protection Agency (EPA)--sponsored Blue Ribbon Panel and the Northeast 
States for Coordinated Air Use Management (NESCAUM) studies have 
confirmed Maine's analysis of MTBE and my belief that the Clean Air 
Act's oxygen standard poses a very real threat to groundwater and 
public health.
    As you know, the path forward is a difficult one, not only for 
Maine, but also for the rest of the country. Gasoline powered vehicles 
represent one of the most significant sources of air pollution in terms 
of ozone forming pollutants and air toxics. Thus reformulation of 
gasoline is an appropriate means of achieving our environmental goals 
and protecting public health, as long as this fuel does not have 
unintended negative environmental consequences.
    In light of these considerations, Maine's immediate goals are to:
     (1) eliminate the RFG oxygen level mandate in the Clean 
Air Act;
     (2) reduce or eliminate the use of MTBE in gasoline; and,
     (3) assist with the development of a regional or seasonal 
fuel that achieves the original air quality goals of the RFG program 
without the increased use of MTBE.
    It appears that your proposal and our goals are consistent on a 
number of points. I particularly support the following aspects of your 
bill:
     the gradual reduction of MTBE to pre-RFG levels;
     the ability of states to further regulate or phase-out 
MTBE;
     the ability of states to regulate MTBE and to opt-out of 
the oxygen requirement (I would prefer the oxygen mandate to be removed 
from the Clean Air Act); and,
     the maintenance of air quality benefits that have been 
provided by the RFG program.
    While I understand your concern that the elimination of the 
oxygenated requirement has the potential of reducing the amount of 
ethanol used as a motor vehicle fuel, it will be difficult to increase 
the use of ethanol in Maine or the Northeast. Inadequate supplies and 
distribution infrastructure interfere with the use of ethanol in the 
Northeast, and causes considerable apprehension over the renewable 
fuels requirement of your proposal. I understand there is recognition 
of these problems in your bill, since there are provisions of a 
national average renewable fuel standard and a 10-year phase in period 
for the renewable fuels requirement. I also have concerns that an 
ethanol-blended fuel will not be as useful to resolve our particular 
air quality problems during the summer. Nonetheless, I am sensitive to 
the needs of farmers everywhere, and I certainly am willing to discuss 
how our mutual interests can be met.
    I appreciate your leadership on this important issue, and I look 
forward to continuing our dialog as Congress considers this matter. As 
a first step, I have asked Jim Brooks, Director of Maine's Bureau of 
Air Quality, to contact your staff to discuss our respective goals.
            Sincerely,
                                        Angus S. King, Jr.,
                                                          Governor.
                               __________

                     [From a Lincoln, NE newspaper]

                   Mandatory Ethanol is Going Too Far

    Nebraskans can be proud that their State is one of the Nation's 
leading ethanol producers.
    It's a clean-burning fuel additive made from a renewable resource--
primarily corn--that has helped reduce air pollution in smog-ridden 
cities. It has helped reduce the Nation's dependence on imported oil.
    It's clearly superior to the next best alternative, MTBE, a 
suspected carcinogen that comes in the form of a slippery molecule that 
quickly contaminates groundwater. By comparison ethanol is no more 
dangerous than old-fashion corn liquor.
    Those are all good reasons to support ethanol and for the Federal 
subsidy for ethanol to continue.
    Gov. Mike Johannna wants to go one step further. He wants to make 
the use of ethanol mandatory in Nebraska.
    Thats going too far. Even though there are powerful arguments and 
favor of ethanol, the use of government to restrict consumer choice and 
to favor a particular product in the marketplace should be taken only 
under special conditions.
    For example, the argument is often made that soy products are more 
healthier than meat. They are low in unsaturated fat. People with high 
cholesterol are sometime encouraged by doctors to each soy burgers 
rather than hamburgers.
    Do those fact justify legislation restricting Nebraskans to eating 
only soy burgers? Do those facts justify eliminating steaks and porks 
chops from the diets of Nebraskans who may not suffer from cholesterol 
problems?
    The power of government to restrict competition should be used 
lightly, if at all.
    A better approach to coping with the danger of MTBE might be to 
simply ban the unsafe product, an option being considered by the U.S. 
Environmental Protection Agency.
    Already MTBE has fouled water supplies across the Nation. It has 
even made its way to Nebraska, even though there is no reason for the 
substance to be in gasoline used here. It has been detected at 18 sites 
in the State and may be found at more. A probable explanation for the 
presence of MTBE in Nebraska is that once MTBE is blending into 
gasoline, it can end up anywhere. It is often mixed at the refinery and 
shipped by pipeline. Gasoline can be purchased on the open market. 
Sometimes it may make economic and logistical sense to slip MTBE 
gasoline to Nebraska. And so some of it ends up in some of the States 
groundwater.
    As the EPA considers a ban on MTBE ethanol supporters should push 
hard for ethanol at the safest and most--proven additive to help reduce 
carbon monoxide in cities where levels of lethal gas exceed Federal 
standards.
    No communities in Nebraska, however, have carbon monoxide levels 
that trigger the requirement that oxygenates such as ethanol or MTBE be 
added fuel. Until such evidence can be presented, there is insufficient 
reason to take away the choice that Nebraska motorists now have to pump 
ethanol, regular or premium.
    In the meantime, if the Governor wants to try a mandate, we have a 
modest proposal: Let him serve only soy products at the Governor's 
Mansion. The reaction of guests to the delectable, but limited, menu 
might be instructive.
                               __________

     [From the Des Moines (IA) Sunday Register, September 19, 1999]

                       The Register's Editorials

                        Let Ethanol Prove Itself

    (Iowa Farmers Need Help, but Coercion at the Gas Pump is Wrong)

    The price of corn is low, and Iowa farmers are hard hit.
    So here's the deal: Let's prohibit the sale of wheat bread. From 
now on, only corn bread should be allowed on Iowa grocery shelves. It 
might help boost the price of corn.
    Hog farmers are struggling, too. Why not ban the sale of other 
meats so that Iowans can eat nothing but pork?
    No?
    Well, how about requiring that most gasoline sold in Iowa be 
blended with corn-based ethanol?
    That's an idea that has the backing of the governor and State 
agriculture secretary as well as Iowa's two U.S. Senators.
    But that doesn't make it right.
    Ethanol is good for Iowa. It creates an additional market for corn. 
It is an alternative fuel from a renewable resource. Iowa politicians 
are right to promote ethanol and to provide a tax break until the 
industry can stand on its own feet. they are right to fight the oil 
lobby in its efforts to rob ethanol of its market and take away its 
subsidy.
    Promotion is one thing. Coercion is another. An ethanol mandate 
would deny Iowans a choice of fuels and short circuit the process of 
ethanol establishing its own worth in the marketplace. Except in places 
where smog problems dictate the use of an oxygenated fuel, what's the 
rationale for mandating ethanol?
    The justification is to marginally boost the price of corn. Cleaner 
air is offered as a reason, too, but that's an afterthought. If that 
were the goal, other measures would be far more effective: outlawing 
SUVs, for instance, or quadrupling the gasoline tax.
    Promotion is one thing, coercion is another.
    Ethanol is not recommended for some small engines on lawn mowers, 
snowblowers, boats, auxiliary generators and the like. Then, too, lots 
of Iowans drive older vehicles or use older equipment with components 
that may not have been engineered to use ethanol, as newer vehicles 
are. Why put these people through a hassle to find the non-ethanol fuel 
their equipment requires?
    One convenience store chain used to advertise free repair for any 
engine damaged by the use of its gasoline. If the State insists on 
mandating the use of ethanol, perhaps it should make the same offer. 
Better yet, let Iowans make their own choices, and let ethanol prove 
itself in the marketplace.
                               __________

           [From the Omaha (NE) World Herald, March 9, 2000]

                             Editorial Page

                       More Alcohol, Less Choice

  (By John Gottschalk, Publisher; Lawrence D. King, Executive Editor; 
   Francis L. Partsch, Editorial pages Editor; and Deanna J. Sands, 
                            Managing Editor)
    Motorists will have fewer choices at the gas pump if the Nebraska 
Legislature and Gov. Mike Johanns continue a course down which they 
have started.
    The issue is grain alcohol, or ethanol, which, when mixed with 
gasoline, produces a fuel that has captured about 25 percent of the 
Nebraska market. However, this consumer acceptance in Nebraska has been 
bolstered by State and Federal tax exemptions designed to make alcohol-
blended fuel competitive with straight gasoline. Now the Nebraska 
Legislature is considering eliminating the competition altogether. 
Support is building for a proposed State law to require most general-
purpose automotive fuel sold in the state to contain ethanol.
    As a general principle, government should not take sides in such 
matters unless a strong case can be made that intervention serves a 
major public purpose. In this instance, the arguments for eliminating 
competition haven't been persuasive.
    One argument is that the financial health of corn growers and 
ethanol producers in Nebraska would benefit, boosting the economy of 
the State generally. The statement is indisputably true, but as an 
argument it breaks down. The power of the Legislature is not 
appropriately used to eliminate competition for Nebraska-produced 
products. If Nebraska applies a similar protectionist philosophy to 
beef, pork and corn, lovers of grilled tuna, among others, might be 
permanently out of luck. Rice Krispies might disappear from the 
shelves. Crab legs? Forget it.
    Another argument is environmental. Governor Johanns in a conference 
call with newspaper editors on Tuesday, said he was supporting the 
legislation because it's time the State set an environmental standards 
for fuel content.
    Perhaps it is time, but that's an argument that could do with a 
good bit more scientific underpinning than has been evident so far, 
Johanns said ordinary gasoline contains many chemicals that could when 
burned, be harmful. Of particular concern, he said is MTBE, an additive 
used in some parts of the country to enhance octane while reducing 
carbon monoxide. At seven Nebraska locations, Johanns said, MTBE has 
been found in underground water.
    MTBE has been linked to tumors in laboratory animals and seeps 
readily into water supplies. In Iowa, MTBE has been found in 29 percent 
of the State's monitored test wells.
    However, petroleum industry spokesmen said they don't know how the 
additive ended up in the Midlands, where it isn't commonly added to 
gasoline supplies. One theory is that traces of MTBE exist in some 
refinery equipment, from where it passes into gasoline supplies that 
seep into the water from leaky underground tanks.
    Ethanol also enhances octane while reducing carbon monoxide. But if 
no one know precisely how MTBE has been making its way into Midlands 
water supplies, how can anyone make a credible claim that mandatory 
ethanol usage will prevent future contamination? What's to say the MTBE 
contamination won't continue to occur just as it has been occurring?
    To say that the proposal could benefit from scientific validation 
should not be interpreted as hostility to the ethanol industry. There's 
much to be said for ethanol-blended fuels. The ethanol industry has 
been good for Nebraska corn growers. It has provided jobs in Nebraska 
communities. We hope the product has a bright future and continues to 
own consumer acceptance, as surely it has been doing in recent weeks, 
with rising petroleum prices making the ethanol blends more price-
competitive.
    Certainly if scientific analysts showed that a State law governing 
the content of motor fuel could appreciably prevent the contamination 
of the water supply, it might constitute justification for the State to 
do away with consumers' choice. As a general philosophy, however, 
government should be cautious about eliminating competition. The freer 
the marketplace to reflect the collective decisions of consumers, the 
greater the probability that it will provide the jobs and taxable 
incomes on which the government is so dependent.
                               __________

             [From the Quad City Times, September 19, 1999]

                               Editorials

                  A New Subsidy: More Fuel on the Fire

                      (By John M. Humenik, Editor)
              ethanol-only proposal doesn't help consumers
    Chuck Grassley and Tom Harkin may have the best of intentions, but 
their proposal to boost ethanol use in Iowa is seriously misguided.
    The two U.S. Senators have signed a petition asking Iowa Secretary 
of Agriculture Petty Judge to require that Iowa service stations sell 
only ethanol-blended gasoline. Ethanol, as most Iowans know, is a fuel 
derived from a mixture of gasoline and corn-based alcohol.
    Harkin and Grassley, of course, are longtime supporters of ethanol. 
They know that its use is good for Iowa corn farmers and that it 
reduces the nation's reliance on foreign oil.
    But that's only half the story. Federal subsidies of ethanol now 
cost American taxpayers more than $770 million a year in lost revenue--
largely because of ethanol's exemption from Federal fuel taxes. The 
Congressional Research Service says that figure could reach $1 billion 
by next year.
    And mind you, that subsidy isn't putting more money in the pockets 
of farmers. The real beneficiaries of the ethanol subsidy are 
conglomerates like Archer Daniels Midland Corp. that convert the corn 
into ethanol. The Cato Institute estimates that every dollar of profit 
now earned by ADM's ethanol operation is costing taxpayers $30 in lost 
revenue. That's because in addition to the federally subsidized 
production of ethanol, ADM also has received millions of dollars worth 
of free corn from American farmers, courtesy of the Department of 
Agriculture.
    Are farmers the co-beneficiaries of the ethanol subsidy? Yes--but 
not to the extent that some would argue. Subsidized ethanol production 
does guarantee corn farmers a higher price for their product, but that 
penalizes hog farmers and cattlemen since more than half the Nation's 
corn crop is used domestically for feed grain.
    As for claims that ethanol helps the environment, the National 
Academy of Science, the Congressional Budget Office, the Department of 
Energy and even the USDA have each reported that ethanol, which is less 
efficient than gasoline, provides no significant environmental benefit 
and may even add to air pollution--which is why ethanol use was 
restricted in the EPA-proposed rules first issued in conjunction with 
the Clean Air Act of 1992.
    None of this is to suggest that Grassley and Harkins are wrong to 
support the subsidization of ethanol at a more reasonable level--only 
that there is an abundance of evidence that indicates ethanol is not 
all that it's cracked up to be. Not for consumers, not for the 
environment and not for farmers. With research and continued 
refinements, it might someday become an economically viable alternative 
to gasoline--but until that day, it would be ludicrous to argue that 
Iowa's gas stations be required to sell only ethanol.
    Such an agreement would infringe on the rights of thousands of Iowa 
businessmen and put service stations in border communities such as the 
Quad Cities at a competitive disadvantage with gas stations in 
neighboring States. It also would take government subsidization of 
ethanol to a whole new level, essentially forcing Iowans to buy a 
product that already is costing them money through lost tax revenues.
    The game is rigged as it is. With their million-dollar subsidies, 
ethanol producers are playing against their competition with loaded 
dice and marked cards they're still losing--to the extent that 
lawmakers are proposing the outright elimination of the competition--
that's a sure sign that ethanol is not a product that consumers are 
ready to embrace.
    Ethanol might be worth some level of government support, but it 
never will be so valuable as to justify scrapping our system of free 
enterprise.
                               __________

                        [From Gazette newspaper]

                           Gazette Editorials

               Noble Motives: Still, Ethanol Idea is Bad

    Its almost impossible in Iowa these days of heightened political 
activity not to run into a politican--already in office or seeking 
office--who isn't sympathetic to the plight of American agriculture.
    Even more than sympathetic, they're typically eager to offer their 
version of the answers to this economic slump.
    Short of the government writing a check to every hog farmer who's 
lost $20 or $30 on every animal marketed at some point in the last 
year, or guaranteeing farmers will be paid at least what it costs to 
produce corn and soybeans, instant relief for what ails agriculture is 
hardly probable.
    That doesn't stop politicians from trying. We would be disappointed 
if they did give up.
    Part of the problem is public policy. Part is global turmoil. Part 
is the fault of farmers who produce more than the market needs.
    Which brings up the situation brought to our attention over the 
weekend. Sen. Charles Grassley's top aid, Ken Cunningham, has started 
the ball rolling toward possible implementation of a regulation 
mandating that all gasoline sold in Iowa be an ethanol blend. Even 
though lawmakers failed to consider such a mandate earlier this year, 
Cunningham says the Code of Iowa already empowers the secretary of 
agriculture to take such action.
    Since an ethanol mandate on fuel sold in Iowa would give the price 
of corn a modest but desirable boost, the motivation for such an effort 
cannot be challenged.
    If it is determined the law actually provides such authority, look 
for the push to implement its provisions to be intense.
    The sense from this corner, as noted recently, is that a policy of 
government-mandated consumption is bought with difficulty. It is to be 
avoided under every circumstance. Sure, all of us--at least those of 
use whose own roots aren't too far removed from the roll--truly can say 
we feel the pain of Iowa farmers and probably shouldn't object if 
enhanced ethanol sales jacked up corn prices a notch.
    But are we ready for government to tell us which cost food entry to 
penalized? Or which automobiles we must buy? It's bad enough that the 
people we elect to public office take the money they collect from us 
and spend it--something--on projects some may find offensive. But let's 
not tolerate their being so invasive into our lives as to tell us what 
has to go into the gas tanks of our cars and pickups. Or on our tables.
    And if it's determined that some past legislature managed to pull a 
fast one on Iowans by giving such discretion to the agriculture 
secretary, the next legislature should want no time in taking it away.
    Public policy decisions should always be open to the full scrutiny 
of the people, not slipped in through the back door.
                               __________

                  [From The Grand Island Independent]

                            Editorial Board

 (By Robert L. Krecklow, Editor and Publisher; Bill Brennan, Executive 
   Editor, George Ayonb, Editorial Page Editor; Jeff Funk, Managing 
                  Editor; and Jim Paddis, News Editor)

                        [Volume 130, Number 243]

               Ethanol backers need to gain willing users

    Supporters of ethanol need to come to grips with a couple of major 
hurdles before their fuel will ever become successful.
    First, they need to determine that an ethanol-blended fuel is not a 
problem in cars and then convince the skeptics. Too many mechanics are 
whispering that some vehicles don't run very well on it.
    Second, they need a statewide commitment to use the product if they 
expect others to use it. However, a state law forcing Nebraskans to use 
an ethanol blend is not the right way to show commitment.
    An ethanol-blended fuel is good for the environment end makes good 
sense, especially when oil has reached $35 a barrel for U.S. importers 
and gasoline has reached $1.50 a gallon for consumers. At these prices, 
ethanol is cost effective and extends the supply of a non-renewable 
fossil fuel.
    Ethanol also makes perfect sense as a replacement for the MTBE 
additive, which was mandated in States with pollution problems. MTBE 
has been successful in reducing air pollution but has become a health 
hazard in groundwater.
    Even so, the makers of ethanol have a major marketing initiative on 
their hands. They have to win American acceptance of their product. 
they have to eliminate concerns, real or imaginary, over the use of 
ethanol in cars.
    They need to convince American automobile makers to build cards 
that offer optimum performance with ethanol blends. They also need to 
convince major American oil companies that the 10 percent ethanol 
additive will help manage the supply of crude oil.
    Yet it would be a mistake to force Nebraskans to use an ethanol 
blend. The legislative measure on the floor would force Nebraskans to 
pay higher prices for gasoline and limit selection. this tactic simply 
will make motorists resent ethanol.
    It is more important for the supporters of ethanol to gain a 
willing acceptance of their product. It may be harder to market 
consumption than to legislate it but the long-term.
                               __________

   STATEMENT OF HON. TOM HARKIN, U.S. SENATOR FROM THE STATE OF IOWA

    Good morning, Mr. Chairman and other members of the Subcommittee. I 
very much appreciate this opportunity to appear before you to discuss 
the environmental benefits of ethanol and its role in the reformulated 
gasoline program (RFG). As we work to address the crisis caused by use 
of the toxic additive MTBE in gasoline, it is critically important that 
everyone knows the facts about the advantages of ethanol the safe and 
renewable alternative to MTBE.
    Before getting into the specifics of ethanol, I want to talk 
briefly about the Clean Air Act Amendments of 1990 and the reformulated 
gasoline program. When we adopted the RFG program in 1990 the primary 
reason was of course air quality, but we also had in mind additional 
objectives through the use of oxygenates, such as enhanced energy 
security and environmental and economic benefits from using 
domestically produced renewable fuels like ethanol.
    The air quality improvements from the RFG program, including its 
oxygen content requirement, are impressive. RFG is currently used in 17 
States and the District of Columbia and accounts for about 30 percent 
of all gasoline sold in the United States. The RFG program has reduced 
emissions of ozone-forming volatile organic compounds, toxic compounds, 
carbon monoxide and oxides of nitrogen. EPA estimates that the reduced 
emissions from the RFG program are equivalent to taking 16 million 
vehicles off the road annually. And as you can see from this chart, RFG 
will bring about a cumulative reduction of well over 400,000 tons of 
pollutants from 1995 through this year.
    (Chart #1: Reductions of Pollutants from RFG)
    Well, that is the air quality side of the story. Unfortunately, we 
all know about the water quality side of the story. The oil companies 
chose overwhelmingly to use MTBE as the oxygen additive in RFG. 
Currently, about 85 percent of RFG contains MTBE and only about 11 
percent of RFG is made with ethanol. And now we have very extensive 
water quality problems from MTBE contamination. Frankly, I believe we 
could have avoided a lot of these problems if the we had been able to 
keep the higher level of oxygen in the RFG amendment that we started 
with back in 1990. That would have led to much more ethanol use, and 
less MTBE use. But we ended up with the 2 oxygen level in the law, 
widespread use of MTBE and consequent water quality problems.
    Now we must move to solve the water quality problems caused by 
MTBE. However, in doing so, I hope that we will not miss the obvious 
lessons of the MTBE fiasco. We must avoid taking steps to protect water 
that will take us backwards with respect to air quality and the use of 
renewable fuels like ethanol.
    There is another very important lesson from the MTBE crisis, and 
that has to do with how much trust we are willing to place in the hands 
of the oil companies. Remember, it is the same oil companies that 
brought us the MTBE debacle that are now calling for Congress to do 
away with the oxygen content requirement in RFG. Leave it up to us, 
they say. Give us the flexibility, they say, we will produce clean 
gasoline without the minimum oxygen content requirement.
    Well, I am not about to stand by and allow the oil companies to 
fool us once again, and I hope this Congress will not let them do it.
    Despite what the oil companies say, the oxygen content in RFG does 
have value in improving air quality. The Clean Air Act has both formula 
requirements and performance requirements for RFG. The oxygen content 
requirement is in the formula requirements. The performance 
requirements include reducing volatile organic compound and toxic 
emissions. The oil companies will say that if they meet the performance 
standards then they should not have to put oxygen into RFG.
    That approach ignores the value of oxygen in RFG that goes beyond 
what is reflected in the performance standards. Adding oxygen to RFG 
reduces emissions of ozone-forming carbon monoxide, toxic compounds and 
fine particulate matter. Oxygen helps to boost octane and replaces 
aromatic compounds in gasoline that deteriorate air quality. In 
combination, the performance standards plus the formula requirements--
including oxygen content--have led to greater improvements in air 
quality than would be the case if we just relied on performance 
standards alone.
    In other words, there are inherent benefits to using oxygen in 
gasoline that are not reflected in the RFG performance standards. We 
will be giving up these air quality benefits if we eliminate the oxygen 
requirement and rely on the current performance standards alone. In 
addition, if we take oxygen out of RFG, we can fully expect the oil 
companies to start adding back in the aromatic compounds and other junk 
in order to maintain octane in the gasoline.
    As I say, ethanol is the safe oxygen alternative to MTBE. Now, some 
are saying that ethanol cannot supply the RFG markets at acceptable 
prices. Analysis done by the Department of Agriculture refutes this 
claim. USDA concluded that ethanol can replace MTBE by 2004 without 
price spikes or supply shortages. Work by the Department of Energy also 
contradicts the suggestion that use of ethanol would substantially 
increase gasoline prices. The best evidence about gasoline prices is 
what is happening in the market right now. Ethanol is in fact less 
expensive in the market than gasoline. And a study looking at prices in 
California, found that ethanol blends would cost $0.03 per gallon less 
than MTBE blends if California were to switch to ethanol-blended RFG.
    Chart #2 on Gasoline and Ethanol Prices
    Another important element of this debate is the need to promote 
much greater use of renewable fuels in our country. Renewable sources 
are only 3 percent of U.S. energy supplies. In the gasoline market only 
about 1.2 percent is renewable ethanol. Our reliance on foreign 
petroleum is growing dramatically. We are now far more reliant on 
foreign petroleum than we were back in the 1970s when disruptions in 
oil supplies caused tremendous shocks to our economy.
    (Chart #3: U.S. Dependence on Foreign Oil)
    In conclusion, I firmly believe that the oxygen content requirement 
continues to have real value in improving air quality. I also believe 
that any legislation regarding the RFG program should incorporate some 
key principles: (1) eliminating MTBE; (2) fully maintaining and 
preferably increasing the air quality benefits delivered by the RFG 
program, including its oxygen content requirement; (3) fully accounting 
for the environmental benefits of ethanol as an oxygen additive to 
gasoline, especially with respect to reducing emissions of carbon 
monoxide, toxic compounds and fine particulate matter and their 
precursors; and (4) fully maintaining and preferably increasing the 
opportunities for ethanol and renewable fuels in comparison to the 
current RFG program.
    Mr. Chairman, again I appreciate the opportunity to appear before 
your Subcommittee.
                               __________

  STATEMENT OF JACK HUGGINS, VICE PRESIDENT, WILLIAMS BIO-ENERGY, THE 
                           WILLIAMS COMPANIES

    Good morning Mr. Chairman and Members of the Committee. I am very 
pleased to be here to discuss ethanol's continued participation in the 
federal reformulated gasoline program (RFG) generally, and the RFG 
oxygen content requirement specifically. I appreciate the opportunity 
to provide comments on behalf of the domestic ethanol industry.
    First, let me tell you something about my company. Williams is a 
global energy and communications company headquartered in Tulsa, 
Oklahoma. We have about 23,000 employees and operate about $25 billion 
in assets. Through our various energy businesses, we own and operate 
nearly 60,000 miles of natural gas and liquid pipelines located 
throughout the United States. Williams is a producer of natural gas, a 
large processor of natural gas and natural gas liquids, and our energy 
marketing and trading group is one of the largest in the country. We 
own two refineries in the United States and operate a refinery in 
Lithuania. We transport, terminal and retail gasoline and other 
petroleum products. Our bio-energy group, of which I am part, is the 
second largest producer of ethanol in the country, with plants in 
Illinois, Nebraska and most recently, a new project announced in 
Wisconsin. Given our extensive involvement in both the petroleum 
industry and the ethanol industry, I believe we have a unique 
perspective on the issues being discussed today.

