[Congressional Record (Bound Edition), Volume 148 (2002), Part 1]
[Senate]
[Pages 828-831]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   THE FEDERAL REFORMULATED FUELS ACT

  Mr. JEFFORDS. Mr. President, I ask unanimous consent that 
documentation important for the legislative history of S. 950, the 
Federal Reformulated Fuels Act, be printed in the Record.
  The first is a supply impact analysis of that legislation. The 
analysis concludes there is a significant probability that total 
gasoline production capacity would increase under the provisions of S. 
950. The second is an estimate by the Congressional Budget Office of 
the effects of any private-sector mandates included within that bill.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                U.S. Environmental


                                            Protection Agency,

                                 Washington, DC, January 18, 2002.
     Hon. Jim Jeffords,
     Chairman, Committee on Environment and Public Works, U.S. 
         Senate, Washington, DC
       Dear Mr. Chairman: This is in response to your letter of 
     December 20, 2001, co-signed with Senator Bob Smith, 
     requesting technical and economic analyses regarding the 
     elimination of MTBE as a gasoline additive.
       We are enclosing two documents that are responsive to your 
     request. The first is a draft report prepared by PACE 
     Consultants, under contract with the Environmental Protection 
     Agency. This report is entitled, Economic Analysis of U.S. 
     MTBE Production Under the MTBE Ban.
       The second document is a draft EPA staff analysis entitled, 
     ``Supply Analysis of S. 950--The Federal Reformulated Fuels 
     Act of 2001.'' This analysis, which was prepared in October 
     2001 by EPA staff who have technical expertise in matters 
     relating to motor vehicle fuels, has never been released and 
     should not be construed to be Administration policy. The 
     analysis draws extensively

[[Page 829]]

     from the findings of the above-mentioned PACE report.
       As you know, the issue of MTBE is related to a current 
     Clean Air Act provision that requires the use of oxygenates 
     in reformulated gasoline. It is my understanding that 
     Congress designed this provision to promote the use of 
     renewable fuels, enhance energy security, support the 
     agricultural economy, and improve the environment. EPA 
     welcomes the opportunity to work with the Congress to further 
     these important goals.
       Again, thank you for writing. If you have questions about 
     these documents, please feel free to contact me or your staff 
     may contact Diann Frantz in the Office of Congressional and 
     Intergovernmental Relations at (202) 564-3668.
           Sincerely yours,
                                           Christine Todd Whitman.
       Enclosures.

Supply Impact Analysis of S. 950--The Federal Reformulated Fuels Act of 
                                  2001

       There are four primary provisions in S. 950 that could have 
     an impact on gasoline supply in the U.S. These include the 
     nationwide ban on MTBE, rescinding the 1 psi RVP waiver for 
     ethanol blended into conventional gasoline, the additional 
     air toxics requirements, and the provision of grant money to 
     support the conversion of merchant MTBE plants to the 
     production of other gasoline blendstocks. The impact of each 
     of these provisions is discussed below. The evaluation of the 
     financial support for the conversion of merchant MTBE plants 
     to the production of other gasoline blendstocks is combined 
     with that of the ban on MTBE use.


                         a. nationwide mtbe ban

       Due to the attention that has been placed on the MTBE issue 
     over the last several years, there have been a number of 
     different MTBE ban scenarios that have been put forward and a 
     considerable amount of analysis already performed for at 
     least some scenarios. Differences in how the bans would be 
     implemented, however, can cause significant differences in 
     what impact they will have on the gasoline fuel supply. What 
     follows is a summary of a recent analysis EPA conducted for a 
     nationwide ban on MTBE use which mirrors relatively closely 
     the MTBE ban provisions in S. 950.
       Table A-1 shows the sources of the MTBE used in U.S. 
     gasoline and estimated 2000 production volumes (from Pace 
     Consultants). The total MTBE volume of 263,000 bbl/day 
     represents approximately 3.1% of U.S. gasoline consumption. 
     However, MTBE contains only about 80% of the energy density 
     of gasoline. Consequently, on a energy equivalent basis this 
     MTBE volume represents approximately 2.5% of total U.S. 
     gasoline consumption.

