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                                                       Calendar No. 845
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-426
_______________________________________________________________________
                                     

                                     


                     FEDERAL REFORMULATED FUELS ACT

                                OF 2000

                               __________

                              R E P O R T

                                 of the

                              COMMITTEE ON

                      ENVIRONMENT AND PUBLIC WORKS

                          UNITED STATES SENATE

                              to accompany

                                S. 2962

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                                     


                                     

  September 28 (legislative day, September 22), 2000.--Ordered to be 
                                printed.

                                     
?

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       one hundred sixth congress

                   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


  


                            C O N T E N T S

                               __________
                                                                   Page
General statement................................................     1
Background.......................................................     2
    Federal Reformulated Gasoline Program........................     2
    Oxygenates...................................................     4
    Methyl Tertiary Butyl Ether and Water Quality................     5
    Ethanol......................................................     6
Chronology.......................................................     7
Objectives of the Legislation....................................     8
Section-by-Section Analysis:
    Section. 1. Short title......................................     9
    Sec. 2. Waiver of Oxygen Content Requirement for Reformulated 
      Gasoline...................................................     9
    Sec. 3. Authority for Water Quality Protection from Fuels....    10
    Sec. 4. Exclusion from Reid Vapor Pressure Requirement.......    11
    Sec. 5. Public Health and Environmental Impacts of Fuels and 
      Fuel Additives.............................................    12
    Sec. 6. Clean Alternative Fuel Program.......................    13
    Sec. 7. Additional Opt-In Areas Under Reformulated Gasoline 
      Program....................................................    16
    Sec. 8. Leaking Underground Storage Tanks....................    17
    Sec. 9. Analysis of Motor Vehicle Fuel Changes and Additional 
      Performance Requirements...................................    19
        Appendix I: State Legislation on MTBE Additives in 
          Reformulated Gasoline..................................    22
        Appendix II: List of Reformulated Gasoline Program Areas.    25
        Appendix III: Letter from California Governor Gray Davis.    30
        Appendix IV: Letter from EPA Assistant Administrator 
          Robert Perciasepe......................................    31
        Appendix V: Summary of State Drinking Water and 
          Groundwater Standards for MTBE.........................    36
        Appendix VI: Tests on Oxygenated Fuels Containing 
          Oxygenates Other than MTBE.............................    37
        Appendix VII: Analysis of Policy Scenarios for Reducing 
          or Eliminating MTBE....................................    41
            Letter from the Department of Energy.................    64
            Summary of State Action Scenario Requested by the 
              Senate Committee on Environment and Public Works...    65
        Appendix VIII: Chart, Comparison of Policy Options.......    67
Hearings.........................................................    67
Legislative history..............................................    68
Rollcall votes...................................................    69
Regulatory impact statement......................................    69
Mandates assessment..............................................    70
Cost of legislation..............................................    71
Additional Views of Senator Voinovich............................    72
Additional Views of Senators Lautenberg, Moynihan, and Chafee....    74
Additional Views of Senator Boxer................................    75
Minority Views of Senator Inhofe.................................    79
    Letter from J.L. Frank, Marathon Ashland Petroleum LLC.......    84
Minority Views of Senator Bond...................................    86
Minority Views of Senator Bennett................................    89
Minority Views of Senator Hutchison..............................    94
Changes to existing law..........................................    95


                                                       Calendar No. 845
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-426

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



 
                 FEDERAL REFORMULATED FUELS ACT OF 2000

                                _______
                                

  September 28 (legislative day, September 22), 2000.--Ordered to be 
                                printed.

   Mr. Smith, of New Hampshire from the Committee on Environment and 
                 Public Works, submitted the following

                              R E P O R T

                         [To accompany S. 2962]

                             together with

                     additional and minority views

    The Committee on Environment and Public Works, to which was 
referred the bill (S. 2962) to amend the Clean Air Act to 
address problems concerning methyl tertiary butyl ether, and 
for other purposes, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill, as amended, do pass.

                           General Statement

    The Reformulated Gasoline (RFG) program of the Clean Air 
Act (CAA), added to the law in 1990, required the use of 
oxygen-laden additives, called oxygenates, in RFG. To comply 
with this requirement, refiners have relied heavily on methyl 
tertiary butyl ether (MTBE). MTBE has also been used as an 
additive in conventional gasoline at lower concentrations since 
1979.
    MTBE was detected in ground water in a number of locations 
as early as the mid-1980's. This contamination was believed to 
be a minor, manageable problem until 1995, when MTBE was found 
in Santa Monica, California. MTBE contamination led to the 
closure of wells producing more than half of that city's daily 
water supply. Since that time, MTBE has been the focus of 
numerous State and Federal efforts to ban its use. Appendix I 
provides a list of State legislative activities regarding MTBE. 
Due to the fact that MTBE is used to satisfy a particular 
requirement in the CAA, eliminating its use in gasoline will 
lead to related consequences for the environment, human health, 
the supply and cost of fuel, and the future of the industries 
involved in the manufacture and supply of oxygenates.