                                SUMMARY

    We believe the RFG program has successfully improved air quality in 
those regions of the country where it is in place. In the Midwest 
markets, where ethanol has been used extensively, the air quality 
record is excellent. On the other hand, many Americans are well aware 
of MTBE groundwater contamination issues in other RFG areas. Many 
suggest the solution to this groundwater problem is opening the Clean 
Air Act to remove the oxygen requirement.
    Williams does not believe this type of legislation is necessary. 
Ethanol production can be expanded to replace MTBE. Ethanol can be 
transported and distributed efficiently to California and other RFG 
markets. To the extent refiners need flexibility, EPA could modify the 
program to require that the oxygen requirement apply on an average 
basis, rather than a per gallon basis. This would allow refiners to 
make significant quantities of fuel without oxygen.
    If Congress chooses to legislate in this area, then the clean air 
benefits achieved by including oxygen in gasoline should be preserved. 
This should be the overriding factor that drives policy. Williams does 
not advocate using the legislative process to favor one fuel over 
another, but if ethanol does provide a better overall environmental 
solution than MTBE, we should not hesitate to use ethanol.

                               BACKGROUND

    Before turning to the RFG program, I would like to provide some 
perspective as to why ethanol is so critically important to the 
nation's economic, energy and environmental policies. One need only 
look at today's headlines to appreciate the need for increased 
production and use of fuel ethanol. The Energy Department reports oil 
prices are at the highest levels since the Gulf War, and gasoline 
prices are expected to top $1.60/gallon this summer. Blending ethanol 
with gasoline provides an economically competitive source of octane, 
helping to constrain gasoline prices. As the Congress considers 
policies to moderate gasoline prices and assure fuel supplies, 
providing increased market opportunities for domestically produced 
renewable energy, such as ethanol, should be a top priority. In fact, 
the farm income and energy security benefits of ethanol were principle 
factors leading to congressional approval of the RFG program and the 
oxygen content requirement in the Clean Air Act Amendments of 1990. 
Today's headlines merely reinforce the efficacy of that decision.
    At the same time, overall conditions in the farm economy in 2000 
are expected to be similar to last year and the nation facing record 
oil prices due to OPEC production cutbacks, ethanol production and use 
will play a pivotal role in providing value-added processing for grain 
while helping to constrain gasoline prices and promote competition. At 
a recent USDA Agricultural Outlook Forum, USDA Chief Economist Keith 
Collins stated that the price for corn this year is ``expected to 
average only $1.90 a bushel, slightly below the 1998 crop.'' With total 
supplies predicted to be near 1999 levels and little change in ending 
stocks, Collins noted that ``corn prices are expected to show only 
modest improvement next season.'' Collins also predicted that in light 
of weak markets, substantial government payments will be made under 
current programs in 2000. The use of corn for ethanol production not 
only adds to the price of a bushel of corn, it also helps to reduce 
government payments.

                   THE REFORMULATED GASOLINE PROGRAM

    I think it is important to underscore that the RFG program, with 
its oxygen content requirement, has worked quite effectively. Air 
quality has improved. Indeed, about 75 million people are breathing 
cleaner air because of RFG. EPA reports that RFG is reducing ozone-
forming hydrocarbon emissions by 41,000 tons and toxic pollutants such 
as benzene by 24,000 tons annually. That's the equivalent of taking 16 
million vehicles off the road each year. A study by the Northeast 
States for Coordinated Air Use Management (NESCAUM) shows that today's 
RFG reduces the cancer risk from gasoline by about 20 percent. It is 
critically important to recognize that these benefits are significantly 
greater than required by the Clean Air Act's performance standards for 
hydrocarbons and toxics, at least in part because of the federal oxygen 
requirement.
    As a consequence of the growing concerns regarding MTBE water 
contamination, many have advocated amending the Clean Air Act. The 
domestic ethanol industry has opposed efforts which seek only to 
eliminate the federal RFG oxygen requirement or address the issue for 
particular states or regions. However, if Congress chooses to act in 
this area, the ethanol industry does not want to hinder legislative 
efforts to address this serious public health and environmental issue. 
We want to be part of the solution, not part of the problem. Toward 
that end, we have developed the following principles, which we believe 
should guide congressional action on this issue.
         Develop a national solution;
         Address the cause of the problem;
         Protect the environment; and
         Provide the necessary time and ``flexibility'' to 
        allow refiners to make a rational transition to increased 
        ethanol utilization.

Develop a national solution
    State-specific actions will create a patchwork of fuel regulations 
resulting in increased consumer costs.
    State specific programs increase logistics costs and reduce 
flexiblitity.

Address the cause of the problem
    Congress should determine what controls on MTBE are necessary to 
protect water supplies.
    Simply eliminating the RFG oxygen requirement will not assure that 
MTBE use is reduced and will undermine the ``real world'' environmental 
benefits of the current RFG program with oxygen.

Protect the environment
    The air quality gains provided by RFG with oxygenates should not be 
sacrificed as MTBE use is reduced, i.e., the toxic and carbon monoxide 
emissions benefits of oxygen should be preserved.
    The RFG program assures air quality benefits through the combined 
application of emissions performance standards and an oxygen 
requirement. As a result, the RFG program has provided toxic reductions 
in excess of those required by the performance standards alone. The 
oxygen standard has also provided reductions in carbon monoxide for 
which there is no performance standard at all.
    EPA should conduct a rigorous analysis of the ``real world'' 
emissions benefits of oxygen, including the impact on higher emitting 
vehicles, off-road and off-cycle driving (areas where the impact of 
oxygen is more critical) to assure there is no backsliding from these 
effects. EPA should also compare the potency-weighted toxic affects of 
oxygenated and non-oxygenated RFG. Finally, it is critical that the 
carbon monoxide (CO) benefits of oxygenates not be ignored. The oxyfuel 
program worked and CO has been dramatically reduced nationwide. Several 
CO non-attainment areas have been reclassified into attainment based in 
part on maintenance plans which include the oxygen content benefits of 
RFG. If the RFG oxygen requirement is repealed, the CO attainment 
status of these areas will be jeopardized. In addition, the National 
Academy of Sciences concluded last year that as much as 20 percent of 
the ozone coming from automobiles was attributable to carbon monoxide. 
EPA should assess this beneficial impact and either (1) incorporate a 
CO performance standard into the program or (2) promulgate a CO offset 
so that refiners can balance CO reductions with VOC increases.

Provide flexibility to refiners
    Refiners and gasoline marketers should be given flexibility in 
meeting the challenge of removing MTBE.
    Some claim the only way to eliminate MTBE without increasing 
consumer gasoline costs is to eliminate the oxygen standard itself. 
Indeed, some see the two as synonymous. At a time when gasoline prices 
across the country are soaring, Congress must consider the economic 
implications of reducing MTBE use. MTBE currently represents about 3 
percent of the nation's transportation fuel supply. If it is eliminated 
without providing for a replacement of that supply, gasoline prices 
will clearly rise. Indeed, this fact has been established by both the 
Department of Energy and the California Energy Commission, which 
concluded a non-oxygenated fuel scenario in California (with no ethanol 
used) was the most expensive option available to the state in 
addressing MTBE. If MTBE volume is to be reduced, replacing that volume 
with safe alternatives, such as ethanol, is both environmentally and 
economically sound.
    The U.S. Department of Agriculture has completed a comprehensive 
analysis demonstrating that ethanol can effectively replace MTBE by 
2004 without price spikes or supply shortages. The Department's 
analysis shows that total ethanol production capacity will have to 
increase roughly 50 percent, to approximately 3 billion gallons by 
2004, in order to supply the oxygenate demands of RFG while maintaining 
the existing ethanol octane markets in conventional gasoline.
    USDA also analyzed the transportation affects of increased ethanol 
RFG. The Department concluded that ethanol would be shipped by barge or 
rail cost-competitively, and that there would be ``no transportation 
impediment to the use of ethanol as a replacement for MTBE.'' As a 
company heavily involved in the transportation of liquid fuels, we are 
planning to ship ethanol to California and have been working with 
refiners in the state to demonstrate how ethanol could be distributed 
to the refineries. Based on our experience, the logistics of supplying 
ethanol to the market should not be a barrier to its use.

The Ethanol Solution
    The primary concern with maintaining the oxygen standard appears to 
be the industry's ability to supply the increased demand for ethanol. 
But such concerns are unfounded. It is important to understand that 
because ethanol has twice the oxygen content of MTBE, it will only take 
half as much ethanol to satisfy the oxygen requirements of RFG. Current 
MTBE use in RFG is approximately 257 bb/d (thousand barrels per day). 
That level of oxygen can be met by only 128 bb/d of ethanol. Current 
ethanol production is 100 bb/d. 



    A recent report prepared by AUS Consultants, Inc. for the 
Governors' Ethanol Coalition demonstrates that the ethanol industry can 
double production within two years, quicker than the proposed three-
year MTBE phase out. According to the report, ``Ability of the U.S. 
Ethanol Industry to Replace MTBE'':
         Replacing MTBE with ethanol would increase the demand 
        for ethanol to nearly 3.2 billion gallons per year by 2004;
         The ethanol industry can increase production capacity 
        from 1.5 billion gallons to 3.5 billion gallons per year by 
        2004--more than exceeding the greater demand;
         The increased capacity would come from increased 
        utilization of existing plants, expansion of existing 
        facilities, new plants currently under construction, and 
        proposed facilities currently in various stages of development;
         Using ethanol to replace MTBE will prevent an 
        oxygenate supply shortage that could result in increased 
        gasoline prices;
         Expanding ethanol capacity will result in $1.9 billion 
        in new investment;
         Construction activity and increased commodity demand 
        will add $11.7 billion to real GDP by 2004 and increase 
        household income by $2.5 billion; and
         Switching to ethanol will create more than 47,800 new 
        jobs throughout the country.

                 Ability of the Ethanol Industry To Replace MTBE (Millions of Gallons per Year)
----------------------------------------------------------------------------------------------------------------
                                                            2000      2001      2002        2003         2004
----------------------------------------------------------------------------------------------------------------
Ethanol demand                                               1,343     1,781     2,231        2,693        3,168
                                                        --------------------------------------------------------
Current production.....................................      1,533     1,533     1,533        1,533        1,533
Increased use..........................................          0       180       180          180          180
Expanded plants........................................          0       420       839        1,049        1,049
Cap'y under construction...............................          0        60       121          121          121
Cap'y under development................................          0         0         0          333          598
                                                        --------------------------------------------------------
  Total supply.........................................      1,533     2,193     2,673        3,216        3,481
                                                        --------------------------------------------------------
  Surplus..............................................        190       412       444          523          313
----------------------------------------------------------------------------------------------------------------

    It is important to understand that ethanol production facilities 
are largely modular. Expansions can be done very quickly by simply 
adding new equipment to existing production streams. New production 
from green fields is also now done quite efficiently. Since 1990, most 
new ethanol production has been by farmer-owned cooperatives. These 
highly efficient dry mill plants typically go from drawing board to 
production within two years, at an approximate cost of $1.00--$1.50 per 
gallon of capacity. The next generation of ethanol production 
facilities will also include production from cellulose and biomass 
feedstocks. Recently, a new ethanol production plant in Jennings, 
Louisiana was awarded a $120 billion bond and is expected to begin 
construction this spring. When completed, this plant will produce 
ethanol from rice hulls and bagasse. Three other plants are currently 
planned in California that will produce ethanol from rice straw. 
Another facility is planned in upstate New York producing ethanol from 
municipal waste. Already, ethanol is being produced from wood and paper 
waste by Georgia Pacific in Washington state, and production from 
forest residue is not far behind. None of this will happen, however, 
without the assurance of increased market opportunities for ethanol in 
RFG. If the oxygenate requirement itself is repealed, there will be 
little increased ethanol production in the coming years. On the other 
hand, maintaining the oxygen requirement as MTBE use is phased out will 
stimulate tremendous new economic development across the country.

                                     Ethanol Production Capacity  March 2000
----------------------------------------------------------------------------------------------------------------
                                                                                         Primary       Capacity
                  Company                                City                State      Feedstock       (MGY)
----------------------------------------------------------------------------------------------------------------
A.E. Staley...............................  Louden.......................        TN            Corn         45.0
Ag Power, Inc.............................  Commerce City................        CA  ..............          2.0
AGP.......................................  Hastings.....................        NE            Corn         45.0
Agri-Energy...............................  Luverne......................        MN            Corn         18.0
AI-Corn...................................  Claremont....................        MN            Corn         18.0
Alchem....................................  Grafton......................        ND           Wheat         12.0
Archer, Daniels Midland...................  Decatur......................        IL            Corn        750.0
                                            Cedar Rapids.................        IA            Corn  ...........
                                            Peoria.......................        IL            Corn  ...........
                                            Clinton......................        IA            Corn  ...........
Broin Assoc...............................  Scotland.....................        SD            Corn          8.0
Cargill...................................  EddyVille....................        IA            Corn         70.0
                                            Blair........................        NE            Corn         35.0
Cent MN Ethanol Coop......................  Little Falls.................        MN            Corn         18.0
Chief Ethanol.............................  Hastings.....................        NE            Corn         62.0
Chippawa Valley...........................  Benson.......................        MN            Corn         20.0
Corn Plus.................................  Winnebago....................        MN            Corn         17.5
DENCO.....................................  Morris.......................        MN            Corn         15.0
Eco Products of Plover....................  Plover.......................        WI  ..............          4.0
ESE Alcohol...............................  Leoti........................        KS            Corn          1.1
Ethanol 2000..............................  Bingham Lake.................        MN            Corn         15.0
Exol Albert...............................  Lea..........................        MN            Corn         18.0
Farm Tech USA.............................  Spring Green.................        WI            Corn          0.5
Georgia Pacific...........................  Bellingham...................        WA           Waste          3.5
Golden Cheese of CA.......................  Corona.......................        CA     Cheese/Whey          2.8
Grain Processing Corp.....................  Muscatine....................        IA            Corn         10.0
Heartland Corn Prods......................  Winthrop.....................        MN            Corn         17.0
Heartland Grain Fuels.....................  Aberdeen.....................        SD            Corn          8.0
                                            Huron........................        SD           Other         12.0
High Plains...............................  Portales.....................        NM            Corn         14.0
                                            Colwich......................        KS            Corn         20.0
                                            York.........................        NE            Corn         40.0
J.R. Simplot..............................  Heyburn......................        ID    Potato Waste          3.0
                                            Caldwell.....................        ID    Potato Waste          4.0
Jonton Alcohol............................  Edinburg.....................        TX  ..............          1.2
Kraft.....................................  Melrose......................        MN     Cheese/Whey          3.0
Manildra Energy...........................  Hamburg......................        IA            Corn          7.0
Midwest Grain.............................  Atchinson....................        KS            Corn          8.0
                                            Pekin........................        IL            Corn        100.0
Minnesota Clean Fuels.....................  Dundas.......................        MN  ..............          1.5
MMI/ETOH..................................  Golden.......................        CO  ..............          1.5
MN Corn Processors........................  Marshall.....................        MN            Corn         32.0
                                            Columbus.....................        NE            Corn         90.0
MN Energy.................................  Buffalo Lake.................        MN            Corn         12.0
New Energy Co of IN.......................  South Bend...................        IN            Corn         88.0
Pabst Brewing.............................  Olympia......................        WA       Bev Waste          0.7
Parallel Products.........................  Rancho Cucamonga.............        CA      Food Waste          2.0
                                            Louisville...................        KY            Corn         10.0
Permeate Prods............................  Hopkinton....................        IA  ..............          1.5
Pro-Corn..................................  Preston......................        MN            Corn         19.0
Reeve Agri-Energy.........................  Garden City..................        KS            Corn         10.5
Stroh's Brewery...........................  Winston-Salem................        NC       Bev Waste          1.0
Sunrise Energy............................  Blairstown...................        IA            Corn          5.0
Vienna Correctional.......................  Vienna.......................        IL            Corn          0.5
Williams Energy...........................  Aurora.......................        NE            Corn         30.0
                                            Pekin........................        IL            Corn        100.0
Wyoming Ethanol...........................  Torrington...................        WY            Corn          5.0
  Total...................................  .............................  ........  ..............      1,837.8
----------------------------------------------------------------------------------------------------------------
Source: Bryan and Bryan, Inc.


                                Ethanol Production Under Construction  March 2000
----------------------------------------------------------------------------------------------------------------
                                                                                           Capacity
                   Company                                   City                  State      MGY     Feedstock
----------------------------------------------------------------------------------------------------------------
Golden Triangle..............................  Craig...........................        MO      14.0         Corn
Adkins Energy................................  Lena............................        IL      30.0         Corn
BC International.............................  Jennings........................        LA      20.0     Bagasse/
                                                                                                      rice hulls
Nebraska Nutrients...........................  Sutherland......................        NE      15.0         Corn
Dakota Ethanol...............................  Wentworth.......................        SD      40.0         Corn
NE Missouri Grain Proc.......................  Macon...........................        MO      15.0         Corn
  Total......................................  ................................  ........     134.0  ...........
----------------------------------------------------------------------------------------------------------------
Source: Bryan and Bryan, Inc.


                                  Ethanol Plants Under Development  March 2000
----------------------------------------------------------------------------------------------------------------
                                                                                    Capacity
                     City                                     State                  (MGY)         Feedstock
----------------------------------------------------------------------------------------------------------------
Undisclosed...................................  CO..............................         20.0               Corn
Central Iowa..................................  IA..............................         15.0               Corn
NW Iowa.......................................  IA..............................         40.0               Corn
L. Cascade....................................  IL..............................        100.0               Corn
Pratte........................................  KS..............................         15.0          Corn/milo
Undisclosed...................................  KS..............................         40.0               Corn
Undisclosed...................................  KY..............................         20.0               Corn
Central State.................................  MI..............................         40.0               Corn
St. Paul......................................  MN..............................         30.0               Corn
SE Missouri...................................  MO..............................         30.0               Corn
Great Falls...................................  MT..............................         75.0       Wheat/Barley
Neely.........................................  NE..............................         15.0               Corn
Central State.................................  NJ..............................         10.0               Corn
Clatskanie, OR................................  OR..............................         80.0         Corn/wheat
Milbank.......................................  SD..............................         40.0               Corn
Platte........................................  SD..............................         15.0               Corn
Rosholt.......................................  SD..............................         15.0               Corn
Undisclosed...................................  TX..............................         30.0               Corn
Moses Lake....................................  WA..............................         40.0        Corn/Barley
Lacrosse......................................  WI..............................         20.0               Corn
----------------------------------------------------------------------------------------------------------------
  Subtotal....................................  ................................        690.0  .................
----------------------------------------------------------------------------------------------------------------
Biomass Conversion
----------------------------------------------------------------------------------------------------------------
SE Region.....................................  AK..............................          8.0         Wood Waste
NE Region.....................................  CA..............................         15.0    Forest Residues
Gridley.......................................  CA..............................         20.0         Rice Straw
Mission Viejo.................................  CA..............................          8.0         Rice straw
Chester.......................................  CA..............................         20.0    Forest Residues
Onslow County.................................  NC..............................         60.0     Sweet potatoes
Greene County.................................  NC..............................         60.0     Sweet potatoes
Martin County.................................  NC..............................         60.0     Sweet potatoes
Middletown....................................  NY..............................         10.0                MSW
Central Region................................  OR..............................         30.0         Wood Waste
Philadelphia..................................  PA..............................         15.0                MSW
Black Hills...................................  WY..............................         12.0    Forest Residues
----------------------------------------------------------------------------------------------------------------
  Subtotal....................................  ................................        318.0  .................
----------------------------------------------------------------------------------------------------------------
  Total new capacity..........................  ................................      1,008.0  .................
----------------------------------------------------------------------------------------------------------------

    Ethanol RFG will provide a tremendous economic stimulus to rural 
America by creating value-added demand for 500 million bushels of 
grain.

                              LEGISLATION

    As testament to the growing congressional interest in resolving 
MTBE groundwater issues, numerous bills have been introduced to phase-
down or eliminate MTBE, while preserving a role for ethanol in this 
important program. The Renewable Fuels Association, the industry's 
trade organization, strongly supports legislation such as S. 2546 and 
S. 2233, which address MTBE water contamination directly, without 
undermining the existing air benefits of oxygenated RFG. S. 2546, 
introduced by Senators Kit Bond (R-MO) and Dick Durbin (D-IL), is 
particularly effective because it deals comprehensively with a number 
of issues important to this committee, including anti-backsliding from 
real-world air quality benefits, the highway trust fund, and MTBE 
remediation costs.
    Another approach to resolving the MTBE issue consistent with the 
findings of the Blue Ribbon Panel is phasing out the use of MTBE while 
phasing in a renewable energy requirement. This approach has been 
incorporated in legislation introduced by Democratic Leader Tom Daschle 
(D-SD) and cosponsored by Senator Dick Lugar (R-IN). The Renewable 
Fuels Association supports this bill also, but would encourage the 
committee to craft this bill so that ethanol is used where it will 
provide the most environmental benefit.
    As I indicated at the beginning of my testimony, Williams believes 
the primary responsibility for government in this area is to make sure 
that Americans have clean air and that means, among other things, 
setting emission standards for vehicles and the gasoline that fuels 
vehicles. These standards should be set on the basis of science. 
Inevitably, any standards will influence the recipe for gasoline and 
therefore the mix of additives used to make gasoline. However, so long 
as compliance with the standards is practical for refiners, then we 
should not sacrifice clean air. We believe the oxygenate standard is a 
useful proxy for limits of gasoline components that have negative 
health effects. If Congress chooses to repeal the oxygenate 
requirement, then equivalent emission standards will need to be 
substituted in its place.

                               CONCLUSION

    The domestic ethanol industry understands that the Congress is 
faced with a daunting challenge, i.e, how to protect water supplies by 
reducing the use of MTBE without sacrificing air quality or increasing 
fuel prices. We see ethanol as a solution. Increasing ethanol use in 
this program will allow MTBE to be phased out cost-effectively while 
protecting precious water resources and air quality. Stimulating rural 
economies by increasing the demand for grain used in ethanol production 
will help farmers left behind by our booming economy. Encouraging new 
ethanol production from biomass feedstocks will provide additional 
environmental benefits and take a positive step toward a sustainable 
energy future and global climate change. The bottom line is that we 
need to protect both air quality and water quality. With ethanol, we 
can.
    Thank you.
                               __________

      STATEMENT OF GLENN KELLER, ENGINE MANUFACTURERS ASSOCIATION

    Good Morning. My name is Glenn Keller and I am the Executive 
Director of the Engine Manufacturers Association. The Association, 
headquartered in Chicago, Illinois, represents the worldwide 
manufacturers of internal combustion engines used in all applications 
except passenger cars and aircraft. Among EMA's members are the 
principal manufacturers of truck and bus engines covered by EPA's 
proposed 2007 rulemaking imposing additional regulatory controls on 
heavy-duty engines while limiting the sulfur content of diesel fuel 
used in these engines.
    The diesel-fueled engine is the backbone of our nation's 
transportation system, from delivering produce to our local groceries 
to powering our mass transit systems in our nation's cities and towns. 
The diesel engine can be as clean, if not cleaner, than any other power 
source. It is capable of meeting emission standards significantly below 
today's levels. And particulate emissions from today's engines have 
already been reduced by over 90 percent. We recognize that more, much 
more in fact, can and should be done--and we are poised to meet that 
challenge by the end of this decade.
    The key to achieving these future stringent emissions reductions is 
to reduce the sulfur content of diesel fuel. As the Environmental 
Protection Agency acknowledged in its proposed rule, future emissions 
reductions require a systems approach involving the engine, 
aftertreatment and fuel. Fuel quality, one leg of this three-legged 
emissions reduction strategy, enables the technologies necessary to 
make the other two stand.
    Without removing essentially all the sulfur from diesel fuel, 
advanced NOx aftertreatment devices will not be feasible; 
advanced PM aftertreatment will be poisoned; and engines will be 
exposed to excessive wear, increased maintenance costs, and impaired 
durability. I cannot emphasize enough the critical importance of ultra-
low sulfur fuel: it enables substantial NOx emission 
reductions; it provides direct PM emission reductions for every 
vehicle; and it provides benefits not just from new engines, but from 
the entire fleet of diesel-fueled vehicles.
    Improved diesel fuel also has a role in responding to concerns over 
potential health effects. Ultra-low sulfur fuel lowers the total mass 
of particulate from the entire fleet and enables the use of known 
aftertreatment technologies, such as oxidation catalysts, which can 
reduce the organic fraction of PM emissions. A rule that calls for 
ultra-low sulfur fuel also enables the application of catalyst-based 
technologies to reduce NOx that, in turn, will reduce the 
secondary formation of fine particles of concern in our urban air.
    We applaud EPA for recognizing the critical role of fuel sulfur. We 
strongly support the need for a uniform, nationwide low sulfur fuel 
standard with a hard cap on maximum sulfur content. Regional 
differences in sulfur content will not allow the systems approach 
necessary to meet EPA's very stringent NOx and PM emission 
levels. Further, a hard cap on sulfur is critical. Averages simply will 
not work. They are difficult and impractical to enforce. Moreover, the 
engine and aftertreatment legs of the stool must be assured of never 
being exposed to high sulfur fuel.
    In our view, a 15 ppm sulfur limit does not go far enough. Our 
cooperative testing programs have indicated the extreme sensitivity of 
aftertreatment devices to sulfur poisoning. Therefore, EMA advocates an 
even lower limit of 5 ppm sulfur in diesel fuel to ensure we are 
delivering the maximum performance of these devices for the useful life 
of the truck engine, which is up to 435,000 miles. And, diesel fuel 
improvements shouldn't only be limited to trucks and buses. Non-road 
fuels also must be similarly improved.
    We are aware of the various arguments raised by the oil industry 
against improving fuel quality. They don't want to reduce sulfur to 
even 15 ppm, let alone to lower levels. Nationwide ultra-low sulfur 
fuel can--no, must--be achieved, and it can be done cost effectively. 
In a joint project with the American Petroleum Institute and the 
National Petroleum Refineries Association, the Engine Manufacturers 
Association contracted with MathPro, a renowned refining consultant, to 
estimate the cost of producing ultra-low sulfur fuel. MathPro concluded 
that the typical refining cost to produce a 5 ppm maximum sulfur fuel 
was from 5\1/2\ to 9 cents per gallon for the most severe sulfur 
scenario which modeled a 2 ppm average across the entire diesel pool. 
Mr. Chairman, we ask that the entire MathPro Study be included with 
this statement in the hearing record.
    So today we are enthusiastic and hopeful about the bright future 
for diesel engines and our industry's ability to produce reliable, 
durable, fuel efficient, high performing diesel engines that also are 
as clean or cleaner than any other power source. There are issues that 
will require a great deal of work by manufacturers and the Agency. But 
it is no longer a question of ``if''. With nationwide ultra-low sulfur 
diesel fuel and sufficient development time, tremendous emissions 
reductions can be achieved.
    I would be pleased to respond to any questions the Subcommittee 
might have.
                               __________