  TABLE A-1.--YEAR 2000 PRODUCTION VOLUME OF MTBE (BARRELS/DAY) IN THE
                                  U.S.
------------------------------------------------------------------------
                                                               Gasoline
              Type of MTBE plant                  Physical    equivalent
                                                   volume       volume
------------------------------------------------------------------------
Captive refinery plants.......................       79,000       64,000
Propylene Oxide based merchant plants.........       45,000       36,000
Ethylene based merchant plants................       21,000       17,000
Natural gas liquids (NGL) based plants........       67,000       54,000
Imports (NGL based)...........................       51,000       41,000
                                               -------------------------
    Total.....................................      263,000      212,000
------------------------------------------------------------------------

       In support of EPA's analysis of restrictions on the use of 
     MTBE, we hired Pace Consultants, a knowledgeable and 
     reputable firm, to conduct an analysis of the economics of 
     converting the different types of MTBE plants to produce 
     either alkylate or iso-octane instead of MTBE, versus the 
     plant completely shutting down.
       MTBE plants react isobutylene with methanol to make MTBE. 
     MTBE plants fall into two broad categories: those which use 
     isobutylene which already exists or which can be produced at 
     very low cost from existing material, and those which have to 
     produce isobutylene at significant cost from other chemicals. 
     Captive or refinery based MTBE plants and ethylene based MTBE 
     plants fall into the first category, as their isobutylene is 
     being produced in the process of making gasoline in the 
     refinery or butadiene in the chemical plant. Propylene oxide 
     based MTBE plants produce isobutylene from tertiary butyl 
     alcohol, but do so using an inexpensive chemical process. 
     Thus, they are placed in this first category, as well.
       Domestic and overseas natural gas liquids (NGL) based MTBE 
     plants fall into the latter category. These plants produce 
     isobutylene via three processes from a mixture of normal 
     butane and isobutane obtained from natural gas processing.
       If an MTBE plant converts to alkylate production, it 
     produces 80% more gasoline in terms of energy content than it 
     did when producing MTBE. The gain in energy comes from the 
     fact that isobutane is combined with this isobutylene in the 
     production of alkylate, versus the addition of methanol in 
     thr production of MTBE. Isobutane contains more energy than 
     methanol, so the product does as well.
       If an MTBE plant converts to iso-octane production, it 
     produces 15% less gasoline equivalent volume than it did when 
     producing MTBE. Again, this assumes that the converted MTBE 
     plant would process the same amount of isobutylene as before. 
     The loss in energy comes from the fact that isobutylene is 
     reacted with itself to form iso-octane (i.e., no other 
     feedstock is combined with the isobutylene in the reaction). 
     Thus, the energy content of methanol is lost relative to MTBE 
     production.
       Alkylate and iso-octane both contain no aromatics and have 
     relatively high octane (90-100) and low RVP, making them 
     attractive fuel blending components. The Pace study found 
     that it should be economic for the vast majority of MTBE 
     production plants to be converted to either iso-octane or 
     alkylate production if MTBE were banned. Below, we discuss 
     the likely fate of each type of MTBE plant, plus imports.
       Pace projected that captive, refinery MTBE plants will 
     likely convert to either iso-octane or the isobutylene will 
     be used to produce alkylate in a refiner's existing 
     alkylation plant. Isobutylene had always been converted to 