                               Background

The Federal Reformulated Gasoline Program

    The Clean Air Act Amendments of 1990 (CAAA) established the 
RFG program as a measure to reduce the growing impact of mobile 
source emissions on air quality in urban areas. The program 
requires gasoline in the nine nonattainment areas \1\ with the 
highest ozone concentrations and a population over 250,000, to 
meet formula and performance standards that are stricter than 
standards for conventional gasoline. One additional area \2\ 
was required to use RFG in June 1996 after being redesignated 
from serious to severe. Authority was given for other 
nonattainment areas to opt-in to the RFG program at the 
discretion of the Governor of a State \3\ Opt-in areas are 
required to use RFG for a period of at least 4 years. The 
extent of the opt-in authority recently has been challenged and 
explicitly limited by the DC Circuit Court of Appeals \4\ This 
legislation expands State authority to opt-in to the RFG 
program beyond the limits the Court found in existing law. 
Areas now using RFG represent approximately 30 percent of U.S. 
gasoline consumption.
---------------------------------------------------------------------------
    \1\ Los Angeles, California; San Diego, California; Hartford, 
Connecticut; New York, New York; Philadelphia, Pennsylvania; Chicago, 
Illinois; Baltimore, Maryland; Houston, Texas; and Milwaukee, 
Wisconsin. (See Appendix II).
    \2\ Sacramento, California.
    \3\ States that opted-in areas to the RFG program include Arizona, 
Connecticut (entire State), Delaware (entire State), District of 
Columbia, Kentucky, Maine, Maryland, Massachusetts (entire State), 
Missouri, New Hampshire, New Jersey (entire State), New York, 
Pennsylvania, Rhode Island (entire State), Texas, Virginia. The 
Governors of Arizona, Maine, New York and Pennsylvania subsequently 
opted-out certain opt-in areas. See Appendix II for a complete list of 
RFG areas.
    \4\ American Petroleum Institute v. Environmental Protection 
Agency, 198 F. 3d 275 (DC Cir. 2000). The Court agreed with API, saying 
that Congress did not grant EPA the authority to interpret the opt-in 
provisions in Section 211 (k)(6) of the Clean Air Act so as to allow 
areas that are not classified or are in attainment to adopt the Federal 
RFG program via application by a Governor. Only areas that are 
designated nonattainment for one of the specified classes of 
nonattainment (marginal, moderate, serious, extreme, and severe) are 
presently allowed to implement an RFG program.
---------------------------------------------------------------------------
    The program set a variety of content and performance 
requirements, including a minimum content requirement for 
oxygen and maximum allowable benzene and heavy metal quantities 
in RFG. Through regulatory authority provided by the Act, EPA 
chose, in 1993, to adopt performance standards for toxic air 
pollutants and volatile organic compounds (VOCs) rather than 
the prescriptive fuels formula allowed under Section 211 
(k)(3)(A). These performance standards required a 15 percent 
reduction in toxic air pollutants from baseline vehicles 
\5\starting in 1995 and maintained through 1999, and require a 
22 percent reduction from baseline vehicles beginning in 2000, 
as part of Phase II. Phase II also requires reductions in NOx 
and VOCs.
---------------------------------------------------------------------------
    \5\ Baseline vehicles and fuel technology assumptions in EPA's 
complex model date from 1990, despite significant advances in vehicle 
and fuel systems technology.
---------------------------------------------------------------------------
    Motor vehicle emissions of carbon monoxide, volatile 
organic compounds, and most notably toxics have been 
drastically reduced in RFG areas. RFG use has allowed areas to 
exceed the statutory requirements to reduce toxic emissions, 
including emissions of benzene. This over-compliance is largely 
due to the dilution effect of the oxygenates MTBE and ethanol, 
relatively toxic-free additives. Although substantially toxic-
free, MTBE is listed in Section 112 of the CAAA as a hazardous 
air pollutant due to its adverse effects on human health when 
inhaled. Recent data suggest that refiners have achieved a 27 
percent or higher reduction in toxic air pollutants from the 
1990 baseline. A 1998 study by the Northeast States for 
Coordinated Air Use Management (NESCAUM) concluded that Phase 
II RFG would reduce the public cancer risk by 20 percent.
    On August 4, 2000, EPA released a proposed strategy to 
further reduce air toxics emissions from motor fuels as an 
effort to comply with its responsibility under Section 202 (l) 
of the Act to establish additional standards for fuels or 
vehicles to control hazardous air pollutant emissions. The 
strategy identifies 21 mobile source air toxics (MSATs), 
proposes a gasoline benzene control program to maintain the 
current levels of refiner over-compliance with RFG and anti-
dumping requirements, and commits EPA to revisiting additional 
fuel and vehicle MSATs controls in a 2004 rulemaking. The 
deadline in the CAAA for issuance of these regulations was June 
1995.
    There is currently no specific deadline in the Act for EPA 
to further reduce toxic air pollutants from mobile sources. The 
Agency retains general authority to control emissions from 
motor vehicles of any air pollutant that causes or contributes 
to air pollution which may reasonably be anticipated to 
endanger public health or welfare. In a discussion focused on 
maintaining air toxics reductions from the RFG program, EPA's 
Blue Ribbon Panel on Oxygenates in Gasoline specifically 
recommended that ``EPA should explore and implement mechanisms 
to achieve equivalent or improved public results that focus on 
reducing those compounds that pose the greatest risk.'' \6\ The 
Panel recognized that the current mass-based performance 
requirements in the RFG program may not adequately account for 
and consider that the different exhaust components pose 
differential risks to public health due in large part to their 
variable potency.
---------------------------------------------------------------------------
    \6\ U.S. EPA. ``Achieving Clean Air and Clean Water: The Report of 
the Blue Ribbon Panel on Oxygenates in Gasoline.'' (EPA420-R-99-021) 
Washington, DC: GPO, 1999.
---------------------------------------------------------------------------
    While the RFG program is considered a general success, 
experts acknowledge that there is some uncertainty in 
estimating the actual quantity of mobile source emissions. It 
is difficult to verify the emission reductions associated with 
the RFG program as distinct from other mobile source emission 
reduction programs. In May 2000, the National Research Council 
recommended that EPA make a number of improvements to the 
Mobile Source Emissions Factor model (MOBILE), including 
estimation of off-road vehicle emissions and incorporation of 
both mobile source toxic emissions and high-emitting vehicles. 
\7\ S. 2962 requires EPA to expedite resolution of the current 
MOBILE6 model and more regularly update MOBILE so that vehicle 
manufacturers, fuel makers, air quality planners, and Congress 
have accurate information.
---------------------------------------------------------------------------
    \7\ National Research Council. ``Modeling Mobile-Source 
Emissions.'' Washington, DC: National Academy Press, May 2000.
---------------------------------------------------------------------------
Oxygenates