       STATEMENT OF GORDON PROCTOR, DIRECTOR, OHIO DEPARTMENT OF 
                             TRANSPORTATION

    Chairman Inhofe, members of the committee, I am Gordon Proctor, 
Director of the Ohio Department of Transportation. Thank you very much 
for this invitation to testify before the committee. I would especially 
like to thank Senator Voinovich for helping to provide me this 
opportunity to address an issue that is of particular importance to 
Ohio.
    The committee today is discussing the role of ethanol as a motor 
fuel and a fuel additive. Coming from an agricultural state, I 
understand the importance of ethanol's use to the agricultural 
industry. I also am aware of ethanol's role as a fuel oxygenate, and as 
a domestically produced energy source. I am not here to speak against 
ethanol or the strategy of promoting its use.
    As a State director of transportation, I would point out to the 
committee an unintended consequence that has befallen Ohio as a result 
of increasing ethanol consumption. Under the funding formula adopted in 
the Transportation Equity Act for the 21st Century, TEA-21, Ohio's 
Federal appropriation is determined in large part by our contribution 
to the Highway Trust Fund. At the time of enactment, this was a welcome 
move for Ohio, and one that Ohio supported. However, there was a 
consequence that neither Ohio, nor apparently the appropriators, 
anticipated.
    This consequence was the dramatic increase in the use of ethanol 
caused by national market forces. I am neither an ethanol nor petroleum 
expert, but apparently because of continued depressed corn prices and 
because of the continued Federal tax reduction on ethanol, the use of 
ethanol-blended gasoline in Ohio has soared from 19 percent to more 
than 40 percent of all gallons of gasoline sold at the pump. Because 
ethanol-blended fuel is taxed differently from petroleum fuels, the 
increase in ethanol use has significantly decreased the amount of 
revenue credited to Ohio in the Highway Trust Fund. As you know, there 
is a 5. 4 cent per gallon Federal tax break on each gallon of ethanol-
blended gasoline sold. In addition, 3.1 cents of the tax that is 
collected on ethanol is credited to general revenue funds and not to 
the Highway Trust Fund. In other words, Ohio's contribution to the 
Highway Trust Fund is reduced by 8.5 cents for each gallon of ethanol-
blended fuel sold in Ohio. I expect ethanol use will continue to 
increase and will continue to reduce Ohio's trust fund contributions.
    The sums involved are substantial. For Ohio, these reduced 
contributions to the Highway Trust Fund reduce Ohio's Federal highway 
funding by $185 million annually. To put that number in perspective, it 
equals 21 percent of Ohio's total Federal obligation ceiling, it equals 
two-thirds of our state's entire new construction budget and it equals 
the amount ODOT budgets for routine bridge repair and replacement for 
an entire year.
    The situation appears to be unique to Ohio because we are both a 
large consumer of ethanol and a donor state. For donee states, other 
provisions in TEA-21 appear to mitigate the effect of rising ethanol 
use because those states' appropriations are not tied directly to their 
Highway Trust Fund contributions.
    Please let me emphasize. I am very appreciative of Congress's 
efforts on behalf of TEA-21 and the unprecedented appropriations the 
Act has provided. Let me also emphasize, that Ohio has received the 
minimum appropriations guaranteed by the Act. I do not want to imply 
otherwise. What Ohio has not realized, however, is a commensurate 
increase of growing Highway Trust Fund dollars because while fuel 
consumption in Ohio has risen, our contributions to the Highway Trust 
Fund have been stunted by the way ethanol is taxed.
    This situation exacerbates Ohio's donor State status. We in Ohio 
have the tenth largest highway network, the fifth highest volume of 
traffic, the fourth largest interstate highway network and the second 
largest inventory of bridges in the country. While our traffic and 
congestion have risen, our Federal receipts have not risen 
commensurately because of the unintended consequence of the ethanol 
issue.
    I would ask for your consideration in two ways. First, I would ask, 
in any future consideration of highway funding formulas, that the use 
of ethanol be taken into account. Although it is national policy to 
encourage ethanol use, the cost of this policy is not spread uniformly 
across the states. Second, I would request, at the appropriate time and 
in the appropriate legislation, that the 3.1 cents of the ethanol tax 
that is credited to the general fund be redirected to the Highway Trust 
Fund. At least, that effort would continue directing transportation tax 
receipts into the Highway Trust Fund where they would accrue to Ohio.
    Mr. Chairman, thank you again for this opportunity. I am grateful 
for the committee's time and its attention. I would be happy to answer 
any questions the committee may have.

                                               Gasohol/Tax Subsidy.--Total Cost to Ohio FY 1982 Thru 1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Federal     Total Cost
                                      Gasoline     Gasohol     Percent of      State     Ohio's Cost    Federal      Federal      Cost [In       [In
            Fiscal Year               Billion      Billion        Total       Gasohol      Million      Gasohol      General    Millions of  Millions of
                                       Gallon       Gallon                    Subsidy      Dollars      Subsidy        Fund       Dollars]     Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
82................................        4.492        0.016          0.4        $0.035         $0.6       $0.090  ...........         $1.4         $2.0
83................................        4.095        0.375          8.4         0.035         13.1        0.090  ...........         33.8         46.9
84................................        4.077        0.428          9.5         0.035         15.0        0.050  ...........         21.4         36.4
85................................        3.922        0.576         12.8         0.030         17.3        0.060  ...........         34.6         51.8
86................................        3.789        0.776         17.0         0.025         19.4        0.060  ...........         46.6         66.0
87................................        3.869        0.882         18.6         0.025         22.1        0.060  ...........         52.9         75.0
88................................        3.884        0.912         19.0         0.025         22.8        0.060  ...........         54.7         77.5
89................................        3.799        0.924         19.6         0.020         18.5        0.060  ...........         55.4         73.9
90................................        3.750        0.980         20.7         0.020         19.6        0.060  ...........         58.8         78.4
91................................        3.534        1.091         23.6         0.015         16.4        0.054        0.006         65.5         81.8
92................................        3.482        1.097         24.0         0.015         16.5        0.054        0.006         65.8         82.3
93................................        3.119        1.497         32.4         0.015         22.5        0.054        0.006         89.8        112.3
94................................        2.905        1.812         38.4         0.010         18.1        0.054        0.006        109.7        126.0
95................................        2.930        1.828         38.4         0.010         18.3        0.054        0.006        109.7        128.0
96................................        3.090        1.741         36.0         0.010         17.4        0.054        0.031        148.0        165.4
97................................        4.096        0.766         15.8         0.010          7.7        0.054        0.031         65.1         72.8
98................................        2.981        1.974         39.8         0.000          0.0        0.054        0.031        167.8        167.8
99................................        2.870        2.177         43.1         0.000          0.0        0.054        0.031        185.0        185.0
                                   ---------------------------------------------------------------------------------------------------------------------
  Total Accumulated Subsidy.......  ...........  ...........  ............  ...........       $265.0  ...........  ...........     $1,365.0     $1,630.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gasohol was not taxed by the Federal Government from January 1979 to April 1983 as a result of the Energy Tax Act of 1978. Prior to 1979, gasohol was
  taxed at the same rate as gasoline.
Federal Subsidy is the difference between the Federal Tax on Gasoline and the Federal Tax on Gasohol.
Federal General Fund is the difference between the Federal Gasoline tax distributed to the general Fund and the Federal Gasohol tax distributed to the
  General Fund.

  
  
        Statement of Bob Slaughter, National Petrochemical and 
                          Refiners Association
    Good morning, Mr. Chairman and members of the Committee. My name is 
Bob Slaughter. I am General Counsel of the National Petrochemical and 
Refiners Association. NPRA is a trade association which represents 
virtually all U.S. refiners and petrochemical companies who have 
processes similar to refiners. We appreciate this opportunity to appear 
before the Subcommittee to discuss the environmental effects of ethanol 
under the Clean Air Act and the general question of whether ethanol 
should be mandated.
    NPRA opposes fuel mandates. Mandates eliminate competition and thus 
are likely to result in increased costs to consumers. They inevitably 
foster market protections and monopolies and often result in 
unanticipated side effects, such as supply curtailments and higher 
prices. Once in place, they are then difficult to reverse. Mandating a 
product signals to consumers and industry that a product is uneconomic 
and ``can't make it on its own'' without special patronage. This is 
often harmful to the product's reputation and adversely impacts its 
long-term commercial acceptability and market performance. Basically, 
people don't like mandates. Americans value freedom of choice. Our 
economy reflects that characteristic, and it has served us well. In 
contrast, it is a foregone conclusion that gasoline subject to an 
ethanol mandate will be more expensive than it would be in the absence 
of a mandate.
    We have witnessed positive results with public policies which rely 
on market forces, for example, the acid rain program, but by most 
accounts our experiment with fuel mandates for RFG oxygenates and 
alternative fuels has had unsatisfactory results. Given widespread 
dissatisfaction with the current oxygenate mandate, proponents of 
continued interference with market forces in fuel policies bear a heavy 
burden of persuasion. We do not believe that the advocates of a new 
ethanol mandate under the Clean Air Act have come anywhere close to 
making their case.
    Ethanol has a bright future as a gasoline blendstock. Why risk the 
negative consequences of a mandate? If MTBE use is constrained, ethanol 
is one way refiners can provide reliable supplies of gasoline while 
meeting consumers' demands for fuel performance. Studies by the U.S. 
Department of Energy and the California Energy Commission predict 
significant ethanol growth in the Northeast and California, 
respectively, under an MTBE phase-out without a mandate. Northeast 
ethanol demand is estimated to exceed 550 million gallons per year if 
there is withdrawal of MTBE from the market while ethanol demand in 
California is estimated to reach 828 million gallons. The total annual 
ethanol demand increase for these two regions would be almost 1.4 
billion gallons--or just slightly less than a doubling of today's 1.5 
billion gallon usage.
    In addition, the ongoing reduction of sulfur in gasoline will lead 
to a significant increase in ethanol use. Many refiners will give 
serious consideration to ethanol as a means of replacing octane lost 
when sulfur is reduced. Absent a mandate, the projected increase in 
ethanol use will take place where it makes the most economic sense to 
use it. Much will depend on the price of ethanol in response to such an 
increase in demand. However, with total U.S. demand for ethanol in 2006 
estimated possibly to double today's figure, it is clear that there 
should be substantial growth in ethanol use even if some demand erodes 
as prices rise.
    The impact of an extensive, national ethanol mandate on the 
environment is unknown. The EPA Blue Ribbon Panel pointed out 
``Although ethanol is likely to biodegrade rapidly in groundwater, 
because ethanol is infinitely soluble in water, much more ethanol will 
be dissolved into water than MTBE.'' While the environmental track 
record--with respect to groundwater contamination--of using ethanol in 
gasoline has been good, a recent ethanol leak in the Lake Tahoe area 
has received considerable press and public attention. This is an 
indication that the environmental consequences of mandated use of this 
highly soluble chemical are of concern. It seems wise to proceed with a 
measure of caution in an area in which the public may feel that it has 
been recently ill-served (i.e. by the oxygenate mandate).
    Air quality impacts are possible. A recent study presented by 
Toyota to CARB has shown that if ethanol blended at 10 percent replaces 
MTBE blended at 11 percent (by volume), tailpipe NOx 
emissions increase significantly. Also, in non-RFG regions, ethanol 
benefits from an EPA waiver which allows it to be blended at a higher 
volatility level, thus increasing evaporative emissions. Further, if 
ethanol blended gasoline is mixed with gasoline not containing ethanol, 
the ethanol causes an increase in the volatility and the evaporative 
emissions of the mixture. Thus, an ethanol mandate could have 
significant adverse impact in areas where increased ozone (smog) 
producing emissions are of concern.
    With regard to effects on water, experience to date with ethanol 
blends has been relatively benign. We do know that microbes 
preferentially degrade ethanol present in a spill, which will retard 
the rate of degradation of other components.
    Given the concerns expressed about MTBE, we should be cautious 
about new programs that would significantly increase usage of ethanol 
in gasoline beyond traditional volumes. The EPA Blue Ribbon Panel 
recommended extensive testing of gasoline constituents before widely 
extending their use, based upon experience with the current oxygenate 
mandate.
    If left to the workings of the free market, ethanol has positive 
attributes that will promote its use. The Blue Ribbon Panel described 
ethanol as ``An effective fuel-blending component, made from domestic 
grain and potentially from recycled biomass, that provides high octane, 
carbon monoxide emission benefits, and which appears to contribute to 
reduction of the use of aromatics with related toxics and other air 
quality benefits; can be blended to maintain low fuel volatility . . . 
''
    Reliance upon a government mandate, however, could focus attention 
on ethanol's problematic characteristics instead. The Blue Ribbon Panel 
goes on to say ``[ethanol] . . . could raise the possibility of 
increased ozone precursor emissions as a result of commingling in gas 
tanks if ethanol is not present in a majority of fuels; [ethanol] is 
produced currently primarily in the Midwest, requiring enhancement of 
infrastructure to meet broader demand; because of high 
biodegradability, [ethanol] may retard biodegradation and increase 
movement of benzene and other hydrocarbons around leaking tanks.''
    An ethanol mandate will make it harder for refiners to provide 
cleaner fuels to consumers at acceptable prices. An ethanol mandate 
will hinder refiners' ability to optimize the quality and volume of 
cleaner-burning gasoline. This will increase refining costs, impacting 
both gasoline supplies and price. According to the California Energy 
Commission, the costs of substituting ethanol-blended gasoline in that 
state could increase refining costs by up to 7 cents per gallon. 
Without a mandate, refining costs are significantly reduced, because 
refiners have the flexibility to economically blend gasoline in a cost-
effective way that meets octane requirements while maintaining emission 
performance benefits.
    Distribution of ethanol blends confronts refiners, other fuel 
suppliers and, ultimately, consumers with special economic burdens 
which a national mandate would increase. Adding more ethanol to 
gasoline is not just a matter of investment in new ethanol production 
facilities. Ethanol is added to gasoline at terminals, not at the 
refinery. Therefore, investment is necessary at terminals not currently 
using ethanol for equipment to receive ethanol by rail or truck (about 
$300,000 per terminal) to store ethanol in a tank ($450,000 for a new 
tank) at the terminal and to install blending equipment ($450,000 per 
terminal). In addition to environmental permitting requirements, these 
are sizable investment requirements for terminal operators and they 
should not be forced by a legislative mandate. The National Petroleum 
Council estimates that if ethanol blends are required at all RFG 
terminals outside of the Midwest, the terminal capital investment 
requirements would total $185 million. Total investment expenses would 
be higher if conventional gasoline terminals in the Southeast, 
Southwest and West also have to be converted for ethanol blending.
    In addition, ethanol presents special logistical problems. Since 
alcohols like ethanol tend to adhere to water and thus separate out of 
an oxygenated gasoline blend, it is difficult to transport ethanol 
blends by pipeline. Instead, a special gasoline blendstock is made for 
ethanol fuels (both to ease transport and to compensate for the 
increase in evaporative emissions associated with ethanol's higher 
volatility.) The ethanol itself is shipped separately by railroad, 
truck or ship, and the finished gasoline is blended (using special 
equipment) at storage terminals near the area where it will be sold to 
consumers. As EIA indicates in discussing ethanol logistics and costs, 
``Shipments to the West Coast and elsewhere via rail have been 
estimated to cost an extra 14.6 to 18.7 cents a gallon for 
transportation.''
    Ethanol is already heavily subsidized by taxpayers. Ethanol has 
received a large federal tax subsidy since 1978. Currently, this 
incentive is $0.54 per gallon of ethanol. The incentive is financed 
through diversion of moneys that would otherwise go into the Highway 
Trust Fund. At current ethanol usage rates, the Highway Trust Fund 
loses about $1 billion per year in revenues because of the reduced tax 
rate and diversion of some receipts to the General Fund. The only way 
to avoid this situation is to fund new ethanol incentives out of 
general revenues, which would have the negative result of assessing 
every taxpayer to benefit fuel ethanol. As it is, many, if not most, of 
those who benefit from the ethanol incentives also rely on other 
agricultural assistance programs for corn. As the Administration states 
in its most recent policy analysis: ``Corn producers currently receive 
more in direct farm support payments than producers of any other 
commodity.''
    Proposals for a national ethanol mandate seek to make energy 
consumers and highway users pay even more for agriculture subsidies. 
Consumers already pay for corn and ethanol subsidies that are funded 
out of the general treasury or Highway Trust Fund. But advocates of a 
national ethanol mandate are proposing to take an even bigger bite out 
of their pocketbooks. According to the Administration, ``. . . the 
potential trust fund impacts (of a national mandate), ranging between 
more than $0.5 billion and a little under $1 billion per year, would be 
on the order of 1 to 2 percent of the total fund.'' This means that as 
much as $2 billion total of revenues that would otherwise go to the 
Highway Trust Fund would be diverted to ethanol.
    According to EIA modeling, ``adding a 2 percent renewable fuels 
standard is projected to increase gasoline prices in the 5 cents per 
gallon range in 2005.'' As a rule of thumb, a one cent increase in 
gasoline prices nationwide amounts to, in the aggregate, a $1 billion 
additional cost to consumers. Thus, the renewable mandate will cost 
gasoline consumers $5 billion more in 2005 than an alternative policy 
option of phasing-down MTBE usage without a mandate.
    The Administration's latest paper on the renewables mandate is 
clear in assessing the likely beneficiaries: ``With 2.5 per cent of the 
nation's gasoline consisting of ethanol by 2010 . . . The price of corn 
would be 15 cents per bushel more in 2010 than in the absence of the 
standard and average 11 cents per bushel more during 2002-2010 . . . 
U.S. farm income would increase by $1.4 billion in 2010, and would 
average $750 million more per year during 2002-2010.''
    Ethanol credit trading pursuant to a national mandate could create 
regional winners and losers. Many refineries do not produce RFG, do not 
blend MTBE in conventional gasoline, or do not make blendstock for 
ethanol blending to produce gasohol. Implementation of a national 
renewable mandate with averaging, banking and trading could reduce 
investment requirements at refineries and terminals outside of the 
Midwest. However, a national renewable fuel mandate would segment the 
oil industry into winners (those in the Midwest who can offset ethanol 
expenses by selling excess ``credits'' and losers (others who would 
have to purchase ``credits''). Consumers who purchase gasoline would 
benefit or be disadvantaged depending on which category their supplier 
fits into. Most of the winners would be located in the Midwest, with 
losers disproportionately located in the Northeast and West.
    An ethanol mandate will make it harder for refiners to comply with 
priority environmental programs. Refiners are concerned with the 
possibility of supply disruptions as product quality specifications are 
changed. A renewable mandate is the same as a product specification 
change for refineries that do not currently use ethanol. Congress 
should not impose a renewable mandate burden on these facilities that 
already face significant new investment requirements for reducing 
sulfur in gasoline and diesel fuel. The industry is committed to 
current implementation of RFG 2 as it is to reducing sulfur in gasoline 
and diesel. The imposition of additional, wholly arbitrary requirements 
such as a nationwide ethanol mandate will further stress refiners and 
the refining system. This means that some of the programs may not 
achieve the projected environmental benefits.
    ``Truth in labeling'' is needed to clarify, rather than confuse 
policy options. The intent and import of the national ethanol mandate 
policy option would be clearer to consumers/constituents if terms and 
statements made by its proponents, especially the Administration, were 
more reflective of the likely result. NPRA makes the following 
observations:
    1. The ``renewable fuels standard'' is a national ethanol mandate 
and should be recognized as such. The only renewable transportation 
fuel likely to be used in the foreseeable future as a gasoline 
blendstock is ethanol. The ``standard'' requires its use, and is 
indistinguishable in intent or effect from a ``mandate.'' Also, there 
is no such thing as a ``flexible mandate'' which was EPA's initial 
euphemism for this program. Like ``living death'' or ``wakeful sleep'' 
the words ``flexible mandate'' are a contradiction in terms and hence 
oxymoronic. Policymakers who advocate basing a significant portion of 
America's gasoline supply on mandatory use of an already heavily 
subsidized product provided by an extremely concentrated industry 
should say so.
    2. The only likely beneficiary of the national ethanol mandate is 
corn-based ethanol. Proponents of the national ethanol mandate are 
claiming that it will provide significant benefits for ethanol from 
biomass other than corn. The proponents allege that imminent 
``technological breakthroughs'' will enable non-corn-derived biomass 
ethanol to reap significant benefits from the mandate. It would be 
imprudent to rely on a significant portion of gasoline supply upon such 
a speculative source. But the much greater likelihood is that corn 
ethanol will be positioned to take all of the market for ethanol in the 
foreseeable future, and that cellulosic biomass will fill only the 
tiniest increment of any ethanol actually supplied. Once corn ethanol 
has occupied the additional market created by the national mandate it 
is hard to imagine that its producers will step aside and surrender any 
significant portion of that market to competing suppliers of ethanol 
from cellulose. The Administration's emphasis upon the positive impact 
of the national mandate on corn prices in its recent paper gives away 
the real intent behind this national mandate.
    3. The existing ethanol subsidy is unlikely to be repealed. 
Opponents of the subsidy have been trying for two decades to eliminate 
it. The result is usually extension of the subsidy far into the future, 
and often an increase in the subsidy itself. This means that revenues 
intended for the Highway Trust Fund will continue to be diverted. The 
only alternative is to take these funds from general revenues, which 
has other serious drawbacks. Analyses suggesting that reduction or 
elimination of the subsidy is a real possibility are misleading unless 
they indicate that the likelihood of this happening is very remote.

                              CONCLUSIONS

    Federal policymakers should reject the call for a national ethanol 
mandate. Congress and the Administration should learn from, rather than 
repeat, the mistakes of the past. The ethanol lobby has been trying to 
mandate ethanol throughout the national gasoline supply for more than 
ten years. The oxygen mandate that has led to current water quality 
concerns was supported by large agribusiness in order to guarantee an 
ethanol market for them. Enacting another mandate to replace the 
problematic current one could have much greater negative consequences, 
including higher gasoline costs, tighter and less reliable fuel 
supplies, the potential for increased smog-creating emissions and a 
potential to create a consumer backlash. Refineries and ethanol 
producers can work together better to provide America's future 
transportation fuels in the absence of a national ethanol mandate. That 
will really clear the air.
    Congress and EPA should follow the recommendations of the EPA's 
Blue Ribbon Panel. They should help refiners serve the real energy and 
environmental needs of the nation by repealing the federal oxygen 
mandate, and by reducing MTBE levels while maintaining air quality 
benefits. And they should provide enough time for the transition to 
allow refiners to continue providing adequate supplies of gasoline and 
other petroleum products to consumers without undue cost increases.
    I look forward to responding to your questions.

    
    
    
    
    
    
                   STATEMENT OF NATSO, INCORPORATION

                              INTRODUCTION

    NATSO Inc., the trade association representing America's travel 
plaza and truckstop industry, thanks the Clean Air, Wetlands, Private 
Property and Nuclear Safety Subcommittee for the opportunity to comment 
on the Environmental Protection Agency's (EPA) Notice of Proposed 
Rulemaking concerning Heavy Duty Engine Standards and Control 
Requirements on the Sulfur Content of Highway Diesel Fuel.
    As the primary retailer of on-road diesel fuel, the truckstop 
industry is a vital link in the transportation of goods and services 
throughout our country. The vast majority of our nation's products are 
delivered by diesel powered vehicles; everything from the clothes we 
wear to the food we eat. Our nation's travel plazas and truckstops are 
a critical link in the movement of these goods, providing the fuel 
needed to keep these trucks, and our economy, running smoothly.
    While the travel plaza and truckstop industry supports efforts to 
improve our nation's air quality, NATSO has serious concerns with EPA's 
proposed rule and the effect it will have on our nation's energy supply 
and delivery system. These concerns and objections center on two 
aspects of EPA's proposal: The first being EPA's continued 
consideration of a ``phase-in'' approach to the introduction of this 
reduced sulfur diesel fuel: the second being the extreme level of 
sulfur reduction being proposed.

                          EPA'S PROPOSED RULE

    In an effort to improve air quality, EPA has proposed sharp 
reductions in emissions from heavy-duty truck engines in 2007, through 
the use of advanced catalytic emission control devices which will 
require a reduced sulfur diesel fuel to operate.
    EPA has proposed that the sulfur content of all highway diesel fuel 
sold to consumers be reduced from its current level of 500 parts per 
million to 15 parts per million beginning June 1, 2006. This being the 
case, EPA's proposal continues to consider, and requests additional 
comment on, various phase-in schemes that would gradually introduce the 
new ultra-low sulfur diesel fuel into the market over time, temporarily 
resulting in two separate grades of highway diesel.