     alkylate at refineries prior to a refiner's decision to 
     produce MTBE and this would be the preferred route if MTBE 
     were banned, due to the higher volume of gasoline produced 
     with alkylate versus iso-octane. However, if a refiner's 
     current alkylation unit did not have excess capacity or its 
     capacity could not be inexpensively increased, Pace concluded 
     that the MTBE unit would likely be converted to produce iso-
     octane. Thus, as a lower limit for our analysis we have 
     presumed that all these MTBE units are converted to produce 
     iso-octane, and as an upper limit all the isobutylene will be 
     used to produce alkylate. However, in no case should the MTBE 
     production from these plants be completely lost as the 
     isobutylene is available at no cost and has no other high 
     value market.
       Pace projected that propylene oxide based MTBE plants are 
     likely to convert to iso-octane production, due to the lower 
     capital cost involved. Like captive refinery plants, these 
     plants are unlikely to shut down, since the feedstock used to 
     produce MTBE (tertiary butyl alcohol) is produced as a by-
     product from propylene oxide or ethylene production (i.e., it 
     is essentially free).
       Pace projected that ethylene based MTBE plants are likely 
     to shutdown and send their isobutylene to refineries for 
     conversion to alkylate. Thus, while the MTBE plant itself is 
     shut down, the volume it produces is not lost. As a lower 
     limit, we projected that these ethylene based plants would 
     convert to iso-octane, like the propylene oxide based plants.
       Pace projected that merchant, NGL based MTBE plants would 
     face the greatest challenge to stay in business. If they were 
     to stay in business, Pace projected that they would be more 
     likely to convert to alkylate than iso-octane production. 
     Historical alkylate price premiums over premium gasoline 
     would not support conversion to alkylate production. However, 
     in 2001 price premiums have been consistently higher. 
     Furthermore, under a complete MTBE ban, demand for clear, 
     high-octane blending components should increase and alkylate 
     price premiums should increase accordingly. This was in fact 
     the case in all refining studies of California under their 
     MTBE ban which showed significant flows of alkylate from the 
     Gulf Coast to California. Consequently, for this analysis of 
     a nationwide MTBE ban, due to the uncertainty, we have 
     projected in the worst case that all of these plants would 
     shut down or in the best case that all would convert to 
     alkylate production. Under the actual provisions in S. 950, 
     the best case is more likely to occur. This is due to the 
     $750 million it would provide to help convert merchant MTBE 
     plants. This subsidy should be sufficient to ensure that the 
     production capacity of these plants remains available.
       Finally, Pace projects that most foreign natural gas based 
     MTBE plants are likely to convert to iso-octane production, 
     given their low feedstock costs. This was observed already 
     with an MTBE plant in Alberta, Canada, that recently 
     converted to producing iso-octane.
       Table A-2 summarizes the results of this analysis. As can 
     be seen, we project that the net impact on supply from a 
     nationwide MTBE ban ranges from a loss of approximately 
     84,000 bb1/day to gain of approximately 91,000 bb1/day, or 
     roughly a gain or loss of approximately 1% of total 
     nationwide gasoline volume on an energy equivalent basis. 
     Given the $750 million in grants made available to help 
     convert merchant MTBE plants, we believe that the supply 
     impact is more likely to fall towards the upper end of this 
     range than the low end. The grants should be sufficient to 
     ensure that the production capacity of the NGL-based MTBE 
     plants remains in the gasoline supply.