    The CAAA required that 2 percent by weight of RFG be 
oxygen. This requirement was not included in this committee's 
reported version of S. 1630, the Clean Air Act Amendments of 
1989. It was added on the Senate floor after vigorous debate 
and was the only successful floor amendment. Proponents of that 
requirement had expected ethanol to be the oxygenate of choice 
for fuel providers. It was not regarded as a mandate to use 
ethanol, however, even by its sponsors. During floor debate on 
the measure, Senator Daschle stated that the oxygen standard 
was ``fuel neutral.'' Most refiners, blenders, and importers 
opted to use a cheaper and more readily available oxygenate, 
MTBE, in many nonattainment areas. MTBE currently is used in 
approximately 80 percent of RFG, while ethanol is used in 
slightly less than 20 percent of that fuel.
    In late 1993, EPA issued final regulations implementing the 
RFG program. In 1994, EPA issued another set of final rules 
that revised the RFG program. The revisions included a 
requirement that renewable oxygenates be used to meet 30 
percent of the 2 percent oxygen content requirement in RFG. The 
1994 rules were challenged by the American Petroleum Institute 
and the National Petroleum Refiners Association. The DC Circuit 
Court of Appeals decided that EPA lacked the authority to 
impose the renewable requirement and vacated the 1994 
rulemaking. \8\
---------------------------------------------------------------------------
    \8\ American Petroleum Institute v. Environmental Protection 
Agency, 52 F. 3d 1113 (DC Cir. 1995).
---------------------------------------------------------------------------
    Generally, the addition of oxygenates to gasoline allows 
for more complete fuel combustion and lowers emissions of ozone 
precursors. The oxygen content requirement formally took effect 
in 1995 and is currently satisfied by refiner use of either 
MTBE or ethanol. Today, approximately four billion gallons of 
MTBE and 380 million gallons of ethanol (EtOH) are consumed to 
meet this requirement. Most of the ethanol is produced and 
consumed in the Midwest region of the country, while MTBE use 
is concentrated in the Northeastern States, Texas and 
California. Approximately 3.5 percent of ethanol and 30 percent 
of MTBE is imported.
    In addition to use in the RFG program, ethanol and MTBE are 
used to help reduce emissions in carbon monoxide (CO) 
nonattainment areas as part of the wintertime oxygenated fuels 
program, which began in 1992. Originally, 40 CO nonattainment 
areas were required to participate in this winter fuel program. 
Today 15 areas in ten States participate. Approximately 46 
million gallons of MTBE and 240 million gallons of ethanol are 
used each year to satisfy the oxygenate requirement of this 
program.
    Section 211 (k)(2)(B) of the CAA provides EPA the authority 
to waive the oxygen content requirement for RFG, in whole or in 
part, for an ozone nonattainment area upon the determination by 
the Administrator that compliance with the requirement would 
prevent or interfere with the attainment of a National Ambient 
Air Quality Standard (NAAQS). On April 12, 1999, California 
submitted to EPA a petition requesting such a waiver. The 
waiver request letter from Governor Gray Davis is attached in 
Appendix III. EPA has not acted upon this waiver application to 
date, and, although a decision is imminent, the outcome is 
expected to be litigated. A recent letter from EPA to 
Congressman Thomas J. Bliley, Chairman of the Committee on 
Commerce, U.S. House of Representatives, explaining the status 
of the effort to respond to the waiver request is attached in 
Appendix IV. In providing the States with access to this waiver 
authority on the condition of meeting a relatively stringent 
test, and under EPA's authority under Section 211 (c)(4), 
Congress sought to balance the desire for uniformity in our 
nation's fuel supply with the obligation to empower States to 
adopt measures necessary to meet national air quality 
standards.
Methyl Tertiary Butyl Ether and Water Quality
    MTBE has been used nationwide at low levels in gasoline 
since 1979 to replace lead as an octane booster, or ``anti-
knocking'' agent. It is a fuel additive containing oxygen 
manufactured from natural gas or petroleum sources. The use of 
MTBE greatly expanded due to the oxygen content requirement of 
the RFG program described above. Demand driven by the RFG 
program caused MTBE's share of the total national gasoline 
supply to grow from 1 percent in 1990 to the current 3 percent 
level. Most of that increase has been concentrated in the 
nonattainment areas of the Northeastern States, Texas, and 
California.
    The success of the RFG program has been overshadowed in 
recent years by the discovery of MTBE in drinking water 
supplies. When leaked or spilled into the environment, MTBE can 
cause serious drinking water quality problems. MTBE moves 
quickly through ground and water without significant 
biodegredation or natural attenuation. Once in underground 
water supplies, MTBE can be detected by smell and taste at 
extremely low concentrations. Small amounts of MTBE can render 
water supplies undrinkable, but the precise human health 
effects of MTBE consumption at very low levels are unknown. In 
1997, EPA issued a drinking water advisory that recommends an 
aesthetic limit of 20 to 40 parts per billion (ppb) and a 
health limit of 70 ppb. Many States have also established 
drinking water standards for MTBE, some of which are more 
stringent than EPA's advisory. A list of State standards is 
attached in Appendix V.
    Currently, there are no comprehensive nationwide data on 
the extent of MTBE contamination. A few targeted studies have 
been conducted. In 2000, the U.S. Geological Survey completed a 
study that estimates up to 20 percent of the nation's drinking 
water supplies are at risk due to their proximity to 
underground fuel storage tanks. In 1998, Maine conducted a 
state-wide sampling that found 16 percent of tested wells 
contained some level of MTBE.
    The major sources of MTBE contamination are leaking 
underground storage tanks. Many underground storage tanks have 
been or are currently being upgraded or replaced per a recent 
deadline under a long-standing EPA regulation. Questions 
remain, however, regarding the ability of refiners, 
distributors, and manufacturers of MTBE to ensure that fuel 
storage systems are completely sealed from the environment. 
Other sources of MTBE contamination are automobile and tanker 
truck accidents, leaks from above ground tanks, leaks from 
pipelines, two-stroke water craft engine releases, storm water 
runoff, fueling over-fills, and residential releases.
    The EPA Blue Ribbon Panel recommended a suite of Federal, 
State, and local actions that could expedite remediation of 
MTBE contamination and protect water supplies from additional 
and future contamination. Cleanup is possible, but difficult 
and expensive. Contaminated water may be filtered, aerated, or 
bioremediated. MTBE may be pumped and treated or remediated in 
situ. All options require installation and use of special 
equipment as well as on-going operation and maintenance.
    States and communities are seeking financial assistance for 
the cleanup of MTBE. Existing Federal and State programs are 
not fully funded.
    Many States have enacted or are considering legislation to 
address MTBE contamination. Appendix I provides a complete list 
of all such State legislative activities. Legislation has been 
enacted to ban MTBE in several states including Arizona, 
California, Colorado, Connecticut, Michigan, Minnesota, and New 
York. EPA has started action to ban MTBE under the Toxic 
Substances Control Act, but this action could take years to 
complete. Both State and Federal efforts to ban MTBE continue 
to face questions regarding the limits of existing authority to 
ban a substance that is not yet proven to be hazardous to human 
health at anticipated levels of exposure.
    The CAA allows neither EPA nor the States to prohibit a 
fuel or fuel additive unless ``any emission product of such 
fuel or fuel additive causes, or contributes, to air pollution 
which may reasonably be anticipated to endanger the public 
health or welfare.'' MTBE, as part of the RFG program, has 
provided air quality benefits, but its role in contaminating 
water is the main problem that mitigates in favor of a ban of 
MTBE use in gasoline.
Ethanol
    Ethanol is used as an oxygenate in the RFG program and as 
an octane enhancer in conventional gasoline. Some of the 
physical and chemical properties of ethanol affect how it is 
used as a gasoline additive. The volatility of gasoline 
increases when blended with ethanol. Consequently, gasoline 
blendstocks that are prepared for blending with ethanol must 
undergo additional refinement in order to reduce volatility and 
comply with evaporative performance standards. Manufacturing 
such ``sub-RVP blendstock'' adds to the refiners' costs of 
production.
    Ethanol also is soluble in water. Since water is suspended 
in gasoline and is present in pipelines and storage tanks along 
the gasoline distribution system, ethanol blended with gasoline 
can lead to pools of ethanol and water separating from the 
gasoline. As a result, ethanol is blended at terminals and 
refinery racks as close as possible to the point of retail sale 
where it is delivered by truck. Often this involves filling a 
truck with gasoline and ethanol from separate tanks. The two 
fuels are then ``splash-blended'' by the motion of the truck as 
the truck drives to its destination. These factors create a 
need for additional infrastructure in order to distribute and 
blend ethanol into gasoline.
    Ethanol consumption, as part of the nation's total motor 
vehicle fuel use, is expected to increase as MTBE is banned by 
States and as a result of enactment of this legislation. This 
increase will, in turn, affect the nation's fuel supply and 
distribution system, air quality, and water quality. The 
Administrator and the States will have to monitor carefully 
and, as appropriate, deal with these consequences using both 
existing authorities and those established in this legislation 
to prevent economic and environmental harm.
    Ethanol can contribute to both increases and decreases of 
emissions of air pollutants. The increased volatility of 
ethanol blends of gasoline can lead to greater emissions of 
volatile organic chemicals that contribute to smog formation. 
It can also play a role in ozone formation in warm-weather 
conditions. On the other hand, ethanol is effective at reducing 
carbon monoxide emissions. Carbon monoxide is a pollutant 
regulated in cold-weather conditions because of its adverse 
health effects.
    Adding ethanol to gasoline will displace benzene and other 
aromatics and can result in a reduction in emissions of those 
toxic compounds. Exhaust emissions of acetaldehyde can increase 
by as much as 100 percent when ethanol is blended at 5 percent 
volume of gasoline. Ethanol blends typically contain 10 percent 
ethanol as a result of tax incentives. Acetaldehyde can undergo 
photochemical reactions in the atmosphere to form peroxyacetyl 
nitrate (PAN). Acetaldehyde is classified as a probable human 
carcinogen. PAN is a respiratory irritant and has been shown to 
be mutagenic in cellular research. Further study is needed to 
determine if emissions of these substances pose significant 
health risks.
    Ethanol will biodegrade more easily than other components 
of gasoline. Some laboratory data and modeling have indicated 
that this property can result in extending the plume of 
benzene, toluene, and xylene (BTEX) in leaks or spills or 
gasoline containing ethanol. The BTEX plume would not begin to 
biodegrade until the ethanol is depleted because the ethanol 
would consume all the oxygen available for biodegradation until 
it is completely broken down. This would allow more time for 
the BTEX plume to migrate in either soil or groundwater.

                               Chronology


----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
November 1990..............................  President George Bush signs S. 1630, the Clean Air Act Amendments
                                              of 1990. Public Law 101-549 added RFG program to the CAA and
                                              includes 2 percent oxygen requirement.
December 1993..............................  EPA promulgates final regulations to implement the RFG program.
June 1994..................................  EPA promulgates regulations to require 30 percent of the oxygen
                                              requirement in the RFG program be renewable oxygenates. The rule
                                              is challenged in the DC Circuit Court of Appeals and vacated by
                                              the Court in April 1995.
December 1994..............................  RFG is first sold.
May 1995...................................  United States Geological Survey reports detections of MTBE in
                                              groundwater in Denver, Colorado.
February 1996..............................  MTBE is detected in water supplies in Santa Monica, California.
                                              Seven of 11 municipal drinking water wells are closed eliminating
                                              more than half of the city's daily water production. Contamination
                                              levels range from 610 ppb to 230,000 ppb.
January 1997...............................  Monitoring program of water reservoirs begins in Southern
                                              California and leads to detections of MTBE concentrations as high
                                              as 29 ppb during the summer boating months.
December 1997..............................  U.S. EPA publishes a Drinking Water Advisory for MTBE that
                                              recommends an aesthetic limit of 20 to 40 ppb and a health limit
                                              of 70 ppb.
Spring 1998................................  Maine experiences three incidents of small gasoline spills that
                                              contaminate water supplies. In Standish, an automobile accident is
                                              linked to contamination of 24 private wells (10 contained MTBE
                                              levels in excess of 100 ppb). In Whitefield, a gasoline spill is
                                              the likely source of MTBE contamination of a well supplying water
                                              to a public elementary school with MTBE levels of 800 ppb. In
                                              Windham, surface spills and fuel over-fills at a convenience
                                              store, with up-dated double-walled tanks, contaminate nearby
                                              wells.
October 1998...............................  Maine's request to opt-out of the RFG program is granted in Federal
                                              Register notice.
March 1999.................................  California Governor Gray Davis issues Executive Order D-5-99
                                              calling for a phase-out of MTBE use in California by December
                                              2002.
April 1999.................................  California Governor Gray Davis sends letter to EPA requesting a
                                              waiver from the oxygen mandate by making the claim that compliance
                                              with the use of oxygenated fuel contributes to air pollution and
                                              hampers the State's efforts to attain the NAAQS for ozone.
September 1999.............................  EPA's Blue Ribbon Panel on Oxygenates in Gasoline issues its final
                                              report. Among its recommendations are the elimination of the 2
                                              percent oxygen mandate, maintenance of toxic emission reductions
                                              achieved by the oxygen mandate, expanding available resources for
                                              treatment of water contaminated by MTBE, and a substantial
                                              reduction in the use of MTBE.
March 2000.................................  Clinton Administration issues principles for elimination or phase
                                              down of MTBE use in fuels nationwide and increased use of
                                              renewable fuels. EPA initiates efforts to ban MTBE under the Toxic
                                              Substances Control Act.
May 2000...................................  Article is published in Environmental Science and Technology--the
                                              U.S. Geological Survey determined that 9000 wells in 31 surveyed
                                              States are at risk of gasoline contamination due to proximity to
                                              leaking underground storage tanks. Sampling was not done to
                                              determine actual MTBE contamination.
May 2000...................................  New York Governor George Pataki signs legislation banning the use
                                              of MTBE in gasoline within 3 years.
----------------------------------------------------------------------------------------------------------------