                      NATSO'S CONCERNS/OBJECTIONS

    NATSO is strongly opposed to phase-in schemes which would result in 
the temporary manufacture, delivery, sale, and use of two separate 
grades of highway diesel, and continues to urge EPA to adopt a ``single 
fuel'' approach which would switch to the new ultra-low sulfur fuel at 
one time. thereby maintaining a single grade of highway diesel, and 
preserving the integrity of our nation's diesel fueling infrastructure.
    The entire diesel fuel delivery system, from refinery to retail, is 
currently handling a single grade of highway diesel fuel. The presence 
of two different grades could have a disastrous effect on our energy 
delivery system; including reductions in the supply of diesel, spot 
outages, price spikes, tremendous cost increases, and fuel cross-
contamination.
    Because the travel plaza and truckstop industry is configured to 
carry a single grade of highway diesel, the introduction of a second 
separate grade would force the truckstop industry to make tremendous 
capital investment to carry both products at retail. Significant 
capital expenditures would need to be made to ensure that these 
separate grades of diesel are properly segregated to prevent their 
cross-contamination, and to avert misfueling at the pump. Moreover, the 
costs associated with upgrading a truckstop to provide both grades of 
highway diesel would prove to be an unrecoverable expense as the use of 
these two diesel fuels would be temporary.
    The enormous expense required to re-configure a truckstop, over 
$100,000 per location in many cases, would result from the need to 
purchase additional storage tanks to segregate the second grade of 
diesel; the need to tear up concrete for additional tank installation 
and the requisite re-piping and re-manifolding of tank lines; the 
purchase of new pumps and monitors, as well as additional compliance 
expenses which would result from the presence of two highway diesel 
fuels; not to mention the increased cost to acquire product.
    These costs would be extremely prohibitive, unrecoverable due to 
the temporary use of two fuels in the market, and would need to be 
borne by an industry which largely consists of small independent owner/
operators who are still recovering financially from the 1998 
underground storage tank upgrades. The introduction of a second grade 
of highway diesel could therefore force many truckstop operators out of 
business, and have the additional effect of further reducing diesel 
fuel supply.
    It is important to note that the entire distribution chain for 
diesel would face increased costs and expense under a phase-in, further 
exacerbating the truckstop industry's ability to easily acquire and 
sell diesel at the retail level. Refineries, pipelines, bulk plants, 
distributors, and marketers have all stated their concerns with, and 
opposition to, phase-ins which would result in two grades of highway 
diesel.
    The presence of two grades of highway diesel under these phase-in 
scenarios would also seriously call into question the viability and 
success of this entire proposal, thereby resulting in no gain for air 
quality or the environment.
    The distillate market is very tight, with little or no additional 
supply. Adding an additional grade of highway diesel will further 
stretch this supply to dangerous levels, and could result in overall 
supply shortages of diesel fuel. Likewise, the increased costs 
associated with producing, distributing, and selling two grades of fuel 
may prompt some to stop distributing or carrying diesel altogether, 
further reducing supply and availability. Furthermore, two grades of 
highway diesel will also lead to a much higher price for the new ultra-
low sulfur fuel than if that fuel was the only highway diesel in the 
market, as would be the case if the entire diesel fuel pool was 
switched at one time with no phase-in.
    As a result of these serious market-oriented questions concerning 
the supply and price of the ultra-low sulfur diesel under a phase-in 
approach, it is quite likely that many fleets and independent drivers 
would decline to purchase the more expensive 2007 model year vehicles 
with the emission control devices. These vehicles would also require a 
much more expensive fuel under a phase-in. These fleet operators and 
independent drivers may prefer to make their purchases earlier, such as 
buying more vehicles in the 2005 or 2006 model year, and/or rebuilding 
current vehicle engines, in an effort to wait and avoid entering what 
would be a very uncertain market.
    Accordingly, under a phase-in and the market uncertainty which it 
would produce; even if some ultra-low sulfur diesel supply is somehow 
guaranteed, there is no guarantee that sufficient demand will exist for 
either the ``cleaner'' 2007 model year vehicles, or the ultra-low 
sulfur fuel needed to power them. This fact calls into serious question 
the ability of this proposed rule to succeed under a phase-in, and 
consequently, whether or not any significant environmental benefits 
would be achieved.
    Compounding these serious issues surrounding EPA's consideration of 
a phase-in for the introduction of the ultra-low sulfur fuel are the 
extreme cuts EPA has proposed in the level of sulfur in highway diesel. 
EPA is proposing a 97 percent reduction in the sulfur content of on-
road diesel. The travel plaza and truckstop industry has serious 
concerns that this deep cut will have the effect of reducing the 
overall supply of diesel, and lead to spot outages and severe price 
spikes. Furthermore, it does not appear that EPA has provided any 
compelling technical justification for a cut of this magnitude.
    The petroleum industry however, has stated its support for a 90 
percent reduction in sulfur levels, which would reduce the sulfur 
content of highway diesel from 500 parts per million to just 50 parts 
per million. Such a reduction would apparently allow for virtually the 
same environmental benefits to be achieved, while at the same time 
ensuring that our nation's energy supply and delivery system is not put 
at risk.

                               CONCLUSION

    NATSO would like to reiterate the travel plaza and truckstop 
industry's support for efforts to improve air quality, without placing 
our nation's energy supply and delivery system in jeopardy. In order 
for this proposed rulemaking to achieve those very important goals, it 
must not damage our nation's diesel fuel supply, distribution, or 
retail infrastructures.
    The phase-in schemes being contemplated in this proposed rule by 
EPA would place the entire diesel fuel delivery system at risk by 
placing excessively costly and burdensome requirements on refiners, 
pipelines, distributors and retailers. This entire system is currently 
configured to handle a single grade of highway diesel, not two.
    The travel plaza and truckstop industry, a critical link in the 
movement of goods and services throughout our nation, would be hurt 
tremendously by these phase-in schemes, and urges EPA to reject their 
further consideration in favor of the single fuel approach which would 
switch the entire highway diesel fuel pool over to the ultra-low sulfur 
diesel at one time, thereby maintaining a single grade of on-road 
diesel, and preserving the integrity of our nation's diesel fueling 
infrastructure.
    NATSO again thanks the Subcommittee for holding this important 
hearing, and for the opportunity to comment on EPA's Notice of Proposed 
Rulemaking concerning Heavy Duty Engine Standards and Control 
Requirements on the Sulfur Content of Highway Diesel Fuel.
                               __________
                                                     April 6, 2000.
Hon. Barbara Boxer,
U.S. Senate,
Washington, DC.
    Dear Senator Boxer: As representatives and supporters of the 
biomass ethanol industry in the United States, we would like to express 
our gratitude for your support of this important new industry. We 
appreciate that you have advocated through legislation a solution for 
the MTBE groundwater contamination problem in California. However, we 
do not believe that the banning of MTBE will by itself ensure that 
biomass ethanol will be used in the U.S. We are very pleased that this 
Administration has recently announced that it will support increased 
use of renewable fuels to aid in the replacement of MTBE in gasoline. 
We are writing to underscore our belief in the need for biomass ethanol 
incentives and their importance both to California and the nation.
    As you know, MTBE has now been detected in groundwater and drinking 
water nationwide. The seriousness of this problem has provoked 
widespread debate about the national oxygenate standard and renewable 
fuels incentives. The outcome of this debate promises to have 
significant impacts on the nation's domestic ethanol industry, 
particularly the U.S.'s nascent biomass ethanol industry.
    Because of its newness and to ensure that the full benefits of 
biomass ethanol are realized, specific incentives are needed for 
biomass ethanol. The incentives will provide prospective ethanol 
producers and investors with the certainty required to expand 
production capacity on an expedited timeline.
    We would like to assure you that there is ample biomass ethanol 
capacity now planned to meet the expected future ethanol demand in 
California. Biomass ethanol will use waste as its feedstock, i.e., 
agricultural and wood residues, and the non-recyclable cellulose 
component of municipal solid waste. The world's first two biomass 
ethanol plants will be located in Louisiana and New York, using 
sugarcane bagasse and municipal solid waste, respectively. They are 
expected to begin producing ethanol in early 2002. Two additional 
biomass ethanol production facilities in California are slated for 
production in late 2002 and 2003, one located in Gridley/Oroville, 
using rice straw and wood waste as feedstock, the other in Chester, 
using wood waste. Another biomass ethanol plant in southern California 
using municipal solid waste is slated for production in the next 
several years.
    All of these plants are expected to expand their capacity soon 
after completion of the initial biomass ethanol plant. This capacity, 
coupled with other bioethanol plants in the planning stages, is more 
than adequate to sustain the growth needed for future California 
ethanol demand.
    Biomass ethanol plants will be very energy efficient as well as 
cost-effective due to breakthrough technologies. According to Argonne 
National Laboratory, they will produce approximately 4 units of energy 
for every 1 unit used to produce biomass ethanol. In addition, biomass 
ethanol will expand value-added markets for rural communities.
    It is apparent to us that without renewable fuels incentives, oil 
companies will rely mostly on petroleum-derived alternatives such as 
alkylates, and even worse, increased aromatics. This would result in 
increased gasoline prices, reliance on imported oil, and pollution, 
particularly carcinogenic toxic emissions.
    We believe now is the time to develop a truly national renewable 
fuels industry, acting as an insurance policy against future gasoline 
price spikes in the U.S. due to our over-dependency on foreign oil, 
while abating MTBE groundwater contamination. We are grateful for your 
committed and continued leadership on this issue. Please let us know 
how we may further assist your efforts.

            Sincerely,

Megan S. Smith, Co-Director
American Bioenergy Association
Washington, DC

J.R. Miller, Chief Operating Officer
Arkenol, Inc.
Mission Viejo, CA

Stephen J. Gatto, President and Chief Executive Officer
BCI Gridley, LLC
Gridley, CA

Russell Long, Executive Director
Bluewater Network
San Francisco, CA

California Farm Bureau Federation
Sacramento, CA

Robert Herkert, Manager of Environmental Affairs
California Rice Commission
Sacramento, CA

Thomas Sanford, Mayor Pro-tem
City of Gridley
Gridley, CA

Jack Sivertson, Vice President
Collins Pine Company
Chester, CA

Michael J. Greene
Community Development Services, Inc.
Sacramento, CA

Carol Werner, Executive Director
Environmental and Energy Study Institute
Washington, DC

Jack Huttner, Vice President
Genencor International
Palo Alto, CA

George Craig, President
HFTA
Oakland, CA

Daryl Harms, Chief Executive Officer
MASADA
Birmingham, AL

Paul Wood, Director of Wood Projects
Ogden Power Pacific, Inc.
Redding, CA
Neil Koehler, Founder
Parallel Products
Rancho Cucamonga, CA

Eric Vaughn, CEO/President
Renewable Fuels Association
Washington, DC

Betty Riley, President
Sierra Economic Development District
Auburn, CA

Loyd Forrest
TSS Consultants
Rancho Cordova, CA

                                ------                                


              Company Descriptions of Senator Boxer Letter

    American Bioenergy Association.--ABA is a national trade 
organization representing the U.S. biomass industry in areas of biomass 
conversion to ethanol, electricity and chemicals. In helping to carry 
out the goals of the biomass industry, ABA works closely with 
environmental groups, and State/local and Federal governments in 
advancing the environmentally friendly use of biomass in the U.S. and 
abroad.

    Arkenol.--Arkenol is a technology and project development company 
based in Mission Viejo, CA, whose focus is the construction and 
operation of biorefineries to produce a variety of biobased chemicals 
and transportation fuels from their patented technology. Arkenol has a 
bioethanol pilot plant in S. California, where they are also planning 
on building a commercial scale bioethanol plant using the cellulose 
wastestream from municipal solid waste.

    BCI Gridley, LLC.--BC International Corporation is a company 
commercializing its proprietary and patented technologies to produce 
ethanol and other specialty chemicals from biomass. The company has 
signed a letter of intent with the city of Gridley, CA, to develop a 
facility using rice straw and wood chips as its feedstock, providing a 
creative solution to the region's rice waste disposal problem. Working 
with Ogden Power Pacific, BCI is planning on co-locating a bioethanol 
plant at Ogden's Oroville biomass power plant site, increasing the 
efficiency of both plants.

    Bluewater Network.--Based in San Francisco, Bluewater Network is a 
national environmental organization focused on protecting public 
waters, lands, and ecosystems. Bluewater has taken the lead on an MTBE/
Clean Fuels Campaign aimed at ridding the Nation of MTBE use, while 
promoting cleaner alternatives such as biomass ethanol.

    California Farm Bureau Federation.--The California Farm Bureau is 
California's largest farm organization. It is a voluntary, non-
governmental, non-partisan organization of farm and ranch families 
seeking solutions to the problems that affect their lives, both 
socially and economically.

    California Rice Commission.--The CRC is a private, non-profit 
``business league'' representing all rice producers in the State of 
California, including the Rice Straw Cooperative of Butte County. This 
cooperative, which is an equity partner of the Gridley bioethanol 
project, organized itself to provide rice straw feedstock to the 
Gridley project. The CRC's mission is to encourage the profitable 
production and marketing of California rice, ensuring that the industry 
is accurately and fairly represented.

    Collins Pine Company.--This is a family-owned forest products 
company with a strong commitment to sustainable forestry, winning 
President Clinton's 1996 ``Sustainable Development'' award. Also, 
Collins' CEO, Jim Quinn, won the Green Cross Millennium for Corporate 
Environmental Leadership Award from President Gorbachev. They foster 
strong partnerships with visionary companies, scientists, and 
environmentalists who are willing to work to achieve a sustainable 
society. In 1998, BCI and Collins Pine Company agreed to begin 
development of a biomass ethanol and co-generated electricity project 
in Chester, CA, using wood residues.

    Community Development Services, Inc.--CDS is a for-profit public 
interest research and advocacy-consulting group located in Sacramento, 
CA, which works principally on land-use and rural development issues.

    Environmental and Energy Study Institute.--The Environmental and 
Energy Study Institute (EESI) is a non-profit organization dedicated to 
promoting environmentally sustainable societies. EESI carries out 
policymaker education and analysis projects in the areas of energy 
efficiency and renewable energy, transportation, sustainable 
communities, water quality and conservation, global climate change, 
fiscal policy and military base cleanup.

    Genencor International.--A worldwide industrial biotechnology 
company, Genencor develops and manufactures a variety of novel enzymes, 
biochemicals and specialty chemicals, all focused around industry 
sustainability. Most significant to the bioethanol industry is their 
work in producing cost affordable cellulase enzymes, which are needed 
to bring down the cost of bioethanol in the future. Their technology 
center is located in Palo Alto, CA.

    HFTA.--HFTA, representing their ``hydrolysis fermentation 
technology'', is located in Oakland, CA. HFTA has patented a 
technology, which converts cellulosic biomass into ethanol, and is 
working closely with DOE's National Renewable Energy Laboratory on 
analyzing this promising process for future use in a bioethanol 
industry.

    Masada Resource Group.--Masada is a competitive and environmentally 
responsible provider of waste disposal services to address today's 
environmental issues. Through the development of its patented process, 
Masada and its affiliates are in the business of processing and 
converting municipal solid waste, sewage sludge and waste water into 
fuel ethanol and industrial by-products. They are about to begin 
construction on a facility in Middletown, New York which will produce 
ethanol using components of municipal solid waste as its feedstock.

    Ogden Power Pacific, Inc.--Ogden Power is a leading developer, 
owner, and operator of independent power facilities internationally and 
provides related infrastructure services. The company is divided into 
four key business lines including: independent power, waste-to-energy, 
water treatment, and environmental services. Ogden Waste to Energy, 
Inc. designs, builds, owns and operates 28 waste-to-energy facilities. 
Each of its 28 operating projects represents Ogden's commitment to the 
future to help solve the solid waste and energy challenges faced by 
communities. Pacific Oroville Power, Inc., is working with DOE on a 
feasibility study for the biomass ethanol plant in Chester, CA.

    Parallel Products.--Parallel Products is currently California's 
only ethanol producer, owning a 6 million gal/year plant in Southern 
California. Parallel Products has been producing ethanol from waste 
products for the last 15 years.

    Renewable Fuels Association.--RFA is a national trade association 
representing the U.S. ethanol industry. Membership includes ethanol 
producers, marketers and blenders, equipment manufacturers, engineering 
and design companies, agri-business organizations, and members of 
consumer and environmental groups.

    Sierra Economic Development Committee.--SEDD is a regional non-
profit company that facilitates business and economic development in 
the California counties of El Dorado, Placer, Nevada and Sierra. SEDD's 
vision is a thriving economy that values the natural environment. They 
are interested in pursuing the possibility of building a biomass 
ethanol plant in their area.

    TSS Consultants.--Providing consulting services to biomass project 
developers, owners, operators, investment banks and public agencies, 
TSS develops new biomass facilities as well as evaluation of existing 
biomass facilities, including conversion of biomass to power, ethanol 
and chemicals, specifically on environmental permitting, forestry 
consulting, biomass market assessments, regulatory agency negotiations 
and project feasibility studies.
                               __________

     [From the Des Moines (IA) Sunday Register, September 19, 1999]

                       The Register's Editorials

                        LET ETHANOL PROVE ITSELF

Iowa farmers need help, but coercion at the gas pump is wrong.
    The price of corn is low, and Iowa farmers are hard hit.
    So here's the deal: Let's prohibit the sale of wheat bread. From 
now on, only corn bread should be allowed on Iowa grocery shelves. It 
might help boost the price of corn.
    Hog farmers are struggling, too. Why not ban the sale of other 
meats so that Iowans can eat nothing but pork?
    No?
    Well, how about requiring that most gasoline sold in Iowa be 
blended with corn-based ethanol?
    That's an idea that has the backing of the governor and state 
agriculture secretary as well as Iowa's two U.S. senators.
    But that doesn't make it right.
    Ethanol is good for Iowa. It creates an additional market for corn. 
It is an alternative fuel from a renewable resource. Iowa politicians 
are right to promote ethanol and to provide a tax break until the 
industry can stand on its own feet. They are right to fight the oil 
lobby in its efforts to rob ethanol of its market and take away its 
subsidy.
    Promotion is one thing. Coercion is another.
    An ethanol mandate would deny Iowans a choice of fuels and short-
circuit the process of ethanol establishing its own worth in the 
marketplace. Except in places where smog problems dictate the use of an 
oxygenated fuel, what's the rationale for mandating ethanol?
    The justification is to marginally boost the price of corn. Cleaner 
air is offered as a reason, too, but that's an afterthought. If that 
were the goal, other measures would be far more effective: outlawing 
SUVs, for instance, or quadrupling the gasoline tax.
    Ethanol is not recommended for some small engines on lawn mowers, 
snowblowers. boats, auxiliary generators and the like. Then, too, lots 
of Iowans drive older vehicles or use older equipment with components 
that may not have been engineered to use ethanol, as newer vehicles 
are: Why put these people through a hassle to find the non-ethanol fuel 
their equipment requires?
    One convenience-store chain used to advertise free repair for any 
engine damaged by the use of its gasoline. If the State insists on 
mandating the use of ethanol, perhaps it should make the same offer. 
Better yet, let Iowans make their own choices, and let ethanol prove 
itself in the marketplace.
                                 ______
                                 
             [From the Quad City Times, September 19, 1999]

                               Editorials

                  A New Subsidy: More Fuel on the Fire

              ETHANOL-ONLY PROPOSAL DOESN'T HELP CONSUMERS

    Chuck Grassley and Tom Harkin may have the best of intentions, but 
their proposal to boost ethanol use in Iowa is seriously misguided.
    The two U.S. senators have signed a petition asking Iowa Secretary 
of Agriculture Patty Judge to require that Iowa service stations sell 
only ethanol-blended gasoline. Ethanol, as most Iowans know, is a fuel 
derived from a mixture of gasoline and corn-based alcohol.
    Harkin and Grassley, of course, are longtime supporters of ethanol. 
They know that its use is good for Iowa corn farmers and that it 
reduces the nation's reliance on foreign oil.
    But that's only half the story. Federal subsidies of ethanol now 
cost American taxpayers more than $770 million a year in lost revenue--
largely because of ethanol's exemption from federal fuel taxes. The 
Congressional Research Service says that figure could reach $1 billion 
by next year.
    And mind you, that subsidy isn't putting more money in the pockets 
of farmers. The real beneficiaries of the ethanol subsidy are 
conglomerates like Archer Daniels Midland Corp. that convert the corn 
into ethanol. The Cato Institute estimates that every dollar of profit 
now earned by ADM's ethanol operation is costing taxpayers $30 in lost 
revenue. That's because in addition to the federally subsidized 
production of ethanol, ADM also has received millions of dollars worth 
of free corn from American farmers, courtesy of the Department of 
Agriculture.
    Are farmers the co-beneficiaries of the ethanol subsidy? Yes--but 
not to the extent that some would argue. Subsidized ethanol production 
does guarantee corn farmers a higher price for their product, but that 
penalizes hog farmers and cattlemen since more than half the nation's 
corn crop is used domestically for feed grain.
    As for claims that ethanol helps the environment, the National 
Academy of Science, the Congressional Budget Office, the Department of 
Energy and even the USDA have each reported that ethanol, which is less 
efficient than gasoline, provides no significant environmental benefit 
and may even add to air pollution--which is why ethanol use was 
restricted in the EPA-proposed rules first issued in conjunction with 
the Clean Air Act of 1992.
    None of this is to suggest that Grassley and Harkin are wrong to 
support the subsidization of ethanol at a more reasonable level--only 
that there is an abundance of evidence that indicates ethanol is not 
all that it's cracked up to be. Not for consumers, not for the 
environment and not for farmers. With research and continued 
refinements, it might someday become an economically viable alternative 
to gasoline--but until that day, it would be ludicrous to argue that 
Iowa's gas stations be required to sell only ethanol.
    Such an arrangement would infringe on the rights of thousands of 
Iowa businessmen and put service stations in border communities such as 
the Quad Cities at a competitive disadvantage with gas stations in 
neighboring States. It also would take government subsidization of 
ethanol to a whole new level, essentially forcing Iowans to buy a 
product that already is costing them money through lost tax revenues.
    The game is rigged as it is. With their million-dollar subsidies, 
ethanol producers are playing against their competition with loaded 
dice and marked cards. If they're still losing--to the extent that 
lawmakers are proposing the outright elimination of the corpetition--
that's a sure sign that ethanol is not a product that consumers are 
ready to embrace.
    Ethanol might be worth some level of government support, but it 
level will be so valuable as to justify scrapping our system of free 
enterprise.
                               __________

STATEMENT OF RUSSELL LONG, PH.D., EXECUTIVE DIRECTOR, BLUEWATER NETWORK

    It is an honor for me to present comments to you today as you 
evaluate the role of ethanol fuels. Bluewater Network believes now is 
the time to definitively address the problem of water pollution by MTBE 
and other ether-based fuel oxygenates. It is also a time of opportunity 
in terms of increasing our use of clean, renewable fuels. Americans can 
have both clean air and clean water--without promoting one at the 
expense of the other. We believe the best way to accomplish this is to 
take immediate action to ban MTBE and other ether-based oxygenates, and 
to prevent backsliding on air quality and promote use of renewable 
fuels by simply retaining the oxygen requirement in reformulated 
gasoline. Alternatively, it's possible air and water quality could be 
protected through implementation of a good renewable fuels standard and 
substitution of performance standards for the oxygen requirement--as 
long as they are crafted in a way that protects the real-world benefits 
of oxygenated reformulated gasoline. However, I should note that 
Bluewater Network is extremely skeptical that non-oxygenated fuels will 
be able to match the real-world environmental benefits of oxygenated 
fuels.
    Over the last 10 years, it has become clear that oxygenated 
gasoline has afforded significant air quality benefits. However, the 
program is now in jeopardy because of a nationwide water quality 
problem from the use of the oxygenate called methyl tertiary butyl 
ether (MTBE). MTBE's use has led to serious contamination of U.S. water 
supplies ever since its introduction. In some cases this contamination 
is severe. For example, all of the water in Glendale, California is 
contaminated with MTBE at such high levels that it has virtually 
destroyed a community. The town has become practically deserted, and 
the State has to truck in clean water every week to the remaining 
residents. Once MTBE gets into water supplies, it is extremely 
difficult and expensive to clean up. In Santa Monica, California, 
alone, cleanup costs for MTBE-contaminated water are projected in the 
100 million-dollar range. National cleanup costs are projected to be 
much higher and may take decades to accomplish.
    Other ether-based fuel oxygenates such as ethyl tertiary butyl 
ether (ETBE), tertiary amyl methyl ether (TAME) and diisopropyl ether 
(DIPE) are of equal concern. These chemicals have physical 
characteristics very similar to MTBE, and are essentially unstudied. We 
do know, however, that they have similar systemic toxicity in animals 
and may be carcinogenic.
    In essence, the use of WTBE and other ether-based oxygenates has 
traded water quality for air quality. Banning MTBE and other ether-
based oxygenates is the logical next step in rectifying this problem. 
However, such a ban does not necessitate lifting the oxygen content 
requirement of the Clean Air Act Amendments of 1990. In fact, we 
believe the most effective strategy to protect the existing real world 
benefits of reformulated gasoline is to maintain the oxygen 
requirement. Without the use of oxygen in gasoline, there will be an 
immediate reduction in gasoline volume from the loss of those 
oxygenates, resulting in increased demand for petroleum fuels and other 
octane enhancers to make up the difference. Consequently, refiners will 
increase aromatic and alkylate levels in gasoline, which will lead to 
increased hydrocarbon and toxics emissions such as benzene, and 
potential increases in use of the highly toxic hydrofluoric acid for 
alkylate production. Loss of oxygen's benefits will also lead to 
quantified backsliding on carbon monoxide and particulate matter 
emissions.
    In the event that you consider eliminating the Clean Air Act's 
oxygen requirement, Bluewater Network would support such a change only 
if a renewable fuels standard is established with specific provisions 
that maintain the existing, real-world air quality benefits of the 
oxygen requirement in reformulated gasoline. For example, it would be 
crucial to enact an aromatic cap, and ensure that there is no increase 
in emissions of carbon monoxide, particulate matter, hydrocarbons, or 
toxics. However, as I said before, we believe the positive impact of 
oxygenates is so significant that it will not be possible to achieve 
equivalent environmental protection without their use. Additionally, we 
would want to see incentives for ethanol produced from biomass and 
organic crops.
    I would now like to give you more detailed background on each of 
the issues I've raised.

                     WATER QUALITY IMPACTS OF MTBE

    First, I'd like to talk about some of the problems with MTBE, and 
its impact to our nation's water quality.
    As you know, the Clean Air Act of 1990 required the addition of 
oxygenates to reformulated gasoline to reduce the production of toxic 
by-products of fuel burning. Unfortunately, the oil industry has chosen 
to use MTBE over other oxygenates such as ethanol in over 85 percent of 
reformulated gasoline.
    The physical properties of MTBE make it extremely easy for the 
substance to pass from gasoline to air and from gasoline to water. 
Additionally, MTBE does not naturally degrade in water. As a result, it 
travels through and contaminates water faster than all other components 
of gasoline. Evidence shows that even state-of-the-art underground 
storage tanks have leaked MTBE.
    The EPA has classified MTBE as a ``possible'' human carcinogen. It 
is on the EPA's ``contaminant candidate list,'' as well as EPA's 
Drinking Water Priority List for future regulation. Few studies have 
been conducted regarding human ingestion of MTBE in drinking water. 
However, the confirmed major human metabolites of MTBE are tertiary 
butyl-alcohol (TBA) and formaldehyde, ``probable'' human carcinogens, 
and confirmed immune system suppressants.
    In 1999, UC-Davis warned that to protect all drinking water 
consumers from cancer risk, MTBE concentrations should not exceed 5 
ppb. However, no technology is currently available to prevent such low 
levels of MTBE contamination. Stricter control of automobile emissions, 
underground storage tanks and two-stroke engines cannot prevent this 
level of contamination.
    Over 40 percent of the U.S. population currently live in areas 
where MTBE is used. At current rates of MTBE market expansion, this 
figure could grow to 80 percent within a few years. A recent article in 
the American Chemical Society's Environmental Science and Technology 
estimated that 35 percent of community supply wells in 31 States could 
already be contaminated with MTBE (based on their proximity to leaking 
underground storage tanks).
    EPA's Toxics Release Inventory (TRI) for 1996 indicates that the 
total annual industrial release of MTBE in the United States was 3.4 
million pounds (3.1 million pounds into the air; only 100,000 pounds to 
surface water). However, this does not even account for two-stroke 
engine emissions. The Bluewater Network estimates that two-strokes 
account for more than eight million pounds of MTBE annually--this 
figure exceeds the EPA total for all sources combined, and increases 
the annual MTBE release into surface (and drinking) water exponentially
    A single personal watercraft can dump up to 6 gallons of raw fuel 
into the water in 2 hours. At this rate, a single jet ski releases one-
tenth of a gallon (a soda can) of MTBE into the water in two hours. 
This amount of MTBE can contaminate 13 million gallons of drinking 
water, the amount consumed daily by a population of 90,000. Evidence 
suggests that MTBE is finding its way from marine recreation vehicles 
into water reservoirs. The Association of California Water Agencies 
reports that 14 out of 15 reservoirs studied that permit motorized 
recreation contained significant levels of MTBE. On the other hand, 
none of the eight reservoirs tested that prohibited motorized 
recreation contained significant levels of the compound. Further 
studies in Donner Lake, Lake Tahoe, and San Pablo Reservoir have 
clearly linked two-stroke marine engine emissions to MTBE levels in 
excess of primary health standards.
    Unfortunately, MTBE appears to be reaching human populations. 
Various State Centers for Disease Control and Prevention report MTBE 
levels in human blood where MTBE is used in fuel, ranging from less 
than 0.05 ppb to 37 ppb in residents tested.
    However, what concerns Bluewater Network most is that the 
contamination appears to be growing exponentially, and the fact that no 
drinking water plant in the United States is currently designed to 
treat drinking water for MTBE. Traditional methods used for other 
hydrocarbon contamination are simply not effective. Even so, many 
States are only beginning to realize the extent of their MTBE problem. 
By the time individual States know that they have problem, quantify the 
impact of MTBE on their water supplies and economy, and push an 
exemption request through intensive opposition from the oil industry, 
it will be too late and very costly. This makes a national ban 
essential.
    As I mentioned before, because other ether-based fuel oxygenates 
such as ethyl tertiary butyl ether (ETBE), tertiary amyl methyl ether 
(TAME) and diisopropyl ether (DIPE) maybe of just as much concern, any 
ban of MTBE should include these other ether-based oxygenates as well.