    TABLE A-2.--GASOLINE EQUIVALENT VOLUME WITH A NATIONWIDE MTBE BAN
------------------------------------------------------------------------
                                     Current    Lower limit  Upper limit
                                    production  of replaced  of replaced
                                   volume (bbl/ volume (bbl/ volume (bbl/
                                       day)         day)         day)
------------------------------------------------------------------------
Captive refinery plants..........       64,000       54,000      114,000
Propylene Oxide based merchant          36,000       31,000       31,000
 plants..........................
Ethylene based merchant plants...       17,000       14,000       30,000
Merchant (NGL) plants............       54,000            0       98,000
Imports (natural gas based)......       41,000       30,000       30,000
                                  --------------------------------------
    Total........................      212,000      128,000      303,000
Change from Current..............  ...........     (84,000)       91,000
------------------------------------------------------------------------

       This analysis reflects only the changes in MTBE and 
     gasoline hydrocarbon volume.

[[Page 830]]

     The changes in ethanol volume that go along with this were 
     not quantified in the Pace analysis. Even without the RFG 
     oxygen mandate, which S. 950 allows states to opt out of, it 
     is likely that a significant amount of ethanol would be used 
     to fulfill the RFG and mobile source air toxics (MSAT) 
     performance requirements. For example, Mathpro, in refinery 
     modeling performed for EPA, projected that 50-65% of 
     California gasoline would contain ethanol if MTBE were banned 
     and the RFG oxygen mandate were waived.


      b. rescinding the 1.0 psi rvp waiver for ethanol blended in 
                         conventional gasoline

       Due to its hygroscopic nature it is not possible to ship 
     ethanol blends through the same common carrier fuel 
     distribution system with other petroleum products. 
     Consequently, ethanol is not blended at the refinery into 
     gasoline, but instead is ``splash blended'' at the terminal, 
     usually as it is loaded into tank trucks. When ethanol is 
     added to gasoline, it results in roughly a 1.0 psi RVP 
     increase in the vapor pressure of the final blend. It is 
     possible to produce a sub-RVP grade of gasoline for blending 
     with ethanol downstream to offset this RVP increase, and in 
     fact, that is what is done under the RFG program. 
     Furthermore, some refiners currently produce a sub-octane 
     grade of gasoline for downstream blending of conventional 
     gasoline with ethanol. However, requiring all gasoline 
     blendstock destined for ethanol blending to be distributed 
     separately would place an additional challenge for the 
     distribution system.
       Rescinding the 1.0 psi RVP waiver for ethanol blending 
     would require a unique sub-RVP gasoline blendstock for 
     conventional gasoline. Unlike the MTBE ban discussed above, 
     EPA has not conducted studies recently that would quantify 
     the impact of this on overall gasoline supply. However, the 
     analysis is also much less complicated. Based on recent 
     analyses performed in support of our analysis of the boutique 
     fuels issue, we have determined that lowering the RVP of 
     gasoline by 1.0 psi RVP would require the removal of 1.5% of 
     the gasoline in the form of butane. For some refineries, this 
     would require the construction of a new butane-pentane 
     splitter. Since butane contains roughly 85% of the energy 
     content of typical gasoline, on an energy equivalent basis 
     this would represent a 1.3% reduction in the volume of 
     gasoline that is blended with ethanol.
       While the amount of butane which needs to be removed from 
     gasoline increases with increased ethanol use, this impact is 
     overwhelmed by the additional volume of ethanol itself. 
     Ethanol is typically blended at a 10 volume percent level. 
     Ethanol contains 60% of the energy per gallon of gasoline. 
     Thus, adding 10 volume percent ethanol increases gasoline 
     equivalent volume by 6% while removing butane to compensate 
     for ethanol's RVP boost reduces the gasoline equivalent 
     volume by 1.3%, or just over a fifth of the gain from 
     ethanol. Therefore, the net gain from adding 10 volume 
     percent ethanol is an increase in gasoline equivalent volume 
     of 4.7%.
       Ethanol-blended conventional gasoline currently represents 
     about 7% of total U.S. summertime gasoline consumption, or 
     about 640,000 barrels per day. Thus, about 8000 bbl/day 
     gasoline equivalent of butane would have to be removed from 
     this fuel to compensate for ethanol's RVP boost. However, 
     under a nationwide MTBE ban and with or without state opt 
     outs of the RFG oxygen mandate, ethanol use in both RFG and 
     conventional gasoline would likely increase over today's 
     level. Since the RFG performance standards do not grant 
     ethanol an RVP waiver, increased use of ethanol in either 
     fuel would require butane removal. The impact on conventional 
     gasoline, however, would be directly attributable to the 
     removal of the RVP waiver under S. 950. It is difficult to 
     predict precisely how much ethanol production in general 
     would increase. If for example, ethanol use were to double 
     over today's levels (nominally 100,000 bbl/day, or 60,000 
     bbl/day gasoline equivalent), this could require the removal 
     of as much as 15,000 bbl/day of butane (13,000 bbl/day 
     gasoline equivalent). Thus, the total amount of butane 
     removed could be 22,000 bbl/day gasoline equivalent under 
     this example. However, this is still much lower than the 
     60,000 bbl/day gasoline equivalent of new gasoline supply 
     associated with the new ethanol production.