                     Objectives of the Legislation

    The bill provides Governors the authority to waive the 
mandate that RFG contain 2 percent oxygen by weight. In States 
where that waiver is exercised, the bill provides additional 
toxic emission performance standards and aromatic content 
requirements.
    The bill eliminates use of MTBE in gasoline within 4 years. 
It also provides authority to the Administrator to limit or 
eliminate use of fuels or fuel additives that cause or 
contribute to water pollution.
    The bill grants authority to States to amend State 
Implementation Plans (SIP) to prohibit application of the Reid 
Vapor Pressure (RVP) waiver for ethanol blends.
    The bill makes mandatory the Administrator's existing 
discretionary authority to require studies of fuels and fuel 
additives.
    The bill creates a program that reserves an increasing 
portion of the total motor vehicle fuel pool consumed for fuel 
that 1) reduces pollution relative to conventional fuel usage 
and 2) displaces some petroleum consumption. Compliance with 
this program occurs within the context of a market-based credit 
trading system. This program requires each refiner to 
demonstrate compliance either through the acquisition and 
retirement of credits generated by the manufacture and sale of 
clean vehicles or by blending ethanol into the fuel it 
produces.
    The bill provides explicit authority for States to opt-in 
nonclassified areas to the RFG program.
    The bill provides a one-time authorization of $200 million 
from the Leaking Underground Storage Tank Trust Fund to conduct 
corrective action with respect to MTBE.
    The bill authorizes $200 million over 6 years from the LUST 
Trust Fund for EPA and States to conduct inspections, issue 
orders, or bring actions under Subtitle I of the Solid Waste 
Disposal Act.
    The bill requires a pair of analyses of vehicle fuel 
changes and authorizes additional regulatory actions if 
warranted by the underlying analyses to ensure protection of 
human health and the environment.

                       Section-by-Section Summary

                         Section 1. Short Title

    The bill is entitled ``The Federal Reformulated Fuels 
Act.''

 Sec. 2. Waiver of Oxygen Content Requirement for Reformulated Gasoline

Summary
    Section 211 (k)(2) of current law requires RFG to contain 2 
percent oxygen by weight. That section also places other 
formula and performance requirements on gasoline to be sold as 
RFG. Section 2 of S. 2962 allows Governors to waive the oxygen 
content requirement and establishes additional performance 
standards for RFG sold in States that exercise the waiver.
Discussion
    The bill allows Governors 90 days from enactment to waive 
the oxygen requirements in Section 211 (k)(2) for RFG sold or 
dispensed within the State. The Governor must notify the 
Administrator of the waiver. States that opt-in to the program, 
including opt-in areas, are allowed to waive the oxygen 
requirement as part of the opt-in application. States with 
areas that are required to use RFG as a result of a 
reclassification are permitted 90 days from reclassification to 
waive the oxygen requirement. This relatively brief period of 
90 days for a decision by a Governor is included to provide 
refiners with ample opportunity to comply with changes in the 
RFG requirements described below before the sale of a revised 
formula of RFG is scheduled to start.
    Gasoline sold in areas that have waived the oxygen mandate 
will be required to meet all other RFG requirements. 
Additionally, gasoline sold in those areas must maintain toxics 
reductions and aromatic content achieved in areas that used 
MTBE prior to waiving the oxygen mandate. EPA is required to 
establish by regulation a new toxics performance standard based 
on the annual aggregate reductions in emissions of toxic 
pollutants in the years 1998 and 1999. A new formula 
requirement for aromatic content will be established based on 
data from the 2 years with the lowest content averages of the 
years 1998, 1999, and 2000. The new standards will be based on 
compliance survey data, annual aggregate reduction in toxic 
emissions, and annual average aromatic content of RFG 
containing MTBE. An upper bound for aromatic content will be 
determined based on the 10 percent of RFG that has been blended 
with MTBE and has contained the greatest volume of aromatic 
content.
    If the Administrator does not promulgate regulations 
establishing new performance standards based on this data 
within 270 days of enactment of S. 2962, statutory performance 
standards become effective for both emissions of toxic air 
pollutants and aromatic content of gasoline in RFG areas in 
States for which the oxygen mandate has been waived by the 
Governor. The statutory performance standard for emissions of 
toxic air pollutants is 27.5 percent below aggregate emissions 
of toxic air pollutants from baseline vehicles using baseline 
gasoline. The statutory performance standard for aromatic 
content is an annual average not to exceed 26 percent by volume 
with a per gallon maximum of 45 percent. An alternative 
statutory performance standard for aromatic content requires 
that no gallon exceed 30 percent aromatic content by volume. 
Refiners and gasoline suppliers would be able to choose the 
standard with which its products will comply.
    The statutory performance standards could be revised by 
promulgation of regulations based on the data resources 
described above. The bill does not restrict the Administrator's 
authority to promulgate more stringent requirements under 
Section 202 (l) of current law.
    The new performance standards will be applied on an annual 
average importer or refinery-by-refinery basis to all gasoline 
sold in a State for which the Governor waives the oxygen 
mandate. Credits for exceeding the performance standard will be 
provided by the Administrator in the same manner as credits 
provided under Section 211 (k)(3). The Administrator must 
ensure that the granting or transfer of credits for use in 
meeting toxics performance standards will not result in higher 
average aggregate emissions of toxic air pollutants for the 
nonattainment area in which such credits are used than would 
occur in the absence of using such credits. The performance 
standards will not apply in a State, such as California, which 
has authority to regulate motor vehicles under Section 209 (b).
    The provisions regarding performance standards for toxic 
emissions and aromatic content will prevent backsliding that 
could result from changes in refinery product use or processes 
spurred by waivers of the oxygen mandate. The arbitrary 2 
percent oxygen content mandate requires refiners to use more 
oxygenates than would be necessary to meet the other 
performance or content standards in Section 211 (k) of current 
law. Refiners could respond to waivers of the oxygen mandate by 
shifting to other high-octane components such as aromatics or 
alkylates. These substitutes can lead to increased emissions of 
toxic air pollutants, including benzene.
    EPA should expeditiously issue a final decision in response 
to the auto industry's January 1999 petition to limit the 
Distillation Index of gasoline to no greater than 1200 degrees 
Fahrenheit. Consideration of such a limit becomes more 
important as additional, and more volatile, ethanol increases 
in use.