             AIR QUALITY IMPACTS OF NON-OXYGENATED GASOLINE

    Now I'd like to turn to the air quality impacts of losing the 
oxygen requirement without substitution of a renewable fuels standard 
with good anti-backsliding language to ensure maintenance of air 
quality in reformulated gasoline areas.

Aromatics
    First of all, if the oxygen requirement is removed or waived, 
refiners will need to replace the octane benefits provided by 
oxygenates. One way is to dramatically increase aromatics--a dangerous 
component of gasoline. Currently, there is no national cap on 
aromatics, despite the fact that the dangers of increased aromatics are 
well documented and far reaching. Their increased use will directly 
cause higher emission of all of the primary air pollutants emitted by 
vehicles in the U.S. across the board, including increases in ozone and 
toxic emissions.
    It is natural to assume that refiners might use ethanol to comply 
with any tougher performance standards that are implemented to replace 
the oxygen requirement (a legislative option some have promoted). 
However, history shows that refiners choose instead to increase 
aromatics, in order to consolidate inherent competitive advantages 
created through increased oil production.

Alkylates
    In addition to aromatics, alkylate use may be increased for octane 
benefits. For instance, California has a cap on aromatics, so refiners 
will probably choose alkylale octane enhancers. We have reason to 
expect that some refiners producing for other States' reformulated 
gasoline areas will also increase their use of alkylates.
    Increased alkylate use could jeopardize public health. Dr. David 
Rice, who let the 14 member team at Lawrence Livermore Labs that 
concluded there was NOT a significant water quality problem with 
ethanol, raised a serious concern about increasing alkylates. 
Presenting before the California Air Resources Board in January 2000, 
Dr. Rice indicated that because there are no public health studies on 
the increased use of alkylates, increasing their use could threaten 
public health. Bluewater Network contends that a doubling or more of 
alkylates in gasoline--about which we know almost nothing--is eerily 
similar to the MTBE mistake made years ago.
    In addition to potential increased air pollution risk from the use 
of alkylates in gasoline, chemicals used to produce alkylates could 
themselves put public health at risk. At the current time, a 
significant portion of the nation's refineries use hydrofluoric acid in 
their alkylation process. Accidental releases of hydrofluoric acid 
vapor--which is highly toxic and even lethal--could seriously endanger 
communities near refineries.
    If alkylates double in gasoline as predicted, Bluewater Network is 
concerned about increased transportation and use of this extremely 
hazardous acid. Bluewater Network believes that hydrofluoric acid 
alkylation is the most likely and technically feasible process to 
produce alkylates for gasoline sold in California. The rest of the 
nation could more easily use alkylates produced with sulfuric acid 
instead of hydrofluoric acid, but with significant existing capacity 
set up for hydrofluoric acid, it is likely that increased alkylate 
demand will lead to increased utilization of this process. Bluewater 
Network urgently believes further study of potential changes in 
refinery alkylate production is necessary before committing to 
legislation or regulatory action that will increase the use of non-
oxygenated fuels.

Carbon monoxide
    Another air quality concern for us is carbon monoxide. Although 
oxygenated reformulated gasoline was not specifically designed to 
reduce carbon monoxide pollution, this is one of its real world 
benefits. Bluewater Network's analysis demonstrates that without oxygen 
in reformulated gas, severe carbon monoxide backsliding will occur. The 
Appendix of the California Air Resource Board's new fuel regulation 
demonstrates that Phases 3 RFG will cause an increase of 250-590 tons 
per day of carbon monoxide emissions in California. These are very 
significant numbers, and will cause serious air quality problems in 
California in future years. Similar backsliding can be expected 
elsewhere in the Nation.
    In addition, USEPA Federal Ozone Workshops conclude that the 
current method of estimating ozone seriously underestimates carbon 
monoxide's role as an ozone precursor. For this reason, EPA sent a 
Notice of Proposed Rulemaking to OMB in February 2000, requesting the 
addition of a carbon monoxide credit to ethanol for reducing ozone--
something Bluewater has been requesting of EPA for over a year.
    When the effects of high emitters, off-cycle driving, and off-road 
engines are included--engines that produce the majority of total 
vehicular emissions--it's clear that oxygenates have tremendous 
beneficial impacts. However, many regulators, and even the National 
Research Council acknowledge that their studies have neglected to 
include an analysis of all of these categories. As a result, we believe 
that moving to non-oxygenated reformulated gasoline will cause severe 
increases in carbon monoxide, and therefore, future air modeling, 
legislation and regulations must take carbon monoxide into account.

Particulate Matter
    Particulate matter is also of concern to us. One of the California 
Air Resources Board's (CARB) major arguments for a waiver from the 
oxygen standards was based on obtaining particulate matter reductions 
to meet Federal standards. In other words, CARB argued that oxygenates 
actually harm their ability to reduce particulate matter. Bluewater 
Networks takes issue with this assumption.
    A study conducted by the Colorado Department of Public Health and 
Environment showed that gasoline containing a 10 percent ethanol 
oxygenate significantly reduces emissions of primary particulate 
matter. In fact, Colorado currently has a 15 percent particulate matter 
emissions credit for 10 percent ethanol fuel blends, due to evidence of 
significant reductions in particulate matter emissions for on-road and 
off-road engines with this fuel.
    According to CARB's own data, off-road vehicles account for 80 
percent of particulate matter emissions from gasoline engines in 
California, yet inexplicably, they are not even included in CARB's 
final analysis. Unlike the State of Colorado which provides significant 
particulate matter credits for off-road vehicles, GARB conveniently 
discarded the whole category to arrive at its unusual conclusion that 
oxygenates increase particulate matter. Bluewater Network contends that 
if the oxygenate waiver California asked EPA is granted, particulate 
matter will increase in California, not decrease, as a result of this 
very serious oversight. We do not want to see elimination or waiver of 
the oxygenate requirement, which would allow other States to go down 
this dangerous path.

Hydrocarbons
    Hydrocarbons are yet another concern. The proposed regulations for 
California's Phase 3 reformulated gasoline offer a projected 0.1 
percent reduction in hydrocarbon emissions in comparison to Phase 2. 
Although such a reduction promises to maintain the existing benefits of 
Phase 2 on paper, Bluewater Network believes that it is extremely 
unlikely that refiners will produce fuels in the real world which 
maintain this hydrocarbon emissions reduction. The regulation itself 
does not ensure that refiners will produce fuels clean enough to 
maintain this projected emissions reduction.
    As I said before, in the event that you consider eliminating or 
allowing State-by-state waivers of the Clean Air Act's oxygen 
requirement, Bluewater Network would support such a change only if a 
renewable fuels standard is established with provisions that maintain 
the existing, real-world air quality benefits of the oxygen 
requirement. It would be crucial to enact protections such as an 
aromatic cap, and ensure that there is no increase in emissions of 
carbon monoxide, particulate matter, hydrocarbons, or toxics. A ban on 
additional hydrofluoric acid alkylation capacity is also essential.

Global Warming Benefits of Renewable Fuels
    Now I'd like to address the issue of global warming. Most major 
research labs and universities currently studying ethanol agree that 
corn ethanol probably reduces global warming impacts. The most recent 
work done by Argonne National Labs, the Department of Energy, the 
Department of Agriculture, and the Institute for Local Self-Reliance 
have shown net reductions in global warming gases from corn ethanol 
ranging from approximate 15 to 25 percent. Argonne National Labs 
informed Bluewater Network recently that in their opinion, even 
obtaining just two or three percent reductions in greenhouse gases from 
corn ethanol ``is significant'' and should not be discounted in the 
climate change debate.
    Biomass ethanol represents an even more valuable industry with 
which to combat global warming. In addition, it actually utilizes waste 
from other sources, Such as municipal waste, forest thinnings from fire 
prevention programs, and rice straw which is otherwise burned--causing 
its own air quality problems.
    For these reasons, we believe that substituting MTBE with ethanol, 
with additional incentives for biomass, could have significant benefits 
for reducing global warming impacts. We see several ways the 
environmentally beneficial biomass product could be supported. One is 
ensuring geographical and temporal disbursement of ethanol demand--
because these two factors help biomass more successfully compete with 
corn ethanol in areas where corn is not grown, such as California, 
Texas, and New York. Another is including a biomass credit, on the 
order of 1.5 to 1.0, in any renewable fuels standard.

Environmental and Economic Issues Related to Increased Ethanol Use
    I'd like now to address some environmental and economic issues 
related to the increased use of ethanol in reformulated gasoline areas.
    Bluewater Network recognizes the need for a thorough study of the 
environmental and economic issues surrounding increased use of 
renewable fuels as an oxygenate replacement. This study should examine 
the pros and cons of renewable fuels production and use, as well as the 
pros and cons of alternative fuel scenarios, such as the increased use 
and production of petroleum or other octane and oxygen additives if we 
move to non-oxygenated fuel. Even so, we believe that the currently 
available data indicate that ethanol will be an environmentally and 
economically positive choice.

Fuel Prices
    Recent data suggest that ethanol could completely replace MTBE 
within three years, and that gas prices at the pump would not rise 
significantly. In California, where very little ethanol is produced, 
the California Energy Commission predicts virtually no cost increases 
with ethanol over the long term. Short-term prices may experience mild 
rises. Fortunately, compared to the oil industry, the ethanol industry 
is far more diversified; therefore, Bluewater Network believes the 
renewable fuels industry may be less disposed to price gouging behavior 
than the oil industry. Coupled with the general increase in the numbers 
of fuel providers that ethanol will bring, consumers may experience 
greater price stability than ever before. To the extent that renewable 
fuels replace gasoline, further insulation from OPEC price shocks will 
also contribute to greater stability.
    In the California Air Resources Board's request for a waiver of the 
oxygenate requirement, Director Kenny projected a one to two cent per 
gallon price increase with ethanol. Recent data suggest the opposite: 
on a per gallon basis, MTBE is more expensive than ethanol by as much 
as 40 cents per gallon. If this trend continues, replacing MTBE with 
ethanol or gasoline should lower prices, not raise them over the long 
term. Even if ethanol use were to raise prices by the one to two cents 
projected by CARB, this is insignificant in a market where prices can 
jump 40 cents in a week, which happened recently in California.
    On the other end of this price debate, Bluewater Network has 
significant concern that the oil industry will begin price gouging when 
they lose ten percent of their production volume by removing MTBE. For 
example, when California experienced refinery fires in 1999 that 
reduced production by only five to ten percent, prices rose $0.50 per 
gallon across northern California. Today's gas prices reflect similar 
dynamics.

Supply
    Another concern about ethanol's use as an oxygenate is supply. I'd 
like to address this. According to a study prepared for the 24-member 
Governor's Ethanol Coalition in March 2000, the U.S. ethanol industry 
is capable of expanding production to meet the demand for oxygenates 
that would result from a withdrawal of MTBE from the marketplace and 
continuation of the oxygen requirement. They estimate that if MTBE were 
phased out by 2004, ethanol demand would reach 3.2 billion gallons. By 
that time, the ethanol industry could produce 3.5 billion gallons. This 
increased capacity would come from improvements in production 
efficiency leading to increased utilization of existing plant; 
expansion of existing operating facilities; new construction in place, 
and from proposed facilities currently in various stages of 
development.

Air Quality Concerns
    Some people have raised concerns about increases in acetaldehyde (a 
carcinogen) and peroxyacetyl nitrate (a mutagen) with use of ethanol in 
fuel. The California Air Resources Board has looked into this in 
detail, and their Urban Airshed Modeling results show no increase in 
emissions of these chemicals in ethanol-blended fuels versus both MTBE 
and non-oxygenated fuels. The workshops concluded that aromatics and 
other gasoline components are more responsible for acetaldehyde and 
peroxyacetyl nitrate emissions than is ethanol. Furthermore, which 
overall toxics are considered, ethanol-oxygenated fuels come out way 
ahead of non-oxygenated fuels.

Transportation
    I'd like to address one further concern raised regarding the use of 
ethanol as an oxygenate: transportation, and particularly the alleged 
difficulty of moving ethanol in pipelines. Bluewater Network believes 
that this is a non-issue. Before 1992, California used significant 
amounts of ethanol and the ``pipeline issue'' was never a concern 
raised by oil companies using this product. Brazil has been using 
ethanol for thirty years and has never had a significant problem with 
transportation, as they pipeline the majority of the substance around 
the country. Piping ethanol is easily accomplished if the pipes in the 
line are relatively clear. If ethanol demand and supply increase, it is 
likely the industry will develop some pipeline capacity. In the 
meantime, from our data, it appears as though the oil companies will 
have the option to use a combination of ships, barges and trucks to 
transport ethanol. In addition, Argonne National Labs has assured 
Bluewater Network that the energy costs of transporting ethanol by 
truck or rail will be insignificant.
    We support the idea of a life-cycle transportation study of all 
reasonably expected fuel scenarios. For example, life-cycle 
transportation impacts of ethanol should be studied and compared to the 
life-cycle transportation impacts of increased use of oil and other 
octane enhancers. To determine if environmental impacts will increase, 
these results should also be compared to the current transportation 
impacts of MTBE use.

           ENVIRONMENTAL AND ECONOMIC COSTS OF OIL DEPENDENCE

    Finally, no discussion of eliminating the oxygen requirement 
without substituting a good renewable fuels package should leave out 
the environmental and economic costs of oil dependence. In addition to 
significant backsliding on global warming and fuel cycle emissions, 
Bluewater Network is concerned that such a scenario would effectively 
result in increased oil dependence and cause economic and environmental 
problems.
    First, reducing or removing oxygenates from reformulated gasoline 
will guarantee that the oil industry's control of each tank of 
reformulated gasoline will increase from 90 to 100 percent. Drilling 
for oil causes many different types environmental problems, from oil 
spills to loss of habitat to displacement of local people. Around the 
world--in the Amazon, Indonesia, Malaysia and other places--pursuit of 
oil is killing rainforests and the tribal people who live there. In 
South America, the U'wa, the Huarari, and hundreds of other tribes are 
being displaced from lands they've owned from time immemorial, their 
water polluted, their wetlands destroyed, their hunting grounds ruined, 
their native ways lost. From Nigeria to Columbia, the story is the 
same. These indigenous people deserve better from America. And now 
because of America's insatiable demand for oil, the oil industry wants 
to open the Alaska National Wildlife Refuge for drilling.
    Second, the oil shipped from these areas to the U.S. travels in an 
aging world tanker fleet--a fleet that is responsible for 14 percent of 
all global nitrogen emissions, and 16 percent of all sulfur emissions 
from petroleum. Carnegie Mellon University concluded in 1999 that the 
world shipping fleet is actually changing global climate as a result of 
its staggering emissions over oceans.
    Those same tankers--the vast majority, single hull vessels--also 
cause incredible damage from oil spills. Coastlines are threatened by 
major spills such as the Erika, a tanker that has shut down the fishing 
industry in parts of France, and which caused countless millions of 
dollars in damage to the environment and lost incomes and livelihoods 
for traditional fishermen and businesses dependent on tourism.
    On the other hand, maintaining the oxygen requirement or eventually 
passing a good renewable fuels standard will: decrease reliance on 
foreign oil producers and the oil industry as a whole; diversify energy 
sources; cushion the U.S. against OPEC price shocks; increase national 
security; and decrease military reliance on protecting foreign oil 
supplies, the costs related to these activities. Ensuring use of 
renewable fuels will also help to reduce current subsidies to the farm 
industry and help independent farmers by increasing demand for their 
products.

                               CONCLUSION

    In summary, the evidence is dear that MTBE is causing inexcusable 
damage to our nation's water supplies. This fuel additive is simply too 
dangerous for continued use. We urge you to protect our water by taking 
immediate action to ban MTBE and other ether-based oxygenates. At the 
same time, we urge you to prevent backsliding on air quality and 
promote use of renewable fuels through retention of the oxygen 
requirement. Alternatively--but only as a second choice due to our 
concerns that it is not technically realistic to achieve the same 
environmental protection with non-oxygenated fuels--we would support an 
MTBE ban coupled with implementation of a strong renewable fuels 
standard and performance standards for reformulated gasoline that 
preserve the real-world benefits of oxygen.























































                  STATEMENT OF EXXON MOBIL CORPORATION

    Chairman Inhofe, Members of the Committee, Exxon Mobil Corporation 
is pleased to have the opportunity to present a statement on the use of 
ethanol in gasoline, particularly with regards to the environmental 
impacts of its expanded use. We are also pleased to offer our thoughts 
on the uncertainty in the industry caused by the recent Unocal patent 
rulings.

                      ETHANOL AND THE ENVIRONMENT

    Recently, the EPA announced that it favored legislation that would 
repeal the Clean Air Act oxygenate requirement for reformulated 
gasoline and would rapidly phase down MTBE use. However, EPA also wants 
to permanently mandate use of another oxygenate additive, ethanol. EPA 
and other ethanol supporters would like the Federal Government to 
require that the American consumer use their product in all gasoline in 
order to support their vision of an expanding future market. We are 
opposed to mandates, which distort energy markets, decrease efficiency 
and ultimately raise costs to consumers. Substituting one unnecessary 
and costly government mandate for another is not a policy in the best 
interests of anyone, especially since the need for such a mandate no 
longer exists.
    The use of ethanol as a gasoline additive is not at issue. Indeed, 
we have used ethanol to fulfill the oxygenate mandate and as an octane 
extender for a number of years in the Midwest where the proximity of 
ethanol production and various subsidies make ethanol the economic 
oxygenate of choice. While ethanol has long been used as a gasoline 
additive and will likely enjoy even greater use even without a mandate, 
there are a number of questions and concerns that need to be addressed 
before considering measures that would mandate its broader use.
    A Federal oxygenate mandate is not needed to achieve our 
environmental goals. If the oxygenate mandate were eliminated, clean 
air progress would continue at the same rate because oxygenates are not 
needed to produce reformulated gasoline. Therefore, we believe 
requiring the use of ethanol in gasoline is not necessary. Today's 
clean-burning fuels and vehicles can meet stringent emission standards 
without adding oxygenates. Hence, ethanol's role should be determined 
by whether it is an economic gasoline extender or not.
    Beyond the mandate issue, though, the broader use of ethanol raises 
environmental questions that need to be addressed. There are still 
unanswered questions about its long-term health effects, which requires 
more research be conducted. In addition, any proposal to broaden the 
use of ethanol should first include a thorough evaluation of the 
environmental consequences of a requirement to use large amounts of 
ethanol in gasoline.
    Air quality impacts are of particular concern. According to a 
recent California Air Resources Board (CARB) report,\1\ tailpipe 
NOx emissions increase significantly at higher oxygen 
concentrations typical of ethanol blends. Also, ethanol's impact on 
gasoline volatility and its tendency to increase ``permeation'' (when 
fuel components move through fuel-system components such as hoses and 
gaskets into the atmosphere) will create greater evaporative 
hydrocarbon emissions from the existing car fleet. Hence, if ethanol is 
mandated, areas where increased ozone (smog) producing emissions are of 
concern could be significantly impacted.
---------------------------------------------------------------------------
    \1\ California Air Resources Board Staff Report, Initial Statement 
of Reasons Proposed for California Phase 3 Gasoline Regulations, 
Chapter I, p.4, October 22, 1999.
---------------------------------------------------------------------------
    A 1999 EPA-funded study by the National Research Council (Ozone-
Forming Potential of Reformulated Gasoline) supports CARB's findings. 
The NRC study found that ``ethanol blends result in more pollutants 
evaporating from vehicle gas tanks .  .  .'' and ``also increase the 
overall potential of emissions to form ozone.'' According to a recent 
study performed by Toyota Motor Company, this increase occurs because 
ethanol raises gasoline vapor pressure and because it ``permeates'' 
through the rubber/plastic components of vehicle fuel systems. Because 
of this elevation in the evaporation rate of gasoline, VOC (volatile 
organic compound) emissions increase, contributing to ozone formation.
    The Toyota report, presented at a recent CARB workshop, further 
highlights the potential impact of ethanol on air quality. After 
testing nine late-model, low-emission vehicles, it was determined that 
replacing an 11 percent MTBE blend with a 10 percent ethanol blend 
results in both increased evaporative losses and increased exhaust 
emissions. This presents a new challenge to areas of the country 
seeking to reach attainment with ambient air quality standards.
    The report further indicates that non-tailpipe emissions from fuel 
evaporation also increase when fuels contain ethanol vs. MTBE. Two 
sources are the culprits here--higher fuel volatility and increased 
permeation.
    Although the impact of ethanol on fuel volatility can be reduced by 
ensuring that ethanol blends have the same Reid Vapor Pressure (RVP) as 
non-ethanol fuels, the Toyota data indicates that ethanol blends could 
have higher evaporative emissions even with equivalent RVP. This is due 
to volatility characteristics at the high fuel tank temperatures (120F) 
that can occur during driving. Additionally, requiring refiners to make 
a lower RVP ``base'' gasoline increases the manufacturing cost of 
gasoline and reduces the energy efficiency of the manufacturing 
process.
    There are water concerns as well. EPA's Blue Ribbon Panel on 
Oxygenates warns that ``(a)lthough ethanol is likely to biodegrade 
rapidly in groundwater, because ethanol is infinitely soluble in water, 
much more ethanol will be dissolved into water than MTBE.'' Gasoline 
containing no oxygenates is more stable in the case of a spill, whereas 
ethanol moves faster, dragging gasoline along with it in a spill 
situation. While the environmental track record--with respect to 
groundwater contamination--of using ethanol in gasoline appears good, 
the environmental consequences of large mandated use of this highly 
water-soluble chemical should be studied further.
    Finally, the International Agency for Research in Cancer (IARC) 
classifies ethanol as a known human carcinogen.

                          MIDWEST ETHANOL USE

    The Midwest is the only major market where ethanol is the primary 
oxygenate of choice used in RFG. As a result, the area has become 
isolated in terms of supply, since RFG that does not utilize ethanol 
cannot be transported to the region or commingled with ethanol-blended 
RFG. RFG blended with ethanol is more difficult to produce because the 
base gasoline must be further refined to offset the increased 
volatility of ethanol. This further processing of RFG reduces the 
available supply. Mandating expanded use of ethanol could increase both 
the difficulty and cost of producing RFG in other parts of the country 
as well.

                           THE UNOCAL PATENT

    A recent decision by the U.S. Court of Appeals for the Federal 
Circuit has potentially significant implications for the California and 
Federal RFG programs because it will likely impose additional costs on 
the manufacture and importation of fuels. The decision could also 
impact supplies of RFG as refiners and importers individually evaluate 
whether to continue to participate in the RFG programs--they must 
decide whether to pay patent royalties or incur the costs of developing 
formulations that are outside the scope of the patent.
    Because of this uncertainty, concerns have also been expressed that 
importers and blenders, in particular, may choose to supply less RFG to 
the market to avoid potentially infringing on the patent. This means 
that the amount of flexibility the refineries have to make a quality 
product is diminished. This lack of industry flexibility, particularly 
when using ethanol, has a negative impact on the local volumes 
available to the market, again tightening gasoline supplies.

                               CONCLUSION

    Given adequate lead-time, refiners can manufacture blends of 
cleaner-burning gasoline that achieve the same air quality improvements 
without the current oxygen mandate. Exxon Mobil agrees with the 
findings of the recent study conducted by the EPA's Blue Ribbon Panel 
on Oxygenates. This independent panel of experts recommended that 
Congress act to remove the current Clean Air Act requirement that 2 
percent of RFG, by weight, consist of oxygen. This can be done with no 
loss of current air quality benefits while allowing a substantial 
reduction in the use of MTBE.
    We strongly encourage Congress to learn from the MTBE experience. 
Substituting one unnecessary and costly government mandate that had 
unforeseen environmental consequences for another that could have 
unforeseen environmental consequences, while also increasing already 
large subsidy payments, is not a policy in the best interests of the 
American public. Ethanol is and will continue to be a useful additive 
in transportation fuels in some areas, but it should compete on price 
and performance. Congress should eliminate the oxygen mandate 
altogether and allow refiners to begin reducing MTBE usage while 
continuing to meet emission requirements using performance-based 
standards.
                               __________
         [From Environmental Science & Technology, May 1, 2000]

 MTBE.--To What Extent Will Past Releases Contaminate Community Water 
                             Supply Wells?