             C. EXISTING AND ADDITIONAL AIR TOXICS CONTROL

       It is difficult to quantify the impact on gasoline supply 
     of the existing MSAT standards plus the new air toxics 
     standards which are included in S. 950. The current MSAT 
     standards require refiners to maintain the toxics emission 
     performance of their 1998-2000 RFG and conventional gasoline 
     into the future. In the context of S950, this means that as 
     MTBE is removed from primarily RFG, refiners producing RFG 
     must maintain their previous toxics emission performance.
       In general, this historical performance has been well 
     beyond that required by the RFG regulations. Removing MTBE 
     increases toxics emissions from gasoline, even considering 
     the lower sulfur levels which will be required in the future 
     and lower olefin levels which should accompany the sulfur 
     reductions. Substituting alkylate and iso-octane for MTBE 
     helps, but may not be sufficient to maintain toxics 
     performance. Adding ethanol along with alkylate and iso-
     octane should be sufficient for most refiners to compensate 
     for MTBE removal, once the Tier 2 sulfur standards take 
     effect.
       Another possibility is that most refiners should be able to 
     shift some of their reformate (the gasoline blendstock 
     highest in aromatics and benzene) from RFG to conventional 
     gasoline. This would ease compliance with the MSAT standards 
     for their RFG. However, some refiners may still have to 
     reduce benzene or aromatic levels below current levels. Some 
     refiners are also more dependent on MTBE use than others.
       Despite this uncertainty, any impact of the MSAT standards 
     are likely to affect RFG supply more than total gasoline 
     supply. Much less MTBE is used in conventional gasoline today 
     compared to RFG. The levels of sulfur and olefins in 
     conventional gasoline will also be dropping in the near 
     future. Thus, most refiners should find it relatively easy to 
     comply with the MSAT standards for their conventional 
     gasoline even with an MTBE ban. Refiners facing difficult 
     meeting their MSAT standards for RFG would not decrease total 
     gasoline production, but could shift some of their RFG 
     production to conventional gasoline. Thus, the relevant issue 
     with the current MSAT standards is their effect on RFG 
     supply, not total gasoline supply.
       The new toxics performance standards in S. 950, as they 
     appear to be written, would be imposed in addition to the 
     current MSAT standards. As a result, refiners with cleaner 
     than average historic RFG would be constrained primarily by 
     the MSAT standards, while refiners with poorer than average 
     historic RFG toxics performance would be held to a new PADD 
     average toxics standard.
       We have not analyzed the impact of a regional toxics 
     standard of this type, particularly in conjunction with the 
     MSAT standards. However, as was the case with the MSAT 
     standards, the impact of the regional toxics standards would 
     be to make it relatively more difficult to produce RFG than 
     conventional gasoline. Total gasoline supply would probably 
     be little affected, but RFG supply could be affected. More 
     analysis is needed before any quantitative estimates could be 
     made.


                           d. overall impact

       Due to the lack of available analysis to quantify the 
     impact of the new toxics emission requirements on gasoline 
     supply, we cannot provide a comprehensive overall estimate of 
     the impact of the S. 950 on gasoline supply. However, the 
     combination of alkylate and iso-octane production from 
     current MTBE plants, plus the likely increase in ethanol use, 
     should more than compensate for the loss of MTBE volume. 
     Thus, based on this first order analysis, total gasoline 
     production capacity could actually increase. The toxics 
     standards primarily affect RFG production relative to 
     conventional gasoline production. Thus, whether RFG 
     production increases must await further analysis. However, 
     there appears to be a significant probability that total 
     gasoline production capacity would increase under the 
     provisions of S. 950.
                                  ____