       Sec. 3. Authority for Water Quality Protection from Fuels

Summary

    This section provides the Administrator with new authority 
to address water pollution caused by the use of motor fuel or 
fuel additives. It also eliminates the use of MTBE in gasoline 
within 4 years.
Discussion
    Section 211 (c) of the CAA allows EPA to regulate fuel and 
fuel additives that cause or contribute to air pollution. 
Section 3 of this bill expands current law to allow the 
Administrator to control fuels and fuel additives that are 
shown to cause or contribute to water pollution which may 
reasonably be anticipated to endanger the public health or 
welfare.
    Section 3 creates a ban on the use of MTBE that shall be 
effective not later than 4 years after enactment of S. 2962. No 
regulatory action is required to effect the elimination of 
MTBE. The Administrator is authorized to establish by 
regulation a schedule to phaseout the use of MTBE in gasoline. 
Use of this authority is not mandated by the bill. The 
regulatory authority does not allow any use of MTBE in gasoline 
beyond the 4 years after enactment of S. 2962.
    A savings clause in Section 3 makes clear that nothing in 
S. 2962 can be read to limit existing authority of States to 
prohibit or control the use of MTBE. Additionally, the bill 
does not grant new State authority outside of that available to 
States acting in accordance with Section 209 of the CAA.

         Sec. 4. Exclusion from Reid Vapor Pressure Requirement

Summary

    Section 4 provides State authority to prevent the 
application of the RVP waiver provided by Section 211 (h)(4) 
for ethanol blends of conventional gasoline. Using the 
authority provided by Section 4, a State can revise its SIP to 
exclude any area from a 211 (h)(4) waiver. The Administrator 
could approve a SIP revised to prohibit the application of an 
ethanol RVP waiver if the State can demonstrate that 
application of the waiver significantly interfered with 
attainment or maintenance of the NAAQS for ozone.

Discussion

    Blending ethanol with gasoline increases the RVP, a measure 
of volatility, of gasoline. Under certain conditions gasoline 
with a higher RVP will lead to increased evaporative emissions 
of hydrocarbons that can exacerbate air quality problems unless 
the base gasoline has been refined sufficiently to accommodate 
the addition of ethanol. Manufacturing such a ``sub-RVP 
blendstock'' adds to the refiners' costs of production. Many 
factors interact to increase or reduce the probability of a 
higher RVP fuel leading to a reduction in air quality. Under 
current law, RVP limits are either required or recommended for 
most of the fuel sold in the nation.
    Since Section 2 and Section 6 of S. 2962 are likely to 
result in significant increases in ethanol consumption over 
time in attainment and nonattainment areas, the expanded 
authority in this section is necessary to provide States with 
the means to prevent any related increase in VOC emissions.
    A State could use the authority in this section to 
demonstrate that circumstances present in an area of the State 
cause ethanol fuel blends, subject to the 211 (h)(4) waiver, to 
interfere with efforts to attain or maintain the ozone NAAQS. 
Based on such a demonstration, a revised SIP, once approved, 
would prohibit the application of the waiver in 211 (h)(4). 
This criteria for SIP approval is intended to be less stringent 
than the criteria currently found in Section 211 (c)(4)(c), 
e.g., a State would not need to show that no other reasonable 
or practicable means exist to bring about timely attainment.

   Sec. 5. Public Health and Environmental Impacts of Fuels and Fuel 
                               Additives

Summary

    The bill directs the Administrator to require tests to 
determine potential public health effects of fuels or fuel 
additives prior to registering the fuel or fuel additive for 
use. Studies under this provision will be conducted on a 
regular basis.
Discussion
    The existing law allows the Administrator to require fuel 
producers to conduct tests to determine the health and 
environmental effects of new fuels and fuel additives. This 
provision makes such testing mandatory prior to registration 
and use.
    The Administrator should use this authority to identify and 
assess any adverse public health, welfare, or environmental 
effects from the use of motor vehicle fuels or fuel additives 
or the combustion products of such fuels or fuel additives. The 
Administrator should use the authority to assess threats to 
both air pollution and water pollution in order to effectively 
exercise the authority in Section 211 (c) as amended by this 
legislation. This provision is intended to prevent situations 
such as the one presented by MTBE contamination of water 
supplies from recurring.
    To avoid such recurrences, the Blue Ribbon Panel on 
Oxygenates in Gasoline recommended that EPA and others 
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 on gasoline compositions containing those 
components.
    EPA has provided a list of fuel and fuel additive testing 
which is now underway, pursuant to Section 211 requirements, 
and which the Agency has indicated is responsive to the Blue 
Ribbon Panel recommendations. See Appendix VI for the list of 
on-going studies. This testing is designed to provide specific 
information on MTBE and five other oxygenates as well as 
conventional gasoline containing typical gasoline components 
that would substitute for oxygenates.

                 Sec. 6. Clean Alternative Fuel Program

Summary

    Section 6 creates a program that reserves an increasing 
portion of the total motor vehicle fuel pool consumed for fuel 
that 1) reduces pollution relative to conventional fuel usage 
and 2) displaces some petroleum consumption. Compliance with 
this program occurs in the context of a market-based credit 
program. Each fuel supplier has the option of blending a 
quantity of renewable fuel into the fuel it sells, purchasing 
and using credits generated by the manufacture and sale of 
zero-emission or ``super ultra-low'' emission vehicles, or a 
combination of both. The Administrator may also provide for 
transfer of credit generated by renewable fuel use above levels 
required by this bill.
    This section provides that motor vehicle fuel sold 
beginning in 2008 shall, on a 6-month average basis, be 
comprised of a quantity of clean alternative fuel. Measured in 
gasoline equivalent gallons, the percentage shall be 1.2 in 
2008 and increase by 0.1 percent each year to reach 1.5 for 
2011 and thereafter.
    Section 6 creates a transition program for the period after 
enactment of S. 2962 and prior to commencement of the Clean 
Alternative Fuel program (2002-2007). During this period motor 
vehicle fuel sold shall contain a quantity of renewable fuel. 
The applicable percentage of renewable fuel shall be 0.6 in 
2002 and increase by 0.1 percent each year to reach 1.1 percent 
in 2007. Credits that qualify for use in the Clean Alternative 
Fuel program could be used in the transition period to satisfy 
not more than 10 percent of the applicable percentage of 
renewable fuel.
    This section provides a waiver from the requirements of the 
Clean Alternative Fuel program and the transition program upon 
a petition by one or more States, if the Administrator, after 
consultation with the Secretary of Energy and the Secretary of 
Agriculture, determines that those requirements would severely 
harm the economy or environment of a State, region, or the 
United States, or that there is an inadequate domestic supply 
or distribution capacity to meet those requirements.