 An Improved Understanding of the Factors That Affect the Magnitude of 
                         the Problem Is Needed

(By Richard Johnson, James Pankow, David Bender, Curtis Price, and John 
                               Zogorski)

    The increasing frequency of detection of the widely used gasoline 
additive methyl tert-butyl ether (MTBE) in both ground and surface 
waters is receiving much attention from the media, environmental 
scientists, State environmental agencies, and federal agencies. At the 
national level, the September 15, 1999, Report of the Blue Ribbon Panel 
on Oxygenates in Gasoline (1) states that between 5 and 10 percent of 
community drinking water supplies in high MTBE use areas show at least 
detectable concentrations of MTBE, and about 1 percent of those system 
are characterized by levels of this compound that are above 20 
g/L. In Maine, a desire to determine the extent of MTBE 
contamination led to a 1998 study (2) that revealed that this compound 
is found at levels above 0.1 g/L in 16 percent of 951 randomly 
selected household wells and in 16 percent of the 793 community water 
systems tested in that State (37 wells were not tested). The study also 
suggested that between 1400 and 5200 household wells may have levels 
above 35 g/L, although no community water supplies were found 
to be above that concentration. For comparison, Maryland, New 
Hampshire, New York, and California have set MTBE remediation ``action 
levels'' at or below 20 g/L, and EPA has set its advisory 
level for taste and odor at 20-40 g/L (3).
    In California, concern regarding MTBE reached statewide levels in 
1996 when seven wells supplying 50 percent of the water for the city of 
Santa Monica were removed from service because of MTBE at 
concentrations as high as 600 g/L. For the city's Charnock 
well field, an initial review of known and suspected petroleum spill 
sites identified about 10 potential sources that lay within 1 km of the 
well field, lay above the hydrologic unit accessed by the well field, 
and were created after MTBE use began in the State (4). At the time 
that contamination of the wells was discovered, pumping of the Charnock 
well field was at 5 million gallons/day (mgd). This aggressive pumping 
was approximately twice the total natural flow of water moving into the 
aquifer. Despite the presence of a protective aquitard in the system, 
the pumping had dewatered a significant portion of the upper aquifer, 
caused water to flow toward the well field from all directions, and had 
greatly increased the likelihood that the community water supply (CWS) 
wells in Santa Monica would in fact become contaminated by one or more 
persistent organic pollutants such as MTBE.
    Besides leaking underground fuel tanks (LUFTs) and leaking 
pipelines, other sources of MTBE in groundwater include tank 
overfilling and faculty construction as gas stations, spillage from 
vehicle accidents, and homeowner releases. In Maine, it is possible 
that many of the cases of domestic well contamination by MTBE were 
caused by homeowner releases (2). For the Santa Monica wells, the scale 
of contamination found there seems consistent only with large releases 
(e.g., LUFTs).

                      UNPRECEDENTED GROWTH IN USE

    Use of MTBE as a gasoline additive began in the United States in 
the late 1970s when it was introduced as a means of maintaining 
adequate octane ratings during the phaseout of alkl lead additives. 
MTBE use expanded dramatically in the mid-1990s with the implementation 
of the Clean Air Act Amendments of 1990, which mandated efforts to 
reduce carbon monoxide emissions, as well as ozone levels in urban air. 
For carbon monoxide, MTBE was selected by some gasoline producers as a 
means of producing ``oxygenated fuel'' (oxyfuel) that allowed the more 
complete combustion of gasoline hydrocarbons. For ozone, MTBE has been 
used to produce ``reformulated gasoline'' (RFG), which is low in the 
potent human carcinogen benzene and other aromatic compounds; use of 
RFG lowers the emissions of unburned aromatic compounds and therefore 
the formation of ozone in urban air. Alternative oxygen-containing 
compounds for the formulations of oxyfuel RFG include ethanol, ETBE, 
TAME, and DIPE (see box above); usage of the last three has been 
relatively small. Currently, 19 areas in 13 States are involved in the 
oxyfuel program, with MTBE used in 3 percent of all oxyfuel at levels 
of 10-15 percent by volume. A total of 29 areas in 18 States are 
involved in the RFG program, with MTBE used in 85 percent of all RFG at 
levels of 11-15 percent by volume (5).
    The growth in the use of MTBE has been unprecedented. In 1970, MTBE 
was the 39th-highest produced organic chemical in the United States. By 
1988, it had become fourth-highest (see Figure 1, (6-11)), with an 
aggregate production of about 60 million metric tons over that period. 
And, the production of MTBE is exceeded only by that for the monomers 
used to make polyethylene, polypropylene, and polyvinyl chloride. In 
1998, more than 10.5 mgd of MTBE were used in the United States, with 
4.2 mgd used in California alone (12). There production numbers are far 
larger than those of the chlorinated solvent compounds, a group widely 
recognized as having caused extensive contamination of groundwater in 
urban and nonurban areas. Thus, regardless of what happens to MTBE use 
in the future (e.g., both Maine and California have stated that they 
intend to stop using MTBE, and the Blue Ribbon Panel and Oxygenates in 
Gasoline (1) has call for a substantial and rapid reduction in MTBE use 
in RFG areas), it is likely that significant amount of this compound 
are already present in the subsurface.

 
 
              Terms
 
    MTBE....................................                                        methyl tert-butyl ether
    ETBE....................................                                         ethyl tert-butyl ether
    DIPE....................................                                             di-isopropyl ether
    TAME....................................                                         tert-amyl methyl ether
    RFG.....................................                                          reformulated gasoline
    oxyfuel.................................                                                oxygenated fuel
    BTEX....................................                    benzene, toluene, ethylbenzene, and xylenes
    CWS ``wells''...........................                                    community water supply well
    CWS.....................................  one or more CWS pumping wells that draw from the same portion of
                                                                                                 an aquifer
    LUFT....................................                                  leaking underground fuel tank
    LUST....................................                               leaking underground storage tank
    UST.....................................                                       underground storage tank
    PCE.....................................              perchloroethylene (also called tetrachloroethene)
    TCE.....................................                trichloroethylene (also called trichloroethene)
    mgd.....................................                                    millions of gallons per day
    UFT.....................................                                          underground fuel tank
 



                                              
                     . . . AND MTBE IS VERY SOLUBLE

    Gasoline hydrocarbons are nonpolar compounds composed only of 
hydrogen and carbon. Of these, the compounds with the lowest drinking-
water concentration limits are members of the BTEX group (benzene, 
toluene, ethylbenzene, and the xylenes). However, the relatively low 
water solubilities from gasoline mixtures of the BTEX group (see Table 
1), combined with their high in situ biodegradabilities, greatly limit 
their migration from LUFT sites. These limitations have allowed 
``natural attenuation'' processes to mitigate subsurface contamination 
at many sites where conventional gasoline has been released. The extent 
of contamination by BTEX compounds at most LUFT sites is typically less 
than 100 m (12), and benzene has been detected only rarely in the 
community water systems of California (1) and across the nation in 
groundwater samples collected as part of the National Water-Quality 
Assessment Program of the U.S. Geological Survey (14).
    MTBE is a relatively nonpolar either that blends easily with 
gasoline hydrocarbons. If MTBE behaved like the gasoline hydrocarbons 
in all respects, the scale of its use would not be itself be a reason 
for concern. After all, the current numbers for gasoline production in 
the United States are about 40 times larger than those for MTBE, and 
385,000 known releases of gasoline have already occurred at LUFT sites. 
Unfortunately, MTBE is very soluble in water and is therefore very 
mobile in groundwater systems. And the absence of any carbon branches 
more one carbon long on the MTBE molecule make MTBE very resistant to 
biodegradation. Thus, like the chlorinated solvent compounds TCE and 
PCE, MTBE has been found to persist in groundwater, and cases of MTBE 
plumes extending kilometer-scale distances in the subsurface have now 
been documented (e.g., Port Hueneme, CA; East Patchoque, NY; Spring 
Creek, WI; and Vandenberg AFB, CA).
    Some MTBE plumes have originated from very small spills, as from 
the gasoline in the tank of a single over-turned auto. Then gallons of 
a gasoline that is 11 percent by volume MTBE will contain 3 kg of MTBE. 
If such an amount were to reach the water table (either by direct see 
page of the gasoline or as assisted by infiltration of precipitation), 
subsequent dissolution and transport could lead to the contamination of 
millions of liters of water at the tens of g/L level. The 
potential for rapid and extensive transport of MTBE through the 
subsurface is especially large when spills reach fractured rock where 
porosities may only be a few percent. For example, a spill resulting 
from a single automobile accident in Standish, ME, led to MTBE 
transport through more than 0.7 km of fractured rock and to the 
contamination of more than 20 domestic wells (15).

          TABLE 1--WATER SOLUBILITIES OF HYDROCARBON COMPOUNDS

    The relatively low water solubilities from gasoline mixtures of the 
BTEX group (benzene, toluene, ethylbenzene, and xylenes) combine with 
their high in situ biodegradabilities, greatly limit their migration 
from LUFT sites. This situation differs greatly for alkyl ether 
compounds.

 
 
              Compound                            Solubility
 
                                                Solubility (mg/L) at 20C
    Aromatic gasoline hydrocarbons         from conventional gasoline a
                           Benzene                                   18
                           Toluene                                   25
                      Ethylbenzene                                    3
                    xylenes (total                                   20
     Chlorinated solvent compounds              Solubility (mg/L) at 20C
            from the pure compound
            tichloroethylene (TCT)                                 1440
           perchloroethylene (PCE)                                  240
 


 
 
                                                                     Solubility (mg/L) at 20C
              Alkyl ether compounds
                                                            from RFG b                    from Oxyfuel c
 
           methyl tert-butyl ether (MTBE)                            4700                            6300
             ethyl tert-butyl ether (ETBE                            1300                            1750
            tert-amyl methyl ether (TAME)                            1400                            1850
                di-isopropyl ether (DIPE)                            1200                            1600
 
 
a Assumes release of a conventional gasoline containing 1 percent benzene, 5 percent toluene, 1.5 percent
  ethylbenzene, and 10 percent total xylenes.
b Assumes release of reformulated (RFG) gasoline containing 2.0 percent by weight oxygen, which would correspond
  to 11.1 percent MTBE, 12.9 percent ETBE, 12.4 percent TAME, or 12.9 percent DIPE (all by volume).
c Assumes release of oxygenated gasoline containing 2.7 percent by weight oxygen, which would correspond to 15.0
  percent MTBE, 17.5 percent ETBE, 16.8 percent TAME, or 17.4 percent DIPE (all by volume)

              BLUE RIBBON PANEL ON OXYGENATES IN GASOLINE

    Appointed by EPA Administrator Carol M. Browner in November 1998, 
the Blue Ribbon Panel was asked to ``investigate the air quality 
benefits and water quality concerns associated with oxygenates in 
gasoline and to provide independent advice and recommendations on ways 
to maintain air quality while protecting water quality''. The panel was 
composed of experts from the Public health and scientific communities, 
automotive fuels industry, water utilities, and local and state 
governments.

                     250,000 LUFT RELEASES OF MTBE

    Because MTBE has been used so widely (as an octane enhancer, as a 
component of RFG, and/or as a component of oxyfuel), most underground 
gasoline tanks in use after 1979 in the United States probably 
contained this compound at some point in time. For example, in Kansas, 
where neither RFG nor oxyfuel use was required, MTBE has been found at 
88 percent of 818 leaking underground storage tanks (LUSTs) (16). In 
California, MTBE was found at 75 percent of 9000 LUFT sites (17). 
Therefore, of the approximately 385,000 confirmed LUFT releases of 
gasoline nationwide (18), perhaps some 250,000 of these spills involved 
MTBE . And, recent evidence from California suggests that spills and 
leaks continue to occur, even at upgraded UFT facilities (1). 
Therefore, because approximately 90 million people in the United States 
obtain a portion of their drinking water from CWS wells, EPA has been 
advised to work with its State and local water supply partners to

        . . . coordinate the Source Water Assessment program in each 
        State with federal and State Underground Storage Tank Programs 
        using geographic information . . . systems to determine the 
        location of drinking water sources and to identify UST sites 
        within source protection zones.

                                       Blue Ribbon Panel on
                                 Oxygenates in Gasoline (1)

    Thus, specific information is greatly needed regarding the real 
density and distribution of UST sites and other significant sources in 
the areas surrounding CWS wells and also the hydrogeological and 
pumping information for these wells.
    Once this information is in hand, vulnerability assessments based 
on common sense, as well as detailed hydrogeological modeling can be 
carried out to determine what steps, if any, are needed to ensure the 
protection of a given CWS well. While these data are being gathered, it 
will be very useful to identify the factors that will determine the 
likelihood that individual CWS wells will be adversely affected by 
local sources. It will also be important to estimate the number of CWS 
wells nationwide that ultimately may be affected by MTBE, as well as by 
other persistent organic compounds. There three scales to this problem: 
a temporal scale, a site-dependent local scale, and a national scale. 
Each will be considered here.

                      TEMPORAL SCALE FOR CWS WELLS

    Subsurface contamination has the potential to threaten local CWS 
wells for tens to hundreds of years. This is because LUST sources can 
persist for decades and because it can take tens to hundreds of years 
for groundwater to flow from source areas to a CWS well. The actual 
time frame that MTBE from a given source has the potential to appear in 
a CWS well at problematic concentrations will depend on the size of the 
source, the concentration leaving the source, and how attenuation 
mechanisms act to reduce the concentration as the contaminant moves 
from the source toward the well. Experience indicates that most large 
LUFT-MTBE sources have lifetimes of greater than 10 years, and that the 
concentrations of MTBE in groundwater leaving such sources are 
frequently a few hundreds of milligrams per liter. Some States have 
established maximum allowed concentration values of a few tens of 
micrograms per liter (or less) for MTBE in drinking water. This 
suggests that an overall reduction factor on the order of 10,000 may be 
necessary to bring groundwater concentrations coming from CWS wells 
down to the maximum allowed values.
    Three primary mechanisms can reduce the concentration of MTBE as it 
moves toward and into a CWS well: dilution, dispersion, and degradation 
plume is drawn into a CWS well. In the example involving a 1-mgd well 
(see sidebar at right), the well dilution factor is 10,000, then an 
additional in situ reduction factor of about 40 would be required to 
reduce the concentration in the CWS to an acceptable level. (Note that 
in this analysis, the overall reduction factor = in situ reduction 
factor x well dilution factor.)
    The magnitude of the in situ reduction factor for a nonsorbing 
contaminant such as MTBE will be determined by the dispersion and 
degradation that occurs as the contaminant moves in the subsurface. 
Although dispersion can play an important role in determining the shape 
of a groundwater plume, when an MTBE source lies within the ``capture 
zone'' of a well, dispersion will, in general, not be strong enough to 
remove much MTBE from the flow paths leading to the well (see sidebar 
at right). Thus, in most cases, degradation followed by dilution at the 
well will control the MTBE concentrations found in CWS wells.
    If degradation occurs as a first-order process (i.e., the passage 
of each degradation half-life (t\1/2\) brings a factor of 2 
concentration reduction), a 40-fold concentration reduction will 
require between five and six half-lives. For BTEX compounds released 
from LUFT sources, degradation in groundwater is relatively fast, with 
a typical half-life of two to three months. In contrast, based on a 
limited number of field data (e.g., (19,20)), it has been noted that

        [in] studies to date, in situ biodegradation of MTBE has been 
        minimal or limited at best, which is significantly less (by at 
        least one order of magnitude) when compared to benzene.

        Blue Ribbon Panel on Oxygenates in Gasoline (1) Thus, it is 
        appropriate to assume that the degradation half-life for MTBE 
        in plumes from LUFT sources is at least two years. As a 
        required degration time, td, of five to six half-
        lives will probably correspond to at least 10 years (see 
        sidebar on previous page). Significant numbers of MTBE releases 
        may therefore continue to reveal themselves as problematic 
        sources of contamination for the nation until at least 2010.

  MECHANISMS THAT CAN REDUCE THE CONCENTRATION OF MTBE ARRIVING AT A 
                                CWS WELL

Dilution by mixing in a CWS well
    Dilution by mixing the uncontaminated water in a community supply 
well can be calculated by comparing the groundwater flow rate through 
the source zone (assumed to be in the capture zone for the well) with 
the pumping rate for the well. For example, the dimensions for a LUFT 
source zone might be 30 m wide x 5 m thick. If the groundwater velocity 
is 0.3 m/day and the porosity is 0.33, the volume of water flowing 
through the source will be 15 m3/day. For a community supply 
well pumping at 4000 m3/day (1 mgd), this would result in a 
dilution factor of about 250, regardless of the distance between the 
source zone and the well.

Dispersion
    Dispersion can occur both perpendicular (``transverse'') to 
groundwater flow and in the direction of the flow (``longitudinal''). 
Neither means of dispersion will provide much net reduction in the flux 
of MTBE as it moves toward a CWS well. Studies of chlorinated solvent 
plumes in capture zones indicate that transverse dispersion is rarely 
strong enough to move significant contamination outside the capture 
zone of a pumping well. This means that transverse dispersion cannot, 
by itself, help much to reduce the concentration of MTBE in the water 
produced by a CWS well. For longitudinal dispersion, because MTBE 
sources are persistent and MTBE is relatively long-lived in 
groundwater, once such a plume becomes established and longitudinal 
concentration gradients dissipate, the amount of concentration 
reduction at the well head that can occur by longitudinal dispersion 
will be small.

Degradation
    Degradation of MTBE by subsurface microorganisms is generally slow. 
Abiotic degradation is negligible. Field studies of MTBE spills can be 
used to compute apparent first-order rates of decay and corresponding 
half-lives, t\1/2\, (in years) for biodegradation. Data 
obtained from actual spills indicate that MTBE has a half-life in most 
natural groundwater systems of at least two years, although significant 
uncertainty exists with these numbers.

Required Degradation Time, td
    The required degradation time is defined here as the time required 
for the flux of contaminants from a source to be reduced by degradation 
to the point at which they no longer pose a threat to the CWS well. It 
is a function of source size and strength, groundwater flow rate, and 
pumping rate, as well as the in situ biodegradation rate. As discussed 
in the text, a value of 10 years has been assumed for the analysis 
presented here.




                  LOCAL SCALE: SOURCES NEAR CWS WELLS

    For any specific CWS well, if the hydrogeologic conditions and the 
locations of contaminant sources near the well are known is sufficient 
detail, then the movement of contaminants to the well can be assessed 
using numerical modeling. Although the data exist to do this in certain 
specific locations, this information is not available for most CWS 
wells. Therefore, to begin to understand the scale of the threat to CWS 
wells posed by MTBE sources, an approach is needed that can provide a 
general measure of the likelihood of contamination at wells when the 
specific locations of sources relative to the wells are not known.
    One approach is to assume that MTBE sources are randomly 
distributed around CWS wells and use numerical modeling to calculate 
the likelihood that contaminated water will reach CWS wells under 
specific sets of conditions. If it is further assumed that MTBE sources 
occur only near the water table, then the first step in this approach 
will be to determine the size of the area from which groundwater at the 
water table is capable of reaching the well before the required 
degradation time, td, needed to achieve the in situ 
reduction factor can elapse. If, as has been assumed here, 
td is 10 years, then the 10-years capture zone area (see 
Figure 2) can be determined through a straightforward application of 
groundwater flow modeling techniques.
    The second step is to determine the real density of significant 
sources in the vicinity of the well. The third step is to multiply that 
density by the 10-year capture zone area for that well to obtain the 
number of sources, ns, that will, on average contaminate the 
well water at a concentration above tolerable levels. It should be 
noted that ns is a probabilistic parameter and is not the 
number of sources that will impact that specific well. (For example, 
this analysis cannot determine if a specific well with ns = 
0.5 will be impacted by zero, one, two, or more sources. However, a 
group CWS wells all with ns = 0.5 will, on average, be 
impacted by 0.5 sources per well.)
    Three simple, yet instructive, hydrogeological examples will be 
examined here: a ``base'' case, consisting of a CWS well in a slightly 
stratified aquifer; an aquitard case, in which a continuous low 
permeability layer lies above the inlet to the well and helps protect 
the well; and an infiltration case, in which the infiltration of 
precipitation contributes to the downward movement of contaminated 
groundwater. To better generalize these cases, it is useful to express 
the magnitude of the pumping rate as a fraction of the rate at which 
groundwater would flow naturally through some relevant width of the 
aquifer (e.g., 1 km) in the vicinity of the well. This fraction is a 
measure of the intensity of the pumping, and as a result, it will be 
referred to here as the pumping stress factor (see Figure 3 for 
definitions).
    When the pumping stress factor is low, even an MTBE plume flowing 
directly toward a well can pass over it without being drawn down to the 
well inlet (see Figure 3a). The 10-year capture zone area will 
therefore remain zero until some minimum pumping rate is reached, at 
which point water from sources at the water table will begin to be 
drawn into the well inlet (see Figure 3b).
    In the base case, the well begins to capture water table sources 
when the pumping stress factor reaches 0.4 (see Figure 4). As the 
pumping stress factor increases to 1.0, the 10-year capture zone area 
rises to 0.9 km2.
    When an aquitard is present, significant protection of a CWS well 
can be afforded. For the aquitard case considered here, the pumping 
stress factor must rise to about 1.3 before contaminated water at the 
water table begins to be captured by the well. In contrast, when the 
based case is modified to include infiltration, the 10-year capture 
some area becomes nonzero when the stress factor is only about 0.2.
    As a discussed above, the Santa Monica's Charnock well field, 
initial modeling by Brown and colleagues (4) indicates that at the time 
that MTBE contamination was discovered, the pumping rate corresponded 
to about twice the total natural flow through that 2-km-wide aquifer, 
and as a result, 100 percent of the water in the aquifer within 1 km of 
the wells was moving toward the well field. Because for such conditions 
the pumping street factor would have been about 4, it would be of 
considerable interest to model the Charnock case to determine how many 
of the local LUFT-MTBE sources were inside the 10-year capture zone 
area.

              NATIONAL SCALE OF THE PROBLEM FOR CWS WELLS

    To understand the issue of MTBE and CWS wells at the national 
scale, it would be useful to apply an approach such as the one just 
described to a number of sites to develop a histogram plot that 
presents the number of CWS wells as a function of the number of 
sources, ns, that will, on average, impact those wells. That 
is, how many of the nation's CWS wells have low nsvalues, 
and how many have large ns, values and are therefore at 
risk? As has been noted, the data required to prepare this plot are not 
currently available. However, two existing geographic information 
system databases can be useful in a first step toward that goal. This 
first is the Starview database (21), which has latitude and longitude 
information for many of the nation's LUST sites (most of which are LUFT 
sites). It is important to note that this database is known to have 
significant uncertainties in the locations of individual LUSTs. 
However, data from Happel and colleagues (17) indicate that the average 
distances between CWS wells and LUSTs are not biased, so the 
calculation of LUST densities based on those data is not expected to 
have significant errors. The second database, the EPS Safe Drinking 
Water Information System (SDWIS) (22), has CWS well location 
information for 31 States. (Several large States, including California 
and Texas, did not have location data available. This sites from the 31 
States were filtered to remove multiple wells at the same location, 
resulting in a total of 26,000 CWS wells.)
    Overlaying these two databases allows the determination of a 
histogram plot of the number of CWS wells versus the number of LUSTs 
within 1 km of the CWS wells (see Figure 5a). Although it is likely 
that not every one of the LUSTs in the Starview database has created a 
significant source at the water table, this type of plot is useful in 
developing an understanding of how many CWS wells may be at risk of 
contamination.
    When the distribution (see Figure 5a) is integrated to obtain the 
cumulative frequency distribution (see Figure 5b), we can see that 
approximately 35 percent of the CWS wells in the database are 
characterized by one or more LUST sites within a 1-km radius of the 
well. This corresponds to about 9,000 CWS wells for the existing 
version of the 31-state SDWIS database.
    Of course, not all LUSTs are LUFTs, not all LUFT sites will be 
contaminated with MTBE, and not all LUFT MTBE sites will be significant 
sources of MTBE. However, more than 90 percent of all LUSTs and LUFTs, 
perhaps 65 percent of all LUFTs are associated with MTBE contamination, 
and a large percentage of all LUFT MTBE sources is likely to have 
caused significant contamination by MTBE. Therefore, although the 
figure of 9,000 CWS wells in the 31 States is undoubtedly an overtime 
of the number of wells in those States with at least one significant 
LUFT-derived MTBE site, the number 9,000 is so large that the actual 
number may well be worrisome.
    As noted previously, information on pumping rates, well 
characteristics, local aquifer yield, and other important well/aquifer 
data is not available in a database for all the nation's CWS wells, or 
even for a random subset of those wells. Thus, the lack of this 
information currently prevents determination of the 10-year capture 
zone areas for CWS wells and ultimately production of a figure in which 
the cumulative frequency of CWS wells versus ns is plotted. 
A conceptual version of that plot, with no numerical labels on the x 
axis, is given in Figure 6.



                               NEXT STEPS

    Although the large number of MTBE-LUSTs in the immediate vicinities 
of CWS wells may represent a significant threat to drinking water over 
at least the next decade, the data to determine the magnitude of that 
threat are simply not available at the present time. To address this 
issue, information is needed at all three of the scales discussed 
above. To improve our understanding of the temporal scale of the MTBE 
problem, a better data set of in situ MTBE biodegradation rates is 
needed. At the local scale, water providers need to better understand 
the stress that pumping is putting on their groundwater supplies. 
Finally, at the national scale, examination of this issue will require 
two new national databases, one for LUFTs and other sources, and one 
for CWS wells. As has been suggested by EPS's Blue Ribbon Panel on 
Oxygenates in Gasoline (1), the LUST database should focus on sites 
that actually represent threats to CWS wells. In addition to basic site 
location data, it should include information on the magnitude of each 
release and the available data on groundwater concentrations (i.e., 
source strength). The CWS database should contain hydrogeologic and 
pumping rate data for all CWS wells of interest to the nation. These 
databases will allow improved estimates of the number of CWS wells that 
may be affected by significant concentrations of MTBE over the next 10 
years. And, quite independent of the MTBE issue, the databases will 
help identify aquifer and CWS systems that are being pumped at rates 
that carry unacceptable risks of contamination by persistent chemicals 
in general.