                                                    U.S. Congress,


                                  Congressional Budget Office,

                                Washington, DC, December 21, 2001.
     Hon. James Jeffords,
     Chairman, Committee on Environment and Public Works, U.S. 
         Senate, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed statement on private-sector mandates 
     for S. 950, the Federal Reformulated Fuels Act of 2001. CBO 
     completed a federal cost estimate and an assessment of the 
     bill's effects on state, local, and tribal governments on 
     November 9, 2001.
       If you wish further details on this statement, we will be 
     pleased to provide them. The CBO staff contacts are Lauren 
     Marks and Richard Farmer, who can be reached at 226-2940.
           Sincerely,
                                                 Barry B. Anderson
                                   (For Dan L. Crippen, Director).
       Enclosure.


     congressional budget office private-sector mandates statement

     S. 950--Federal Reformulated Fuels Act of 2001
       Summary: S. 950 contains several private-sector mandates as 
     defined in the Unfunded Mandates Reform Act (UMRA). The bill 
     would impose mandates on domestic refiners and importers of 
     certain motor fuels, and on producers of the fuel additive 
     methyl tertiary butyl ether (MTBE). The most costly mandate 
     would ban the use of MTBE in motor vehicle fuel by the year 
     2006. CBO estimates that the direct costs of such a ban would 
     amount to about $950 million a year starting in fiscal year 
     2006, declining to about $600 million a year by 2008. 
     Consequently, the aggregate direct costs of all the mandates 
     in the bill would be well in excess of the annual threshold 
     established by UMRA ($113 million in 2001, adjusted annually 
     for inflation).
       S. 950 also would authorize an annual appropriation of $250 
     million to the Environmental Protection Agency (EPA) over the 
     2002-2004 period for grants to assist manufacturers of MTBE 
     to convert facilities to

[[Page 831]]