Discussion

    Section 6 establishes a marketplace for competition between 
alternate methods of satisfying the requirements of the 
program. Competitors are given access to the market only on the 
basis of manufacturing and selling vehicles that emit very 
little or no air pollutants. Those vehicle sales generate 
credits based on the extent that the vehicles minimize the 
reliance on petroleum as a fuel source. Credits generated in 
this manner could be bought and sold, or otherwise transferred. 
Credits could be acquired and used to satisfy a petroleum 
company's obligation under the Clean Alternative Fuel program. 
A petroleum company could also satisfy its obligations by 
selling fuel that contains or is comprised of a quantity of 
renewable fuel, including ethanol, sufficient to satisfy the 
applicable percentage of clean alternative fuel, and generate 
credits if it exceeds the applicable percentage. Section 6 does 
not require any demonstration that the use of renewable fuels, 
including ethanol, would significantly reduce either the 
emissions of air pollutants or the use of petroleum. Additional 
study is needed to identify the extent and circumstances under 
which renewable fuel might contribute to these goals.
    For the purpose of this section, renewable fuel is defined 
to mean a motor vehicle fuel produced from grain, starch, 
oilseeds, or other biomass, or is a natural gas from a biogas 
source, and is used to replace or reduce the quantity of fossil 
fuel present in a fuel mixture used to operate a motor vehicle.
    The Administrator shall issue a regulation governing the 
generation of credits by a vehicle manufacturer that could be 
used to satisfy the applicable percentages of clean alternative 
fuel and renewable fuel in this section. Credits will be 
calculated primarily upon the vehicle's expected lifetime 
displacement of petroleum consumption. In establishing the 
credits, the Administrator may give consideration to the use of 
innovative, advanced, and alternative fuel technologies.
    The credits generated will be a monetizable asset created 
by the manufacture and sale of a vehicle that meets the Bin 1 
or Bin 2 definitions in this section. A Bin 1 vehicle is a 
light-duty motor vehicle that emits no air pollutants or a 
heavy-duty motor vehicle that meets equivalent standards as 
determined by the Administrator by regulation. A Bin 2 vehicle 
is a light-duty motor vehicle that does not exceed the 
standards for the category of motor vehicle with the least 
emissions of any vehicle with an emissions profile. A Bin 2 
vehicle is also a heavy duty motor vehicle that emits not more 
than 50 percent of the allowable emissions of air pollutants 
under the most stringent standards applicable to heavy duty 
motor vehicles in the year the credit is generated. The term 
``most stringent standards applicable'' includes the vehicle 
emissions standards for heavy duty engines approved by the 
United States District Court for the District of Columbia in 
consent orders settling litigation between the U.S. Department 
of Justice, EPA, and several heavy duty diesel engine 
manufacturers.
    The proceeds of the sale of credits could, but are not 
required to, be used to reduce or offset the costs associated 
with the production, promotion, or sale of the vehicles that 
meet the definitions in Section 6. A person that generates 
credits may use the credits or transfer all or a portion of the 
credits to another person. Credits, or proceeds from the sale 
or transfer of credits, may be transferred to a person, 
nonprofit entity, or local government to provide any portion of 
the non-Federal share required for an alternative fuel project 
under the Congestion Mitigation and Air Quality Improvement 
(CMAQ) program (Section 149 (e)(4) of title 23 U.S.C.) or a 
voluntary supply commitment under the Clean Cities program 
authorized in the Energy Policy Act of 1992 (42 U.S.C. 13255). 
In the case of CMAQ, credits may be transferred directly from 
the manufacturer to the Federal Government, and their market 
value would correspondingly reduce the local match requirements 
for alternative fuel projects.
    Section 6 provides for petitions singly or jointly by 
States to the Administrator to waive the applicable percentages 
in whole or in part. Waiver petitions will be evaluated on the 
basis of a demonstration that the applicable percentages would 
severely harm the economy or environment of a State, a region, 
or the United States, or a demonstration of an inadequate 
domestic supply or distribution capacity to meet the 
requirements of this section.
    The waiver authority of the bill should be exercised to 
avoid the use of ethanol in cases when it would cause 
substantial harm to the environment. While ethanol can provide 
important environmental benefits, it can also have 
environmental drawbacks. For example, in certain areas of the 
country, ethanol use can complicate reduction of summertime 
ozone. Some tests indicate that ethanol use may increase 
tailpipe emissions of nitrogen oxides. Similarly, because 
ethanol is only produced in certain regions of the country, 
some states may experience supply dislocations. These 
dislocations should be avoided through use of the waiver 
authority.
    If any petitions are granted, the Administrator, after 
consultation with the Secretary of Agriculture and the 
Secretary of Energy, shall reduce the applicable national 
percentage accordingly. The Administrator, and other relevant 
agencies, should collect and maintain accurate data on fuel 
price and supply, fuel related emission inventories, and ozone 
and particulate matter formation from changes in fuel use in 
order to act on any waiver requests in a timely fashion.
    Based on data in the Administration's analyses provided at 
the committee's request, industry projections, and staff 
discussions with EPA and California Air Resources Board (CARB), 
ethanol consumption in motor vehicle fuel could nearly triple 
from today's levels by 2011 under S. 2962. This increase may be 
less due to the generation and use of credits from the 
manufacture and sale of extremely clean, alternative fuel 
vehicles. The Administration's analyses, including a separate 
base case scenario completed by the Department of Energy, are 
attached in Appendix VII.
    The significant changes in the nation's motor fuel supply 
system contemplated by the bill are likely to affect gasoline 
cost no later than 2003. There is no existing model of the 
national fuel supply system that can adequately and accurately 
account for all the variables involved in projecting such cost 
effects. Still, available estimates of the average gasoline 
cost impact of increasing ethanol use, employing the flexible 
approach to market growth in this bill, indicate an additional 
3-5 cents per gallon by the year 2005 is probable. Should the 
bill not be enacted, multiple States ban MTBE, and the oxygen 
content requirement is not made optional, the Administration's 
analysis suggests that gasoline could be as much as 7-8 cents 
per gallon more in 2005 than is otherwise expected. A graphic 
representation of these cost effects is included in Appendix 
VIII. The aforementioned Administration's analyses also include 
projections of total ethanol demand under various probable 
scenarios.
    Current ethanol use reduces contributions into the Highway 
Trust Fund by approximately $1 billion annually. This reduction 
is due to the 5.4 cent exemption that ethanol, of a 10 percent 
fuel blend, receives from the 18.4 cents per gallon Federal 
excise tax imposed on gasoline and the diversion of 3.1 cents 
of the excise tax collected on ethanol fuels to general 
revenue. The 5.4 cent exemption diminishes to 5.1 cents over 
the next 6 years, then expires in 2007.
    This legislation is likely to increase ethanol consumption 
and will therefore reduce contributions into the Highway Trust 
Fund accordingly, assuming no change in tax law. Based on 
informal Administration projections, this legislation will 
first result in an observable increase in on-road consumption 
of ethanol in 2004. This increase will have an effect on the 
apportionments and allocations of state obligation authority 
beginning in 2006, given existing Federal Highway financing 
methods. The Transportation Equity Act for the 21st Century 
(TEA-21) is due to be reauthorized by the end of 2003, so this 
committee and Congress will need to address the impacts on the 
Highway Trust Fund created by the changing fuel system prior to 
that time.
    The adverse impact of this tax exemption on the Highway 
Trust Fund has been a topic of committee hearings and was 
debated during committee action on this legislation. The 
committee expects the General Accounting Office and the U.S. 
Department of Transportation to provide additional data on the 
impacts of this bill prior to the expiration of TEA-21.
    The bill does not provide a market guarantee for any 
specific fuel, given the waiver opportunities incorporated 
herein for economic and environmental harm and the open 
competition for the fuel requirements starting in 2008. The 
Administrator, in cooperation with other relevant agencies 
within the executive branch and after consulting with 
interested members of the public and the appropriate 
industries, should estimate annually the number of vehicles 
meeting the definitions under this bill which may be 
manufactured in the near future and the quantity of credits 
that would be thereby generated and available for sale or 
transfer. Such estimates will enhance competition and assist 
refiners in meeting the fuel requirements imposed by this 
legislation in an informed manner.

  Sec. 7. Additional Opt-In Areas Under Reformulated Gasoline Program

Summary

    This section of the bill provides explicit authority to 
States that allows nonclassified areas to opt-in to the RFG 
program.

Discussion

    Currently, 17 States and the District of Columbia rely on 
the RFG program as an emissions control strategy. Appendix II 
provides a complete list of all RFG areas. The CAAA mandated 
use of RFG in nine areas \9\ One additional area \10\ was 
required to sell RFG beginning in June 1996 after being 
redesignated from serious to severe. Several States \11\ have 
exercised the opt-in authority of Section 211 (k)(6) to require 
the use of RFG. Opt-in areas are required to use RFG for a 
period of at least 4 years. The Act limits opt-in actions to 
areas that previously violated the 1-hour ozone NAAQS and are 
classified according to their current status in relation to 
attainment of the NAAQS. States expend considerable resources 
in an effort to avoid violating the NAAQS because of the 
stringent requirements imposed on nonattainment areas by the 
CAA. This section allows use of the RFG program for those areas 
that seek to use it as an emissions control technique in the 
State's strategy for avoiding new violations of the NAAQS. 
Under this provision, once the SIP revision is approved the 
area will be a covered area under the Federal program. The SIP 
revision may include a waiver of the oxygen content requirement 
under Section 2 of this bill.
---------------------------------------------------------------------------
    \9\ Los Angeles, California; San Diego, California; Hartford, 
Connecticut; New York, New York; Philadelphia, Pennsylvania; Chicago, 
Illinois; Baltimore, Maryland; Houston, Texas; and Milwaukee, 
Wisconsin.
    \10\  Sacramento, California.
    \11\ States that opted-in to the RFG program include Connecticut 
(entire State), Delaware (entire State), District of Columbia, 
Kentucky, Maryland, Massachusetts (entire State), Missouri, New 
Hampshire, New Jersey (entire State), New York, Rhode Island (entire 
State), Texas, Virginia. The Governors of Arizona, Maine, New York and 
Pennsylvania opted-out certain opt-in areas.
---------------------------------------------------------------------------

               Sec. 8. Leaking Underground Storage Tanks

Summary

    The bill authorizes appropriations not to exceed $200 
million from the Leaking Underground Storage Tank (LUST) Trust 
Fund to be used for cleanup and treatment of MTBE. The bill 
also authorizes $200 million over 6 years from the LUST Trust 
Fund for EPA and States to conduct inspections, issue orders, 
or bring actions under Subtitle I of the Solid Waste Disposal 
Act.