                               REFERENCES

    (1) Blue Ribbon Panel on Oxygenates in Gasoline. Achieving Clean 
Air and Clean Water: The Report of the Blue Ribbon Panel on Oxygenates 
in Gasoline EPA420-R-99-021; U.S. Government Printing Office: 
Washington, DC, 1999.
    (2) State of Maine. The Presence of MTBE and Other Gasoline 
Compounds in Maine's Drinking Water: Preliminary Report, October 13: 
State of Maine, Bureau of Health, Bureau of Waste Management and 
Remediation, Maine Geological Survey: State of Maine: Augusta, ME, 
1998.
    (3) Office of Water, U.S. Environmental Protection Agency. Drinking 
Water Advisory: Consumer Acceptability and Health Effects Analysis on 
Methyl tert-Butyl Ether (MTBE); EPA822-F-97-008; U.S. Government 
Printing Office: Washington, DC, 1997.
    (4) Brown, A., et al. Proceedings of the NWWA/API Petroleum 
Hydrocarbons and Organic Chemicals in Ground Water Prevention, 
Detection, and Remediation Conference, Houston, TX, Nov 12-14, 1997; 
National Water Well Association and American Petroleum Institute: 
Washington, DC, 1997, pp. 35-39.
    (5) Wigglesworth, T. Chem. Ind. 1999, 10,408.
    (6) Chemical Industry Statistical Handbook 1998; Chemical 
Manufacturers Association: Arlington, VA 1999.
    (7) Chemical profile: Trichloroethylene. Chem. Mark. Rep. Feb. 3, 
1992, Schnell Publishing Co., New York.
    (8)Chemical profile: Trichloroethylene. Chem. Mark. Rep. Feb. 6, 
1995, Schnell Publishing Co., New York.
    (9)Chemical profile: Trichloroethylene. Chem. Mark. Rep. Dec. 8, 
1997, Schnell Publishing Co., New York.
    (10) Halogenated Solvents Industry Alliance, private communication, 
1987.
    (11) U.S. International Trade Commission. Synthetic Organic 
Chemicals: United States Production and Sales; USITC Publication 2470; 
U.S. Government Printing Office: Washington, DC, 1991.
    (12) Mace R. E., et al. Extent, Mass and Duration of Hydrocarbon 
Plumes From Leaking Petroleum Storage Tank Sites in Texas; Geological 
Circular 97-1; Bureau of Economic Geology, The University of Texas at 
Austin, 1997.
    (13) Happel, Am.; Beckenbach, E.H.; Halden, R.U. An Evaluation of 
MTBE Impacts to California Groundwater Resources; UCRL-AR-13089; 
Environmental Protection Department, Environmental Restoration 
Division, Lawrence Livermore National Laboratory, University of 
California: Livermore, CA, 1998.
    (14) Squillace, P., et al. Environ. Sci. Technol 1999, 33 (23), 
4176-4187.
    (15) Hunter, B., et al. Impact of small Gasoline Spills on Ground 
Water. Presented at the Maine Water Conference, Augusta, ME, April 15, 
1999;
    (16) Hatten, G.; Blackburn, G. Findings of Kansas MTBE 
Investigation. ASTSWMO MTBE Workdgroup Newsletter 199T1, 2 (1), 
available at www.astswmo.org/Publications/summaries.htm.
    (17) Happel, A.J.; Dooher, B.; Beckenbach, E.H. Methy Tertiary 
Butyl Ether (MTBE) Impacts to California Grounwater; UCRL-MI-133696; 
Environmental Protection Department, Environmental Restoration 
Division, Lawrence Livermore National Laboratory, University of 
California: Livermore, CA, 1999.
    (18) U.S. EPA Safe Drinking Water Information System (SDWIS). 
www.epa.gov/enviro/html/sdwis/sdwis--ov.html (accessed Dec. 1999)
    (19) Borden, R. C., et. al. Water Resour. Res. 1997, 33 (5) 1103-
1115.
    (20) Church, D.C.; Pankow, J.F.; Tratnyek, P.G. Prepr. Extend. 
Abstr. Am. Chem. Soc. 2000, 40, 238-240.
    (21) Starview Real Estate Version2.6, User's Guide; Vista In 
formation Solutions: San Diego, CA 1999.
    (22) System Users Guide for SDWIS/FED SDC-0055-082-AG8007; Office 
of Ground Water and Drinking Water, U.S. Environmental Protection 
Agency, U.S. Government Printing Office: Washington, DC 1998.

                               __________
                                       Des Moines Register,
                                                    March 25, 2000.

                       The Register's Editorials

                          THE MTBE ALTERNATIVE

    Banning the additive was a good move. Substituting ethanol is the 
logical next step.
    Once upon a time there were a handful of motor vehicles on 
America's dirt trails, gradually replacing horses. They stank somewhat, 
but then so did the horses. By 1950 there were millions and millions of 
the gas guzzlers, and gas was cheap and nobody much bothered to ask 
what all the exhaust was doing to the air. Today there are more than 
200 millions cars and trucks in use in this country. They get better 
mileage than most of the 1950's vehicles, but their exhaust is a major 
contributor to everything from smog to global warming.
    Ethanol, made from corn, is also an oxygenator but not a poison. 
It's also not a finite resource like MTBE.
    The Clean Air Act required that in some areas, oxygenators be added 
to gas to burn it more completely, cutting back on pollutants. Gasoline 
was mixed with the oxygenator MTBE, which Big Oil supplied along with 
the gas.
    Now we've learned that MTBE, which is a poison, is getting into 
water supplies--even in Iowa, where it's not used--but particularly in 
California, whose smog problem means use of lots of MTBE. Iowa's 
Congressmen Greg Ganske and Jim Leach were among the first to call for 
outlawing MTBE nationwide, pointing out that ethanol, made from corn, 
is also an oxygenator but not a poison.
    It's also not a finite resource like MTBE, meaning its use doesn't 
reduce the world's fuel reserves.
    Now the Clinton administration wants to ban MTBE, which is 
laudable, but also wants to drop the oxygenation mandate from the Clean 
Air Act and require a quota of renewable fuel use nationwide. Ethanol 
boosters want the oxygenation rule to stay, which with the MTBE ban 
would virtually assure a huge new market for ethanol.
    Leaving one major question: Can the Corn Belt produce enough 
ethanol to take up the slack if MTBE is banned?
    Yes, says Eric Vaughn, President of the Renewable Fuels Association 
of Washington, D.C.
    ``I can assure Carol Browner [head of the U.S. Environmental 
Protection Agency] that the ethanol industry can meet the California 
demand for a gasoline oxygen additive today, and the entire nation's 
needs within three years,'' Vaughn said.
    California would need 550 million gallons yearly. There are now 200 
million gallons in storage, and ethanol plants have the unused capacity 
to produce another 300 million gallons. Further, four plants able to 
produce another 85 million gallons are under construction, and 
financing is being sought for anther 18 plants with a 440-million-
gallon annual capacity, according to RFA.
    That's a lot of corn. That's a huge market boost. That's why corn-
state politicians are keeping a close watch.
    It made sense to have an oxygenate requirement before the hazards 
of MTBE were recognized, it still makes sense after MTBE is outlawed. 
Ethanol is the alternative.
                               __________

 STATEMENT OF THE AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION

                              INTRODUCTION

    Chairman Inhofe, thank you and the other subcommittee members for 
offering this opportunity for public comment on the use of ethanol as a 
motor fuel. The American Road and Transportation Builders Association 
(ARTBA) appreciates the opportunity to provide our thoughts on this 
important matter.
    ARTBA, founded in 1902, is the only national association that 
exclusively represents the collective interests of all sectors of the 
U.S. transportation construction industry before the White House, 
Congress and federal agencies. The U.S. transportation construction 
industry ARTBA represents generates more than $175 billion in U.S. 
economic activity annually and provides employment for more than 2.2 
million Americans.
    Over the past decade, the association has also become the 
industry's primary advocate in environmental issues. I am also pleased 
to tell you that this year ARTBA has initiated a national awards 
program to recognize firms in our industry that make outstanding 
contributions to environmental quality and mitigation efforts.

                       UNFAIR ETHANOL TAX POLICY

    Mr. Chairman, as you are well aware, federal investment in state 
highway and bridge improvement programs is financed through the 
collection of user fees levied on motorists--most notably, the federal 
motor fuels excises. The concept behind the Highway Trust Fund and the 
imposition of a federal tax on motor fuels is simple: those who drive 
should contribute to the development and upkeep of the nation's road 
and bridge system in a manner commensurate with their use of the 
system. The more motor fuel you use, the more you contribute--through 
motor fuel excises--to the Highway Trust Fund.
    A car operating on gasohol causes as much wear and tear on our 
roadways and bridges as does a car operating on gasoline. But the 
gasohol/ethanol user is not now paying his or her fair share to the 
Highway Trust Fund.
    The motorist using gasoline contributes 18.3 cents per gallon to 
the Highway Trust Fund through the federal gas tax--15.44 cents per 
gallon to the trust fund's Highway Account and 2.86 cents per gallon to 
the fund's Mass Transit Account. (An additional 0.1 cents per gallon is 
contributed to the Leaking Underground Storage Tank Trust Fund.)
    The motorist using gasohol (with 10 percent ethanol), however, is 
only contributing 9.8 cents per gallon to the Highway Trust Fund 
through federal excises--6.94 cents per gallon to the trust fund's 
Highway Account and 2.86 cents per gallon to the Mass Transit Account.

  WHY IS A FEDERAL MOTOR FUELS USE EXCISE CONTRIBUTING TO THE GENERAL 
                                  FUND

    It is also worth noting that 3.1 cents of the federal per gallon 
excise on 10 percent gasohol and 2.5 cents of the tax on less than 10 
percent gasohol is deposited in the federal General Fund. Consequently, 
not only are ethanol fuels not paying their fair share to improve the 
nation's roadways and bridges, but also ethanol' s current tax status 
returns the favor to the federal government by providing over $400 
million per year to the federal General Fund. During these times of 
projected federal budget surpluses as far as the eye can see, there is 
no justification for a portion of a federally imposed highway user fee 
to be dedicated to the federal General Fund.

          ETHANOL TAX TREATMENT SHORTCHANGES HIGHWAY PROGRAM 
                         BY $1 BILLION ANNUALLY

    The computations below in Table 1, based on 1998 ethanol use data 
reported in the Federal Highway Administration's ``1998 Highway 
Statistics Report,'' show federal tax policy toward ethanol supported 
motor fuels costs the nation's highway and mass transit improvement 
programs nearly $ 1.1 billion per year! To put that number in 
perspective, that is approximately two-and-a-half times Oklahoma's 
apportioned federal highway funds for FY 2000. It is roughly the 
equivalent of federal investment in Florida's state highway program 
this year.


                                                     Table 1
 
 
 
                       10 percent gasohol usage:         10,487,912,000 gallons
                   5.4 cents per gallon subsidy:                   $566,347,248
       3.1 cents per gallon to the general fund:                   $325.125.272
                    Highway Trust Fund shortage:                                                  891,472,520
                                                Less than 3,490,851,000 gallonsage:
                   3.1 cents per gallon subsidy:                   $108,216,381
       2.5 cents per gallon to the general fund:                    $87,271.275
                    Highway Trust Fund shortage:                                                 $195.487.656
              Total Highway Trust Fund shortage:                                               $1,086,960,176
 

    The federal tax treatment of ethanol use in motor fuels amounts to 
a huge division of revenue from state highway programs. By reducing the 
overall income to the Highway Trust Fund, the potential annual highway 
funding apportionment to all States is cut. TEA-21 protects States that 
sell a high volume of gasohol from even further cuts in their state 
highway apportionment through what amounts to a ``hold harmless'' 
provision. If that is not retained in the reauthorization of TEA-21, 
these States could suffer additional large losses of federal highway 
funds because their total contribution to the Highway Trust Fund will 
be retarded.
    This highway robbery is occurring at the same time the U.S. 
Department of Transportation reports 58.7 percent of the nation's road 
miles are in need of repair and 29.6 percent of the nation's bridges 
are structurally deficient or functionally obsolete. The same report 
finds available highway and bridge investment from all levels of 
government falls short of the amount necessary to improve these 
conditions by $45.3 billion each year.
    Given these staggering needs, we suggest federal tax subsidies for 
ethanol is poor public policy. If promotion of ethanol use in motor 
vehicles is intended to provide federal support to agricultural 
interests, it should be financed, like all other discretionary 
agriculture programs, through the General Fund.

                       U.S. GAO REPORT ON ETHANOL

    A 1997 U.S. General Accounting Office (GAO) report (GAO/GGD-97-41) 
requested by House Ways and Means Committee Chairman Bill Archer (R-
Texas) thoroughly refuted many of the asserted air quality and energy 
benefits of ethanol use. While we will not summarize the GAO report in 
these comments, we would like to highlight some of its section headings 
to provide an idea of the reports conclusions.
     ``Tax incentives for ethanol fuel are likely to have had 
little effect on environmental quality.''
     ``Little effect likely where gasoline containing 
oxygenates is not required.''
     ``No significant effect is likely on global environmental 
quality.''
     ``Tax incentives for ethanol fuel are unlikely to have 
significantly affected U.S. energy independence or energy security.''
    The GAO report demonstrates some of the commonly alleged benefits 
of ethanol environmental improvements and reduced reliance on fossil 
fuels are unclear at best. The report does, however, state the ethanol 
subsidy does result in positive benefits for some members of the 
agriculture industry.
    As this committee considers the future of ethanol and potential 
substitutes for methyl tertiary butyl ether (MTBE), we strongly urge 
you to review the 1997 GAO report or initiate some other neutral review 
of the alleged benefits of ethanol fuel use.

             TRANSPORTATION SECTOR AIR QUALITY IMPROVEMENTS

    U.S. Environmental Protection Agency (EPA) data clearly show the 
nation's air is much cleaner today than it was in 1970 when the 
original Clean Air Act was adopted. The transportation sector has been 
at the forefront of this success story.
    Despite a 125 percent increase in motor vehicle travel in the U.S. 
since 1970, there has been a significant reduction in every 
transportation-related criteria emission. Lead emissions have been 
eliminated. Motor vehicle emissions of the precursors of ground-level 
ozone, volatile organic compounds (VOC) and carbon monoxide (CO), have 
been reduced 58 and 40 percent, respectively. Motor vehicle particulate 
matter (PM10) emissions are down 38 percent. And oxides of 
nitrogen (NOx) emissions have also been reduced.
    These improvements will get even better well in the future as ever 
cleaner vehicles replace older, dirtier ones. The proposed Tier 2 motor 
vehicle emissions standards and gasoline sulfur control requirements--
both of which ARTBA supports--will also have major, positive impacts on 
air quality without reducing the mobility of the American public.
    According to the U.S. Environmental Protection Agency (EPA), these 
developments alone could reduce NOx emissions by nearly 
800,000 tons per year by 2007 and 1.2 million tons by 2010. By 2020, 
EPA projects NOx reductions double that amount-despite 
increased auto usage.
    Mr. Chairman, thank you for the opportunity to present these 
comments and we would be pleased to respond to any questions from the 
subcommittee.
                               __________

             STATEMENT OF THE OXYGENATED FUELS ASSOCIATION

                              INTRODUCTION

    There is understandable concern over increases in the price of 
gasoline. On June 12, 2000, EPA Assistant Administrator for Air, Bob 
Perciasepe, announced that, ``[t]he Clinton administration is very 
concerned with the price increases of late, and we will continue our 
discussions with the oil industry until prices at the pump begin to 
decline to normal levels.'' Despite this great concern, the 
Administration and some in Congress and in several States have recently 
considered proposals to ban or limit the use of MTBE. Unfortunately, 
little attention has been paid to the effects that removing MTBE from 
the national gasoline supply would have on gasoline price and supply as 
well as on human health and the environment, including the negative 
consequence of two of the potential substitutes for MTBE, ethanol and 
aromatics. The Oxygenated Fuels Association applauds the Committee's 
leadership in convening the hearing on the Environmental Impacts of 
Expanded Ethanol Use and is pleased to offer the following comments for 
the record.
    We are concerned that, in view of the current legislative impetus 
to act, action to expand ethanol use in U.S. motor fuels may be 
undertaken prematurely, i.e., before a thorough assessment of any 
potential adverse environmental and economic impacts can be completed. 
The overall evidence clearly suggests that the expanded use of ethanol 
will create:
    1. Overall Increased Health Risk: widespread chronic exposure to 
ethanol vapors is an unknown health risk which requires further study;
    2. Air Quality Risk: air quality improvements will be offset due to 
increases in air toxic and evaporative emissions;
    3. Water Quality Risk: hazardous aromatics are more likely to reach 
water resources from a tank leaking gasoline containing ethanol than 
gasoline without ethanol;
    4. Economic Impact: gasoline cost and supply due to distribution 
and blending characteristics particular to ethanol; and
    5. Gasoline Supply: switching from MTBE to ethanol will 
significantly reduce RFG supplies and, ultimately, increase prices for 
the consumer.
    For these reasons, OFA supports the U.S. Environmental Protection 
Agency (EPA) proposal to launch a study under Section 6 of the Toxic 
Substances Control Act (TSCA) to address the key questions about MTBE 
and its replacements, i.e., determining whether the benefits of 
continued MTBE use outweigh potential risks, considering the benefits 
and risks of available alternatives such as ethanol, improving gasoline 
handling practices, and improving the underground tank cleanup and 
integrity program.
    While this hearing provides an excellent forum to frame the issue, 
OFA believes that the TSCA process is an appropriate mechanism to 
resolve this complex issue of expanded ethanol use, in contrast to the 
currently considered legislation. We believe the expanded use of 
ethanol would be a serious public policy error from both an 
environmental and an economic perspective. Certainly Congress should be 
wary of mandating the expansion of a heavily subsidized substance such 
as ethanol in a field devoid of competition, especially in an industry 
with a single company so overwhelmingly in control over the market. 
Perhaps more importantly for the purposes of this Subcommittee, 
Congress should be wary of the risk of premature action resulting in a 
net environmental and economic harms versus the hard-earned air quality 
gains of the current reformulated gasoline program.
    The purpose of these comments is to identify the known adverse 
environmental and economic impacts of expanded ethanol use, and to 
highlight the areas where additional study is required to ensure that 
the risk of environmental backsliding is eliminated. While Congress may 
not be inclined to conduct an exhaustive, full-scale cost-benefit 
analysis of the risk of expanded ethanol use to health and the 
environment, at a minimum it is important to engage in a balancing 
analysis comparing the wide range of risks, benefits, and costs of 
expanded ethanol use.

Health Risk and Benefit Evaluations
    Any decision to expand reliance on ethanol to meet the nation's RFG 
needs must begin with a thorough examination of its health risks and 
benefits. The health risks of ethanol, as the primary active ingredient 
in alcoholic beverages, are well established and recognized, including 
known human carcinogenic effects, reproductive effects, and fetal 
effects. In fact, beverage-grade ethanol has been listed repeatedly as 
a human carcinogen by the National Institute for Environmental Health 
Sciences, the International Agency for Research on Cancer, the 
California Proposition 65 Committee, and the National Toxics Program.
    Fuel-grade ethanol is currently blended in about 10 percent of the 
RFG production, primarily in the Midwest region of the country where 
refinery economics, transportation logistics, and individual State 
mandates favor its use. Despite this substantial usage and in contrast 
to MTBE, we simply don't have the inhalation information we need on 
potential exposures, health risks and public health impacts of vehicle 
emissions resulting from increased ethanol blending in gasoline. The 
exposure and impacts of ethanol blending in gasoline, although not very 
well understood, are casually dismissed by ethanol proponents. Before 
we can assess the health risk associated with ethanol blending in 
gasoline, we must obtain and evaluate inhalation toxicological data for 
ethanol exposures, especially for high risk populations such as 
recovering alcoholics and sensitive populations such as pregnant women 
and children.
    The analysis must begin with an assessment and quantification of 
the air quality and other environmental effects of widespread ethanol 
blending in gasoline. The comprehensive impact of changes to fuel 
quality parameters and impacts on emissions as a result of increased 
ethanol blending is unavoidable given ethanol's high vapor-pressure 
characteristic. Both evaporative and exhaust emissions impacts should 
be fully evaluated to quantify the risks to public health and then 
compared to the health benefits of current reformulated gasoline 
formulations. Ethanol blended gasolines are known to increase the 
emissions of formaldehyde, acetaldehyde, and peroxyacyl nitrates (PAN), 
which are hazardous air pollutants. The impacts to respiratory function 
and other health endpoints of emissions profile changes due to 
increased ethanol blending should be quantified and compared to current 
MTBE-blended RFG.
    The use of ethanol blends in certain RFG markets affords us the 
opportunity to evaluate and compare quantitatively the performance of 
ethanol-based RFG to MTBE-blended RFG and to assess the comparative 
health benefits for both formulations. Furthermore, common sense should 
dictate that such a comparison should be performed before the nation 
commits to widescale expansion of ethanol use. We simply must 
understand the health consequences of ethanol-blended gasoline exposure 
to sensitive populations (e.g., young children, recovering alcoholics, 
pregnant women, etc.) before proceeding with development of legislative 
and/or regulatory options for ethanol.
    EPA's Blue Ribbon Panel on Oxygenates in Gasoline concluded that 
current ``RFG provides considerable air quality improvements and 
benefits for millions of US citizens.'' The blending of MTBE to achieve 
the oxygen requirement for RFG is the single most significant 
modification taken by refiners to produce cleaner-burning fuel. The use 
of MTBE to maintain fuel quality and achieve emissions goals resulted 
in nearly 90 percent of RFG production with MTBE blending. Demonstrated 
emissions benefits from RFG have achieved as much as a 50 percent 
reduction in ambient benzene levels (depending on area), as much as a 
33 percent reduction in volatile organic compounds (VOCs are precursors 
to ozone formation), and average air toxics reductions of 32 percent 
during Phase I of the RFG program. Even greater reductions are 
anticipated for the Phase II program that began at the start of 2000. 
In California, where overlapping federal and State fuel quality 
programs achieve some of the most significant emissions reductions, the 
State's Air Resources Board estimates that annual reductions in cancer 
risks due to toxic air emissions are between 40 percent and 50 percent.
    These improvements translate to morbidity and mortality 
improvements for the current RFG program that should serve as the 
standard for future formulations relying on ethanol.
    Furthermore, we should look beyond the narrow definition of 
benefits attributable to the ``oxygen'' content provided by ethanol or 
MTBE in gasoline to evaluate the impacts of blending a specific 
oxygenate in gasoline. The impact on other key gasoline blending 
quality characteristics (such as low sulfur, T50 and 
T90 and lack of olefins and aromatics) must be factored in 
as we compare and quantify emissions effects on primary air pollutants 
and air toxics for ethanol blended gasoline. The reductions in 
morbidity and mortality from both the direct inhalation exposures and 
the vehicle emissions exhaust for current MTBE-blended RFG should be 
compared to the risks from exposures and emissions from ethanol-blended 
formulations. OFA believes that, without appropriate antibacksliding 
controls, the deterioration in real world air quality associated with 
expanded ethanol use will be significant.
    Another concern related to the increased use of ethanol is 
increased acetaldehyde emissions. Acetaldehyde, classified by the EPA 
as a probable carcinogen, is a common byproduct of ethanol combustion 
(for comparison, EPA has not classified MTBE as a carcinogen). 
According to EPA's 1990 emissions inventory, on-road vehicles were the 
second largest source of acetaldehyde emissions, contributing 28,200 
tons per year, or 20.48 percent of all acetaldehyde emissions. Small 
non-road vehicles and equipment, such as lawn mowers and leaf blowers, 
were the largest single source of acetaldehyde emissions, contributing 
35,300 tons per year, or 25.69 percent of all acetaldehyde emissions.
    The EPA reference concentration for acetaldehyde inhalation is 
0.009 mg/m\3\, with an endpoint of olfactory epithelium degeneration. 
By way of comparison, the RFC for MTBE is 3.0 mg/m\3\, based on a 
concern for potential eye, liver, and kidney damage. These results 
suggest that acetaldehyde may be 300 times more toxic than MTBE.
    The EPA Blue Ribbon Panel reported that ``[v]ehicle exhaust 
emissions data have shown that acetaldehyde . . . emissions can 
increase by as much as 100 percent with the use of 2.0 wt percent 
ethanol oxygenated gasoline.'' Likewise, NESCAUM concluded that 
replacing MTBE fuel additive with ethanol additives would increase 
acetaldehyde emissions by 50 percent to 70 percent. Acetaldehyde and 
PAN are significant air toxics, and must be controlled as the EPA has 
recently indicated in its urban air toxics initiative. In areas of high 
ethanol usage (such as Brazil), ambient levels of acetaldehyde have 
been detected at many times the reference dose for human health 
impacts. This is not speculation; it is a real human health question 
that must be resolved prior to substantial increases in ethanol use.
    To date, we are aware of only a single study that compared actual, 
tailpipe emissions of automobiles burning fuel with ethanol and MTBE. 
That study reported a 159 percent increase in acetaldehyde emissions 
for vehicles burning gasoline with ethanol, as compared to a similarly 
situated MTBE-based fuel; all other air pollutants were comparable.\1\ 
This study has been cited favorably in several other recent studies.\2\ 
The President's National Science & Technology Council reported modeling 
projections that were consistent with this data in that the modeling 
projected acetaldehyde increases on the order of 40 percent per weight 
oxygen.
---------------------------------------------------------------------------
    \1\ Reuter et al. 1992.
    \2\ Health Effects Institute 1996, p. 122; Koshland et al. 1998, p. 
30; National Science & Tech. Council 1997, p. 1-11.
---------------------------------------------------------------------------

Water Quality Impacts
    The revision of current RFG requirements to enhance the use of 
ethanol is likely to also result in increased gasoline aromatics 
content as refiners struggle to meet gasoline volume and octane 
requirements without MTBE and, at least in the early stages, with 
limited quantities of available ethanol. When MTBE is used, it replaces 
aromatics in gasoline to meet octane requirements. Blending 11 volume 
percent MTBE (2.0 wt. percent oxygen) contributes about 2.6 octane 
numbers to today's gasoline, which the marketplace shows will generally 
reduce the aromatic content of the gasoline by 6 to 8 volume percent. 
This reduction is considerably more than explained by a simple 11 
percent dilution, and is equal to about a 25 percent reduction in total 
aromatics content in gasoline. Without MTBE, aromatic levels in 
gasoline will increase, because all of the non-aromatic alternatives 
combined provide little more than half the octane contribution of MTBE. 
Ethanol at 5.7 volume percent will only provide 1.5 octane numbers to 
today's gasoline pool. Other non-aromatic hydrocarbons such as 
alkylates are a very inefficient means of adding octane, and 5 volume-
percent alkylate supplies only 0.3 of an octane number, which falls far 
short of filling the octane gap between blending with ethanol versus 
blending with MTBE.
    As a result, the relative amount of aromatics released to the 
environment in future gasoline releases (under enhanced ethanol use) 
would be significantly higher than it is in current gasoline. This 
includes aromatics with higher health risks associated with them, such 
as benzene and ethylbenzene. In RFG areas where oxygen is still 
required, because of their significant cost advantage, aromatics will 
be used to make up much of the octane and volume gap when using 5.7 
volume-percent ethanol to meet the oxygen standard. Although there is a 
toxics performance standard for RFG, current actual performance using 
MTBE far exceeds the standard, thus allowing more aromatics to be used. 
Gasoline aromatic levels can increase by up to 20 percent, adding 
another 5 percent to the gasoline pool.
    The perceived benefit of reduced groundwater risk when using 
ethanol in lieu of MTBE needs to be carefully reexamined. Certainly 
ethanol's high biodegradability compared to other gasoline components 
commonly found in ground water is highly touted. However, this 
degradability also contributes to the increased spread of aromatics 
from a gasoline release, because the microorganisms' preference for 
ethanol delays the degradation of the aromatics. The study presented to 
the Blue Ribbon Panel suggested that using ethanol can extend BTEX 
plumes by up to 40 percent. This potentially increases the volumes of 
water contaminated by BTEX by up to 270 percent. Thus a 
biodegradability preference for ethanol, combined with up to 20 percent 
higher mass of aromatics in a gasoline release, will contribute to a 
wider dispersion of aromatics in groundwater and a potential increase 
of exposure to aromatics in drinking water. The potential health risk 
increase for increased exposure to aromatics in drinking water has not 
been factored in any risk-benefit analysis of substituting/expanding 
ethanol use to date.
    Finally, despite the frequent mention of the need to better assess 
the possible risk of increased ethanol use in gasoline to humans and 
water supplies, there is seldom mention of the environmental risks to 
animals, aquatic life, or other fauna or flora. Given the essentially 
infinite solubility of ethanol in water, it is surprising that these 
aspects of the ethanol risk assessment are hardly raised.
    In short, the preconceived view seems to be that any groundwater 
threat associated with ethanol is substantially lower than the 
perceived ``unacceptable'' threat posed by MTBE. Despite the urgency to 
address the perceived MTBE ``problem,'' Committee members should not be 
willing to forego a complete fate and transport examination of the 
implications of expanded ethanol use. Any legislative action considered 
should not only be commensurate to the threat at hand, but also protect 
against the danger of precipitating market conditions that will 
ultimately expose the nation to increased, and potentially more potent, 
environmental risk.