     produce fuel additives that would substitute for MTBE.
       Private-sector mandates contained in bill: S. 950 would 
     impose private-sector mandates on domestic refiners and 
     importers of certain motor fuels, and on producers of the 
     fuel additive methyl tertiary butyl ether. Specifically, the 
     bill would impose mandates by:
       Banning the use of methyl tertiary butyl ether in motor 
     vehicle fuel;
       Eliminating the waiver that allows gasoline blended with 
     ethanol to have higher evaporative properties (as measured by 
     the Reid vapor pressure) than gasoline blended with other 
     fuel additives; and
       Requiring the refining industry to comply with more 
     frequent environmental and public health testing of fuel 
     additives prior to registration of those substances.
       Estimated direct cost to the private sector: CBO estimates 
     that the aggregate direct costs of the private-sector 
     mandates in S. 950 would be well in excess of the annual 
     threshold established by UMRA ($113 million in 2001, adjusted 
     annually for inflation) starting in 2006.
     Ban the Use of MTBE in Gasoline
       Under the Clean Air Act (CAA) Amendments of 1990, areas 
     with poor air quality are required to add chemicals called 
     ``oxygenates'' to gasoline as a means of reducing certain air 
     pollution emissions. The CAA has two programs that require 
     the use of oxygenates. One program requires oxygenated fuel 
     only during winter months. The more significant of the two 
     programs is the reformulated gasoline (RFG) program. Under 
     that program, areas with severe ozone pollution must use 
     reformulated gasoline year round. Areas with less severe 
     ozone pollution may opt into the program as well, and many 
     have. Refiners in participating states are required to add 
     oxygenates to that gasoline at levels designated to improve 
     combustion and thereby, reduce pollution from motor fuel 
     emissions. Currently, about 1.3 million barrels of 
     reformulated gasoline are sold each day. One of the most 
     commonly used oxygenates is methyl tertiary butyl ether. In 
     recent years concerns have been raised about the adverse 
     effects on drinking water supplies of MTBE that leaks from 
     underground tanks.
       S. 950 would ban the use of methyl tertiary butyl ether in 
     gasoline within four years of the bill's enactment. Nearly 
     0.3 million barrels of MTBE are blended into gasoline each 
     day in this country, with about one third of that amount 
     supplied to refiners by merchant producers and the rest 
     produced by the refiners themselves or imported. Under the 
     bill, domestic petroleum refiners would no longer be able to 
     blend MTBE into gasoline and would therefore be required to 
     either produce or buy other, more costly fuel additives (such 
     as Alkylates or IsoOctane) to blend into reformulated 
     gasoline. Merchant producers would have to convert their 
     operations and begin producing alternative fuel additives, or 
     would sell MTBE abroad. Significant capital investment by 
     domestic refiners and merchant producers, including 
     conversion of MTBE plants would be required in order to 
     produce the Alkylates or IsoOctane. Importers would have to 
     acquire gasoline produced without MTBE and alternative fuel 
     additives.
       Industry studies indicate that refiners and importers may 
     initially have to pay an additional 2.5 cents to three cents 
     per gallon to supply gasoline without MTBE. The cost to 
     merchant producers of MTBE that decide to convert to the 
     production of alternative fuel additives could be about 15 
     cents per gallon of MTBE converted. For both parties, the 
     unit costs of compliance will diminish after capital 
     investments are made. CBO estimates the total cost of the 
     MTBE ban would amount to about $950 million annually starting 
     in 2006 and decline after a few years to about $600 million 
     annually.
       At this time, ten states, including California and New 
     York, have acted to completely phase-out the use of MTBE in 
     gasoline. CBO's estimate of the cost to refiners has been 
     adjusted for the fact that those states, which account for 
     more than 40 percent of reformulated gasoline sales, will 
     already be in compliance with the ban by the time the bill's 
     provisions would go into effect.
     Eliminate the Ethanol Waiver
       Under the RFG program gasoline sold in the summer months 
     must meet a Reid vapor pressure (RVP) standard that is 
     stricter than that for other gasoline. RVP, measured in 
     pounds per square (psi), indicates how quickly a substance 
     evaporates. Gasoline with a high RVP evaporates more readily 
     at a given temperature, allowing components of gasoline that 
     contribute to smog formation to escape into the atmosphere.
       S. 950 would eliminate the statutory waiver that allows 
     conventional gasoline blended with ethanol to have a higher 
     Reid vapor pressure than other gasoline. Currently, 
     conventional gasoline blended with ethanol is allowed to have 
     an RVP of 10 psi, making it more evaporative than other 
     fuels. Under the bill, ethanol-blended fuels would have to 
     achieve an RVP of 9 psi. To accommodate the change, refiners 
     who blend ethanol would reduce their use of other highly 
     evaporative components in gasoline, such as butane. It is 
     likely that those refiners (located mainly in the Midwest) 
     would continue their use of ethanol, since that additive 
     receives federal and state subsidies. According to the Energy 
     Information Administration, it would cost about 0.4 cents per 
     gallon of gasoline to eliminate enough butane to lower the 
     RVP of ethanol-blended gasoline to 9 pounds per square inch. 
     CBO therefore expects that the cost of replacing butane and 
     other evaporative blendstocks in the 0.4 million barrels of 
     ethanol-blended gasolines that are sold each day would be 
     about $65 million annually.
     Require More Frequent Environmental and Public Health Testing
       The bill would require manufacturers of fuel additives to 
     test their products regularly for any environmental and 
     public health effects of the fuel or additive, as part of the 
     registration process with the EPA. Under current law, such 
     testing occurs at the discretion of the EPA Administrator. 
     Based on information provided by the EPA on the most recent 
     round of testing, CBO expects the cost of regular testing to 
     be between $10 million and $20 million every five years, 
     which is the period of time over which the EPA expects the 
     testing to take place.
       Appropriation or other Federal financial assistance 
     provided in the bill related to private-sector mandates: S. 
     950 would authorize the appropriation of $750 million to the 
     Environmental Protection Agency over the 2002-2004 period for 
     grants to assist domestic manufacturers of MTBE to convert 
     facilities to produce substitute fuel additives instead of 
     MTBE.
       Estimate prepared by: Lauren Marks and Richard Farmer.
       Estimate approved by: David Moore, Deputy Assistant 
     Director for Microeconomics and Financial Studies Division.

                          ____________________