Discussion

    In 1984, Congress enacted, as Subtitle I of the Solid Waste 
Disposal Act, a comprehensive program to address the problem of 
leaking underground storage tanks. Among other things, the 
program required EPA to develop leak detection and prevention 
standards for underground storage tanks (USTs), and authorized 
the Agency to compel tank owners and operators to take 
corrective action to clean up leaking tanks and comply with 
standards for USTs, or to close them. States have largely taken 
the lead in implementing and enforcing the program 
requirements, including corrective action requirements.
    States receive Federal funds from the LUST Trust Fund, 
which is paid for by a one-tenth of one cent tax on all 
petroleum products, to carry out the requirements. This tax 
generates approximately $170 million per year, and the interest 
on the principal in the fund generates approximately $70 
million annually (roughly the amount of annual appropriations 
from the LUST Trust Fund). Amounts are appropriated each year 
from the Trust Fund for the States and EPA to implement and 
enforce the UST corrective action requirements; to conduct 
cleanups in certain limited situations where there is no 
financially viable responsible party or where a responsible 
party fails to undertake the appropriate corrective action; to 
take corrective action in cases of emergency; and to bring cost 
recovery actions against parties to seek reimbursement of costs 
expended from the Fund to clean up sites. The balance of the 
trust fund is approximately $1.3 billion. The annual 
appropriation from the LUST Trust Fund for fiscal year 2001 is 
expected to be approximately $72 million. Congress has 
appropriated approximately $10 million per year from general 
revenues for State implementation of leak prevention and 
detection programs. In addition to the Federal LUST Trust Fund, 
many States have also established funds, capitalized through 
State gas taxes, fees, and other mechanisms, to pay for 
cleanups and to provide assistance to tank owners in complying 
with other requirements. States spend approximately $1 billion 
per year from their trust funds. However, in recent years, the 
claims against those funds have risen dramatically.
    While over a million leaking USTs have been closed under 
this program, EPA estimates that there are currently over 
740,000 active USTs containing petroleum products. Some of 
these tanks have leaks, causing potential harm to human health 
and the environment. A number of recent, high profile 
contamination cases have highlighted the problem. MTBE has been 
detected at thousands of leaking UST sites. In some cases, 
drinking water wells have been closed due to these releases of 
MTBE. According to EPA, States have reported more than 400,000 
confirmed releases from USTs. Cleanups have been initiated for 
approximately 357,000 releases and almost 242,000 cleanups have 
been completed. In spite of this progress, many thousands of 
cleanups remain to be completed. EPA, States, and the private 
sector have suggested that lack of resources, both for cleanup 
and for inspections and enforcement, have limited efforts to 
fully address MTBE contamination and leaking USTs. Section 8 of 
this bill addresses these concerns.
    Section 8(a) reconfirms the authority of the Administrator 
and the States to use funds from the LUST Trust Fund for the 
cleanup of sites contaminated by MTBE from leaking USTs. In 
addition, Section 8(a) authorizes the Administrator and the 
States to conduct such cleanup activities using specifically 
designated funds made available under new Section 9011(a) from 
the LUST Trust Fund. In order to undertake a corrective action 
under this subsection, the Administrator or a State must still 
comply with the requirements of Section 9003 (h)(2) of the 
Solid Waste Disposal Act. States are to exercise this authority 
in accordance with their cooperative agreements.
    Because MTBE can be detected in groundwater at relatively 
low levels, which in turn makes the water unpalatable, but not 
necessarily harmful, for drinking water purposes, this section 
amends Section 9003 of the Solid Waste Disposal Act to clarify 
that the Administrator and the States may undertake corrective 
actions whenever the presence of MTBE in groundwater presents a 
threat to public welfare. This clarification is intended to 
reaffirm the authority of the Administrator and States to 
undertake corrective actions with respect to release of MTBE to 
groundwater, even in situations where the level of MTBE is not 
so high as to present a threat to human health.
    Section 8(b) amends Subtitle I of the Solid Waste Disposal 
Act by creating a new Section 9010 giving States greater 
flexibility in their use of LUST Trust funds. New Section 9010 
authorizes EPA and the States to use funds appropriated from 
the LUST Fund to conduct inspections, issue orders, or bring 
actions under Subtitle I. This increased funding for 
inspections and enforcement-related activities will enable 
States and EPA to secure greater compliance which, in turn, 
will avoid future releases and resulting cleanup costs. It will 
also help protect human health and the environment. Funding 
authorized under this section is for both formal enforcement 
actions, such as judicial actions and administrative orders, 
and related measures to secure compliance, such as notices of 
violation or warnings. In addition, funds authorized under this 
provision may be used for cost recovery.
    This section is not intended to change current law on State 
authority under authorized programs or Federal authority to 
enforce the requirements of Subtitle I. Nor does this provision 
affect EPA's authority to use other funds to enforce the UST 
program. EPA receives funding from sources other than the LUST 
Trust Fund to undertake inspection and enforcement related 
activities for leak detection and other preventive 
requirements. Any LUST Trust Fund appropriations used for such 
enforcement activities by EPA are expected to supplement funds 
that the Agency has been, and will be, receiving from sources 
other than the LUST Trust Fund.
    In addition to authorizing funding for States and EPA for 
federally authorized programs, this section authorizes States 
to use funds to undertake inspection and enforcement related 
actions for State tank leak detection, prevention and other 
requirements through State programs where requirements are 
similar or identical to Subtitle I. State agencies currently 
receive funding from EPA from sources other than the LUST Trust 
Fund to undertake such activities for leak detection and other 
preventive requirements. It is expected that States will 
continue to receive funding from EPA from these other sources, 
as well as from the LUST Trust Fund, for these activities. Any 
LUST Trust Fund appropriations used for enforcement related 
activities by States should supplement funds that the States 
have been receiving, and will continue to receive, through 
grants authorized under Section 2007 (f).
    Section 8(b) also creates a new Section 9011 to increase 
the levels of authorized funding for measures related to 
corrective actions and enforcement. This section authorizes 
appropriations for two major and equally important activities--
to fund an immediate need to address MTBE which is currently 
coming from leaking underground tanks and is creating problems 
in numerous drinking water wells, and to facilitate inspection 
and enforcement activities to avoid similar problems being 
created in the future. Section 9011 (1) authorizes a one-time 
appropriation of $200 million for corrective actions with 
respect to MTBE. The bill authorizes substantial funding to 
clean up MTBE contamination in recognition of the fact that 
this problem has arisen, in part, as a result of increased use 
of MTBE by refiners in an effort to meet Federal oxygenate 
requirements. Section 9011 (2) authorizes an additional $200 
million over the period between fiscal years 2001 through 2006 
to conduct inspections, or issue orders or bring actions under 
Subtitle I. There is broad consensus that more resources are 
needed to conduct inspections to ensure that underground tanks 
comply with applicable regulations and to ensure early 
detection of leaks and other problems. EPA has estimated that 
it would cost approximately $93 million over what is currently 
appropriated for the first year, and $70 million each year 
thereafter, to inspect facilities on an annual basis. A 
biannual inspection schedule would cost approximately $63 
million over what is currently appropriated for the first 2 
years combined, and $20 million additional annually thereafter.