Air Quality Impacts
    The statutory purpose behind the use of any oxygenate is to 
maintain and improve air quality. It is not to enhance markets for any 
one additive. However, converting from MTBE to ethanol would have an 
adverse impact on air quality, due to the direct and indirect impacts 
that fuel changes would have on primary criteria pollutants (ozone 
(including precursors), particulates,etc.). Unlike aromatics, MTBE has 
a favorably low distillation temperature that enhances cold engine 
performance. In addition, MTBE does not have many of the drawbacks of 
alcohols, such as water solubility and high blending vapor pressure. 
These favorable blending characteristics of MTBE-blended fuels improve 
gasoline combustion and reduce emissions from both on-road and off-road 
vehicle engines. Therefore, using MTBE in gasoline enhances gasoline 
octane while reducing many of the pollutants that degrade air quality. 
Widespread replacement of MTBE with ethanol in gasoline would clearly 
increase the risk of air quality degradation, particularly in the 
absence of additional, specific fuel quality controls.
    RFG regulations use both a recipe and a performance standard to 
achieve targeted emissions reductions of both toxics and ozone. To 
quantify performance targets, EPA chose to use Federal Test Procedure 
(FTP) emissions changes that occur with changes in fuel quality. In 
addition to the targeted emissions (toxics and ozone precursor VOCs and 
NOx), gasoline-burning engines produce other pollutants such 
as CO, particulate matter (PM), and precursors to secondary organic 
aerosols (PM), the levels of which are reduced by the use of MTBE in 
gasoline. An oxygen standard was included in the RFG ``recipe,'' thus 
requiring the use of oxygenates in RFG. Although some believe it is 
only the oxygen that provides emission reductions, it is actually the 
cleaner-burning octane that provides key additional, and substantial, 
emissions reductions from MTBE use. Furthermore, when that oxygen is 
provided by MTBE (as it is in the overwhelming majority of today's 
reformulated fuels), the level of toxics, PM, and cold-start VOC 
emissions reductions is maximized, even in new-technology vehicles that 
otherwise minimize the effect of the oxygen on the fuel.
    Maximum toxics reduction is achieved when using RFG (at 2 weight 
percent oxygen content) blended with MTBE, as indicated by EPA's 
complex model. The oxygenate dilution impact would be reduced when 
blending ethanol at the same gasoline oxygen content. In addition, 
smaller toxics reductions would be achieved with ethanol blended 
gasoline due to the higher expected gasoline aromatics content of the 
ethanol-blended fuel. Maximum aromatics reduction is realized with 
current RFG because the 11 volume percent MTBE it typically contains 
provides more octane than would be obtained when using 5.7 volume 
percent ethanol. Large aromatics reductions with MTBE have been 
demonstrated in many clean fuel programs, e.g., in various winter 
oxygenate programs from 1988 to 1994, as well as in the simple-model 
years of the RFG program (1995 through 1997) which had no requirement 
to reduce or cap total aromatics. Without MTBE, gasoline aromatic 
content will increase and thus increase toxic emissions.
    In addition to toxics control, the second primary goal of the 
current RFG program is control of summer peak ozone levels. When adding 
2 wt. percent oxygen, MTBE-blended gasoline provides the maximum 
reduction in VOCs and CO, because MTBE not only provides oxygen but 
also maximizes reductions in aromatics and distillation temperatures, 
which combine to give the greatest reduction in exhaust VOCs and CO 
emissions. By comparison, ethanol does not offer good blending 
properties in gasoline; in other words, ethanol tends to generate more 
volatility in hydrocarbon mixtures than is reflected in its boiling 
temperature. As a result, mixing (``commingling'') an ethanol blend 
with a non-ethanol blend in vehicle tanks will generate an increase in 
RVP that is higher than RVP in unmixed gasolines. This RVP increase is 
known to increase evaporative VOC emissions from the vehicle fleet. For 
a detailed discussion on the evaporative impacts of ethanol commingling 
in the marketplace, please reference the recently completed study by 
Sierra Research entitled ``Potential Evaporative Emission Impacts 
Associated with the Introduction of Ethanol-Gasoline Blends in 
California.'' (provided in Appendix A).
    Due to ethanol's high water solubility and higher volatility 
properties, ethanol must be blended at the gasoline truck rack to avoid 
intermixing and water contact in gasoline distribution pipelines and 
terminal tanks. Thus, ethanol must be delivered to distribution 
terminals by trucks, further causing increased traffic and pollution in 
neighborhoods with the highest traffic pollution. For a detailed 
discussion on the impacts of expanded ethanol use on the refined 
product distribution system, please reference the recently completed 
study by the Monitor Company entitled ``Unstudied Risks . . . Economic 
Assessment of Conversion from MTBE to Ethanol in California.''
    Due to ethanol's high RVP, blending ethanol in summer RFG requires 
that a like amount of volatile hydrocarbon, e.g., pentanes, be removed 
from the gasoline so the RVP specifications can be met. Unlike MTBE, 
ethanol use during the summer thus provides little or no expansion of 
gasoline production for the refiner. This lack of gasoline expansion 
requires the refiner to process more crude oil and generate even 
greater stationary source emissions. Most of the refineries that 
produce RFG are located in the air basins of some badly polluted 
cities, such as Houston, Los Angeles, San Francisco, and Philadelphia.
    Furthermore, MTBE has the lowest atmospheric reactivity of the VOCs 
and oxygenates found in evaporative emissions. Work by CARB and others 
show that lowering the atmospheric reactivity of VOC emissions is also 
important in reducing peak ozone pollution.
    CARB has determined that an additional benefit of reformulated 
gasolines is a reduction in the build-up of combustion chamber deposits 
(CCDs) in vehicle engines. CARB documented that emission studies show 
that the decrease in CCD build-up results in even lower NOx 
emissions and other emissions beyond the reductions predicted by FTP-
based prediction models. These additional NOx reductions 
total about 7 percent. The key gasoline property changes that reduce 
CCD build-up are lower aromatic content and lower distillation 
temperatures. Both of these fuel parameters would be adversely impacted 
by converting from MTBE to ethanol.
    While the 1990 Clean Air Act Amendments targeted only VOCs and 
NOx as ozone precursors, since 1990, summertime CO emissions 
have been identified as a significant contributor to peak ozone levels. 
Key gasoline property changes that reduce CO emissions are (1) lowering 
aromatics and (2) adding oxygen. Using MTBE instead of ethanol in RFG 
will lead to the greatest CO reduction, because MTBE provides the 
largest aromatic reduction at 2 wt. percent oxygen.
    Although reductions in PM were not specifically targeted in the RFG 
regulations, a number of studies by EPA and others show that oxygenated 
gasolines reduce vehicle PM emissions by 30 percent or more. Some 
studies show that gasoline engines produce a large share of the 
carbonaceous portion of the PM inventory. Other studies show that 
unburned aromatics from exhaust emissions are precursors of the 
secondary organic aerosols that contribute to this carbonaceous PM 
inventory. To the extent that MTBE's replacement with ethanol results 
in lower gasoline dilution, PM in tailpipe emissions will increase as 
gasoline aromatics content rises allowing more unburned aromatics in 
vehicle and small engine exhaust emissions.
    Besides PM reduction from vehicle tailpipes, other studies show 
that the unburned aromatics in exhaust VOCs are a significant source of 
precursors of secondary organic aerosols that can make up a large share 
of the PM inventory. The key to reducing unburned aromatics from 
vehicle and off-road engine exhaust is minimizing both the aromatic 
content and the distillation temperatures of gasoline. This is better 
accomplished by using 11 volume percent MTBE than 5.7 volume percent 
ethanol as the source of the oxygen in RFG. Thus, carbonaceous PM 
inventories will likely increase when MTBE is replaced by ethanol in 
gasoline.
    As described above, there are a number of emission increases 
associated with the use of ethanol that will degrade air quality. This 
loss in air quality must be factored into any cost-benefit analysis 
associated with the contemplated expansion of fuel ethanol use.

Economic Impacts
    Although the economic aspects of expanded ethanol use are not the 
primary focus of this Subcommittee's review, it is important that the 
economic repercussions of mandated increased reliance on fuel ethanol 
be defined. These include ethanol's energy content, tax subsidy, impact 
on other sectors of the economy, and socioeconomic distributional 
effects associated with the income transfer that ethanol growth 
entails.
    For example, use of ethanol over other oxygenates, such as MTBE, 
reduces RFG supplies by up to 11 percent. This ``lost'' volume further 
shortens already tight gasoline supplies and, ultimately, leads to 
increased prices for consumers. As a result of using ethanol as part of 
the RFG program, the Chicago and Milwaukee areas are witnessing 
gasoline prices surge above $2.00 per gallon. Other areas of the 
country using RFG with MTBE are not seeing the same price spikes.
    While ethanol proponents tout the ethanol's energy content as 
``renewable,'' it is unclear that expanded ethanol use makes good 
``energy sense'' when comparing the energy needed to plant, harvest, 
and process corn (or other ethanol feedstocks) for ethanol production 
versus the energy released when ethanol is used in automotive 
applications. Several existing reports suggest that the amount of 
energy released when ethanol is consumed may actually be less than that 
required to produce it, depending on the particulars of ethanol 
feedstock and production. While a gallon of ethanol produces 76,000 
BTU, the overall energy-to-produce estimates range from 75,000 to 
95,000 BTU. Since fossil energy is typically consumed to produce 
ethanol, it is imperative that the Subcommittee investigate the sources 
of the incremental ethanol production and the relative energy balance 
associated with each.
    Clearly the need to reduce the perceived risk that MTBE poses must 
be balanced against the potential for increased reliance on increased 
foreign fossil energy and the associated impact on the nation's energy 
security. The ``renewable fuel'' concept typically advanced in support 
of ethanol remains counterintuitive in that, in addition to the 
petroleum needed to grow corn and distill ethanol, more conventional 
gasoline is required as a percentage of reformulated gasoline when it 
is blended with ethanol than when it is produced with MTBE.
    The U.S. General Accounting Office (GAO), in a March 6, 1997 report 
titled ``Tax Policy: Effects of the Alcohol Fuels Tax Incentive,'' 
suggests that the existing tax incentives for ethanol's use (discussed 
in more detail later in this section) do not significantly reduce 
petroleum imports and, consequently, do not appreciably contribute to 
U.S. energy independence. According to the same report, oil consumption 
and not oil imports create vulnerability to oil price shocks, and the 
usefulness of alternatives such as ethanol during times of crisis 
depends largely on whether their production can be rapidly expanded. 
Currently, ethanol accounts for approximately 1 percent of the U.S. 
motor vehicle fuel consumption and is thus of little consequence in 
dampening oil price shock.
    Even at such increased estimated ethanol consumption levels, there 
would be no significant positive impact on the nation's energy security 
outlook. More importantly, OFA believes that we should focus on the 
relative change in the Nation's energy security posture resulting from 
the replacement of MTBE by ethanol, rather than on the absolute impact 
of increasing the contribution of domestic ethanol as a percentage of 
the overall energy usage. It should be recalled that all MTBE reduction 
and elimination scenarios are projected to yield a more fragile 
marketplace in terms of overall supply and demand balance, while 
restricting what has heretofore served as one of the market's most 
useful pressure relief mechanisms in times of short supply.
    Lastly, Congress' selection of an appropriate MTBE risk mitigation 
strategy should factor in the overall domestic economic impact of 
enhancing the use of higher priced oil substitutes. The U.S. economy 
derives substantial benefits from free access to the international oil 
markets. Low oil prices fuel economic growth, employment, and 
productivity. High energy prices act as a drag on economic expansion 
and fuel inflationary pressures. The U.S. cannot now, or in the 
foreseeable future, meet its petroleum needs except through imports. 
Federally mandated alternatives to oil imports decrease economic 
efficiency and hamper free trade without contributing to U.S. energy 
security.\3\
---------------------------------------------------------------------------
    \3\ Vito Stagliano, Resources for the Future, ``The Impact of a 
Proposed EPA Rule Mandating Renewable Oxygenates for RFG: Questionable 
Energy Security, Environmental & Economic Benefits'' (1994).
---------------------------------------------------------------------------
    OFA believes that the economic evaluation of ethanol must extend 
beyond the narrow confines of motor fuel impacts. While the obvious 
intent of tax incentives (such as the one enjoyed by ethanol) is to 
increase farm income, it is reasonable to expect that price increases 
that benefit farmers may adversely impact consumers of some food 
products. Roughly 60 percent of all corn produced in the U.S. is used 
domestically for feed grain. Increased corn prices lead to increases in 
livestock feed price causing overhead costs to increase for many 
farmers. ``The primary effect of ethanol subsidies on agricultural 
markets is to allow corn farmers to charge hog farmers and cattlemen 
higher prices.'' \4\
---------------------------------------------------------------------------
    \4\ James Bovard, Fellow, Cato Institute, ``ADM: A Case in 
Corporate Welfare, Policy Analysis No. 241,'' September 26, 1995.
---------------------------------------------------------------------------
    Ultimately, these higher costs mean that consumers pay higher beef, 
pork and poultry prices at the supermarket. If EPA's action raises the 
price of corn by a mere 5 percent, the price impact on consumers would 
exceed one billion dollars. Furthermore, to the extent that subsidies 
are used to produce incremental quantities of industrial or beverage 
ethanol, the economic impacts are decidedly unintended. That ``fits the 
historical pattern of farm policy: intentionally sacrificing relatively 
unsubsidized farmers to subsidized farmers and making all farm profits 
and losses increasingly a question of political pull. The higher the 
price of feed grain, the higher the cost of meet production. Thus 
consumers get hit from all directions.'' \5\
---------------------------------------------------------------------------
    \5\ Id.
---------------------------------------------------------------------------
    A 1986 USDA study concluded that increased production of ethanol 
would cost consumers and taxpayers roughly $4 for each $1 of extra farm 
income. The report stated that ``increases in consumer food 
expenditures caused by additional ethanol production far exceed the 
increases in farm income.'' The report concluded that consumers would 
be better off if they exclusively used fossil-derived gasoline for 
automotive purposes and paid a direct cash subsidy to farmers equal to 
the net farm income increase expected by expanded ethanol use. At a 
minimum, the food price impacts of a policy decision to expand fuel 
ethanol use must be understood and weighed along with the anticipated 
adverse gasoline price impacts.
    The ethanol industry has remained economically uncompetitive long 
after the typical economic argument of an infant industry requiring 
subsidies and trade protection in order to survive. In 1986, the U.S. 
Department of Agriculture estimated the average cost of producing 
ethanol at $1.60 a gallon, which was more than double the then-
wholesale gasoline price of approximately 60 cents. Even after the 
substantial 54 cent per gallon tax incentive, ethanol remains 
economically uncompetitive. Thus, MTBE reduction strategies relying 
upon expanded ethanol use will increase consumer cost simply by virtue 
of the fact that such strategies will replace a more affordable and 
more effective pollution-fighting alternative.
    Cost-to-produce impacts of gasoline blended with ethanol were 
outlined earlier as part of the economic impacts of potential 
strategies to reduce MTBE. Taking into consideration the terms of a 
legislative mandate for ethanol use (new or existing under the CAA's 
oxygen requirement), the equivalent environmental performance criteria 
used, and the location of new ethanol markets vis-a-vis the traditional 
Midwestern ethanol production base, expanded ethanol use could raise 
gasoline production costs by more than 7 cents per gallon. This is at 
equilibrium before the impact of a tighter supply and demand balance is 
factored in. Short-term price impacts associated with fuel supply 
shortfall could easily amplify the cost-to-produce impact by a factor 
of two or three.
    In the longer term, the economic impact of having Congress steer 
the marketplace toward increased reliance on a single alternative may 
have the exact opposite impact on energy pricing than that desired. In 
view of the existing track record of government interference in this 
area yielding less than optimal results, we should carefully examine 
the longer-term implications of its MTBE risk mitigation action on 
energy pricing to ensure that it does not yield a clear market 
``winner'' at the cost of controlling consumer choice and preventing 
competition in the marketplace. In addition to preserving other 
alternative fuels that may exist as options, Congress should carefully 
evaluate the impacts on other industries ready to compete for a segment 
of the motor fuel segment on a level playing field.
    Increasing ethanol's share of the nation's gasoline market as part 
of any MTBE risk mitigation strategy will have the effect of 
transferring income from Gulf Coast natural gas and MTBE producers to 
Midwestern corn and ethanol producers. While federal obligations to 
support farm prices will be reduced, the income transfer is highly 
inefficient and would not principally benefit farmers of corn. Previous 
studies have found that 70 percent of ethanol's production cost is 
associated with post harvest costs. Moreover, public policy aimed at 
income transfer should aim to keep waste or dead weight losses minimal 
in relation to total income transferred. Deadweight losses in ethanol-
for-MTBE substitution scenarios are defined in terms of the cost 
difference to produce the two substances. Since MTBE can be produced 
for roughly 60 percent of ethanol's equivalent cost, it is estimated 
that every dollar spent on ethanol delivers 30 cents of income to 
farmers while adding $1.40 in dead weight loss to consumers.\6\
---------------------------------------------------------------------------
    \6\ David Montgomery, Charles River Associates, as quoted by Vito 
Stagliano in ``The Impact of a Proposed EPA Rule Mandating Renewable 
Oxygenates for RFG: Questionable Energy Security, Environmental & 
Economic Benefits,'' (1994).
---------------------------------------------------------------------------
    Furthermore, growing ethanol use will transfer income from 
Northeastern and Californian consumers of reformulated gasoline to 
Midwestern corn and ethanol producers, given the location of the vast 
majority of the nation's areas that violate summertime ambient ozone 
standards. The socioeconomic distributional effects of any proposed 
ethanol growth strategy would be inequitable as well. The higher, 
federally mandated cost of RFG would affect low income consumers 
disproportionately because they devote a higher percentage of their 
disposal income to energy costs than do higher-income consumers.\7\
---------------------------------------------------------------------------
    \7\ Vito Stagliano, Resources for the Future, ``The Impact of a 
Proposed EPA Rule Mandating Renewable Oxygenates for RFG: Questionable 
Energy Security, Environmental & Economic Benefits,'' (1994).
---------------------------------------------------------------------------
    In view of ethanol's prohibitive cost to produce, a huge subsidy is 
required to make its price competitive in the marketplace. The U.S. 
Department of Agriculture estimates that the cost of corn will rise and 
the revenue from coproducts will fall as corn ethanol production 
increases over current levels. In the 1990 Amendments to the Tax Reform 
Act of 1984, federal excise taxes on gasoline were set at 14.3 cents/
gallon, but fuels containing 10 percent alcohol received an exemption 
of 5.4 cents/gallon. In the Energy Policy Act of 1992, the excise tax 
exemption was extended to include gasoline containing less than 10 
percent ethanol. The statute (and previous laws) were interpreted to 
include a tax credit for producers of ETBE.
    The value of this exemption translates to the current federal $0.54 
per gallon tax credit given to the corn ethanol industry. In 1997, the 
GAO estimated that the ethanol subsidy has cost the federal government 
more than $7 billion since 1979. The current annual figure is 
approximately $770 million based on an annual ethanol use of about 1.3 
billion gallons. This figure could triple as annual ethanol production 
grows to over three million gallons in several out-year ethanol growth 
scenarios as part of replacing MTBE. In addition, seventeen states 
offer fuel tax exemptions or producer subsidies for fuel ethanol 
ranging from $0.10 to $0.40 per gallon.
    The projected growth in the tax subsidy needed for ethanol in MTBE 
replacement scenarios is in addition to the $1.9 billion that the 
Governors Ethanol Coalition recently estimated would be needed to 
finance the ``necessary'' expansion in ethanol capacity. In this 
context, it is noted that the $400 million in loans authorized by 
Congress in 1978 to finance ethanol plant construction resulted in 
funding for 18 plants. By 1992, the Federal government had received 
full repayment for only one of these.
    Given the large differential in cost-to-produce between ethanol and 
gasoline, it is obvious that the fuel ethanol industry wouldn't exist 
today without the massive subsidy it receives. OFA believes that the 
risk posed by MTBE does not justify the full economic burden of the 
corresponding expansion in ethanol use. Once fully developed, these 
economic impacts should be added to the incremental production costs 
for the replacement gasoline as part of the overall assessment of 
curtailing MTBE's use in the Nation's gasoline pool.
    The reduction in motor-fuels excise tax revenues due to ethanol-
blended gasoline reduces funds that would otherwise have been earmarked 
for the Highway Trust Fund. These funds are used to maintain and 
improve the nation's bridges and roads. The potential increase in 
ethanol subsidies will have a substantial adverse impact on the 
nation's millions of miles of roads and highways, as well as serious 
economic ramifications for specific industries involved in road 
building and maintenance. The International Brotherhood of Boilermakers 
has estimated that 39,000 jobs are lost as a result of foregone road 
project work for each $1 billion the Trust Fund loses.\8\
---------------------------------------------------------------------------
    \8\ Ande Abbott, Director of Legislative Affairs, International 
Brotherhood of Boilermakers, in Congressional Record August 3, 1994, at 
S10453.
---------------------------------------------------------------------------
    A policy decision to require substantial growth in fuel ethanol use 
must recognize that, even under conservative assumptions, there is 
insufficient ethanol supply at present to meet the nation's 
reformulated gasoline needs. California's minimum supply requirement 
alone would add 350 million gallons of ethanol to the shortfall, even 
if it is assumed that ethanol is blended at the minimum 2.0 weight 
percent oxygen content specified in the CAA. In view of the structure 
of the federal tax subsidy for ethanol blending, California's demand 
could easily approach 500 million gallons. Demand projections for MTBE 
replacement in the Northeast exceed those for California by 
approximately 15-20 percent. Given that today's overall ethanol 
production is at 1.3-1.4 billion gallons, and that this volume is 
currently dedicated to markets near ethanol's Midwestern production 
base, growth and redistribution of available ethanol production among 
competing geographic markets remains a major economic uncertainty as 
steps are considered to mitigate MTBE risk.
    Alternative scenarios where California and the Northeast enter the 
ethanol market must be explored and the associated ethanol price 
increases must be projected for each demand scenario. The incremental 
ethanol volume, timetable, and cost for expanded ethanol production 
from both conventional sources (i.e., corn) and new alternative 
feedstocks (i.e., biomass) should be clearly defined. Key benefits 
associated with such scenarios should include potential GDP growth 
associated with increased demand for corn and other grain, potential 
positive impact on farm subsidies, and generation of new jobs 
associated with ethanol industry expansion. In addition to the 
incremental refining costs associated with converting to ethanol-
blended reformulated gasoline (outlined earlier), key costs to be 
examined in this analysis should include the impact of potential 
ethanol supply shortfalls on ethanol and gasoline prices as well as 
logistical costs associated with transporting ethanol and retrofitting 
the gasoline distribution system to accommodate ethanol-blended fuels.
    Recent analyses by the Monitor Company examining the overall impact 
of California's anticipated conversion to ethanol following that 
State's ban on MTBE after 
1/1/2003 indicate that significant price increases will be likely in 
order to facilitate supply demand balancing in the three years 
following the MTBE phase-out. Although there is potential for 
redirection of ethanol from other markets/uses, redirection will 
necessitate price increases. Furthermore, while it is possible that new 
ethanol plants will be built, it is not clear whether timely capacity 
additions will be realized. At a minimum, to attract ethanol barrels to 
California (and the Northeast) where they will likely be required to 
produce reformulated gasoline, prices will need to rise sufficiently to 
overcome local State incentives in today's ethanol home markets. 
Insufficient ethanol supply will ultimately result in pressure on 
overall reformulated gasoline inventories, reducing them in the case of 
California from a 6-7 month reserve to a 1-2 month reserve.
    Because of its high affinity for water, ethanol cannot be 
transported by pipeline, except through dedicated systems. As a result, 
it cannot be blended into gasoline at the refinery and must be blended 
at the terminals prior to shipment to retail stations. Given the nature 
of the nation's pipelines through which fungible multiple products are 
transported, ethanol is projected to move by truck or rail to the 
distribution terminals. This substantially increases the delivered cost 
since truck, rail, and marine transport are substantially more 
expensive than pipeline transport. Price increases associated with 
additional market demand will be compounded by the cost of transporting 
ethanol to these areas by truck or rail.
    Large scale distribution terminal facility upgrades will also be 
required for any gasoline market converting to ethanol. These may 
include upgrades to a terminal's rail facilities to handle the 
increased traffic or the addition of new rail connection for terminals 
that were not previously equipped to receive railcars. Additional tank 
facilities will be needed for ethanol storage at the terminals and 
modification/expansion of terminal loading and unloading facilities are 
likely. Finally additional blending controls and instrumentation may be 
needed at the terminals as well filtration equipment to both the 
terminals and retail stations to dewater ethanol and ethanol-blended 
gasoline. The Monitor Company's estimate of total cost associated with 
such modifications for California was $60 million.
    In addition significant costs will be added in distribution and 
retrofitting terminals to enable widespread ethanol blending. In 
California's case, the Monitor study identified interstate costs (in 
marine and rail facilities required to move ethanol from the Midwest) 
and intrastate costs (inrail and truck distribution facilities from in-
state marine terminals and intermodal transfer facilities) amounting to 
$28 million. These capital facility recovery costs will be incurred in 
addition to the more than 10 cents a gallon of ethanol in 
transportation cost to marine and rail operators to deliver ethanol to 
the State.
    We appreciate the opportunity to submit these comments and look 
forward to working with Members of the Committee on this important 
issue.
  

                                
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