     Sec. 9. Analyses of Motor Vehicle Fuel Changes and Additional 
                        Performance Requirements

Summary

    Section 9 requires the Administrator to publish an analysis 
of the changes in emissions of air pollutants and air quality 
due to the implementation of the provisions in S. 2962. The 
analysis will examine changes in all motor vehicle fuels and 
fuel additives and will attempt to identify and quantify any 
increase in emissions or air pollution caused by implementing 
this bill. A draft analysis will be published within 4 years of 
enactment, and a final analysis will be published within 5 
years of enactment. The Administrator should include in the 
analysis consideration of direct and evaporative emissions from 
the use of these fuels and fuel additives, as well as 
combustion by-products, in on-road and off-road vehicles.
    S. 2962 directs the Administrator to promulgate regulations 
to establish performance requirements to address any 
significant changes in motor vehicle emissions or air quality 
from a baseline period of 1998 through 2000. The regulations 
are required to ensure that, as compared with emissions in the 
baseline period, emissions from motor vehicle fuel or fuel 
additives will not be significantly greater on a per gallon 
average basis in any region or cause air quality to be 
significantly worse in any region. A more than de minimus 
increase in contribution to any criteria or toxic air pollutant 
is presumed to worsen air quality unless the Administrator 
determines that other factors ameliorate the effect of such 
increases.
    Section 9 also requires analysis of the mobile source title 
of the CAA and regulations promulgated based on authority in 
that title, including changes made to that title by S. 2962. 
The analysis will be of the effects on public health and the 
environment of motor vehicle fuel and fuel additives. A draft 
analysis will be published within 7 years of enactment of S. 
2962. A final analysis will be published within 8 years of 
enactment of S. 2962.
    Section 9 directs the Administrator to promulgate 
additional performance requirements within 10 years of 
enactment of S. 2962. The additional requirements will apply to 
motor vehicle fuel and fuel additives, to their use, and to 
motor vehicles. Additional requirements will be promulgated 
both to ensure adequate protection of human health and the 
environment and to achieve specific reductions in the use of 
compounds or emission products that pose the greatest risk to 
human health. In determining the effects of motor fuel and fuel 
additives on public health and the environment, the analyses in 
Section 9 will be required to take into account the entire life 
cycle of the production, distribution, and use of motor vehicle 
fuel and fuel additives.
    Section 9 requires the Administrator to develop and 
finalize an emissions model that reasonably reflects the 
effects of characteristics or components of motor vehicle fuel 
or emissions from vehicles in the motor vehicle fleet during 
calendar year 2005.

Discussion

    Section 211 (c) of the CAA, as amended by Section 3 (a)(1) 
and (2) of this legislation, provides the Administrator with 
the authority to regulate, control, or prohibit the 
manufacture, introduction into commerce, offering for sale or 
sale of any fuel or fuel additive, if, in the judgment of the 
Administrator, any fuel or fuel additive or emission product 
causes or contributes to air pollution or water pollution that 
may reasonably be anticipated to endanger the public health or 
welfare. The bill requires the Administrator to exercise this 
authority and interprets a ``significant worsening of air 
quality or a significant increase in emissions'' as a 
circumstance that would ``reasonably be anticipated to endanger 
the public health or welfare.'' The bill also adds ``water 
quality'' as an environmental protection criterion in Title II 
of the Act.
    Section 202 (a) of the CAA requires the Administrator to 
prescribe by regulation standards applicable to the emissions 
of any air pollutant from any class of motor vehicles which, in 
the Administrator's judgment, causes or contributes to air 
pollution which may reasonably be anticipated to endanger 
public health or welfare. Such regulation provides for time for 
the appropriate technology development, giving consideration to 
the cost of compliance. The bill requires the Administrator to 
exercise this authority and interprets ``adequate protection of 
public health and the environment'' as a charge substantially 
similar to the Act's protection of ``public health or 
welfare.''
    In addition, Section 202 (l) requires the Administrator to 
exercise the authorities in Sections 211 (c) and 202 (a) and to 
promulgate, and from time to time revise, regulations 
containing reasonable requirements to control hazardous air 
pollutants from motor vehicles and fuels. The regulations must 
reflect the greatest degree of reductions achievable, 
considering cost and projected available technology, and must 
focus on those categories of emissions that pose the greatest 
risk to human health or about which significant uncertainties 
remain.
    The emissions model currently used by EPA to determine 
compliance in both the RFG and conventional anti-dumping 
gasoline programs is called the complex model. It uses 1990 
average gasoline quality and 1990 model year motor vehicle 
technology as its baseline, and models how changes in gasoline 
qualities change emissions of these vehicles compared to 1990 
gasoline. For purposes of this provision, EPA is authorized to 
update its complex model to address changes in motor vehicle 
technology since 1990. The motor vehicle fleet in calendar year 
2005 will be different from model year 1990 vehicles. The 
updated model is expected to contain a mix of technologies 
with, for example, the newer Tier 2 technology entering the 
fleet.
    Developing an emissions model that reflects the actual mix 
of motor vehicle technologies in the fleet during calendar year 
2005 allows EPA to reasonably determine the change in emissions 
between 1998-9 and 2005-6 due to changes in gasoline, as the 
2005 calendar year fleet should still contain the kinds of 
technologies found in the prior years, although with a 
different mix of technologies. EPA should work with a 
consortium of the automobile and oil industries and other 
interested and qualified parties to design and conduct the 
extensive vehicle and fuel combination testing that will be 
necessary to update the complex model, as was done in 
developing the current complex model.
    Once EPA has developed this updated complex model, it may 
be useful for other related applications, such as emissions 
modeling for State planning. Under this provision, EPA also has 
the discretion to use the updated model in the RFG and 
conventional gasoline programs, including future RFG 
rulemakings, where doing so would not be inconsistent with the 
provisions of Section 211 (k).

                               APPENDIX I


                          STATE LEGISLATION ON MTBE ADDITIVES IN REFORMULATED GASOLINE
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Arizona.....................................  FINAL ACTION.
                                              Arizona will ban the MTBE no later than 180 days after California
                                               completes its phaseout of MTBE on December 31, 2002, according to
                                               Senate Bill 1504 (HB 2386), which was recently approved by the
                                               Governor.
California..................................  FINAL ACTIONS.
                                                In March 1999, California became the first State to
                                               officially ban MTBE when Governor Gray Davis issued an executive
                                               order for a three-year phase out of the gasoline additive.
                                                California SB 989 codified the Governor's executive
                                               order for the phase-out of MTBE. The legislature also required
                                               that refiners submit quarterly reports to detail the amount of
                                               MTBE used in gasoline and how the amount compares to last year's
                                               use.
                                                MTBE has shown up in hundreds more underground fuel
                                               links in and water quality experts have raised their estimate of
                                               the number of MTBE spills from 4,500 to nearly 6,600, a nearly 32
                                               percent increase over the past year.
Colorado....................................  FINAL ACTION.
                                              Colorado's Governor recently signed SB 190 into law, which
                                               mandates a phasing out of MTBE by April 30, 2002. In areas where
                                               MTBE is not currently sold or stored which includes Denver and
                                               the rest of the Front Range of the Rocky Mountains the additive
                                               will be banned immediately.
Connecticut.................................  FINAL ACTION.
                                              SB 571 (signed by Governor 6/1/2000) will phase out the use of
                                               MTBE as a gasoline additive over a five-year period, and increase
                                               penalties for the unlawful discharge of gasoline.
Delaware....................................  The legislature is studying the groundwater problem, but as of
                                               now, no resolutions have passed or been proposed to phase out
                                               MTBE. (Source at the Department of Environmental Control)
Florida.....................................  Florida has been monitoring its public water system for MTBE since
                                               the early 1990's; MTBE has not yet been found in amounts
                                               exceeding the EPA guidelines. No MTBE legislation has passed as
                                               of the present.
Hawaii......................................  FINAL ACTION.
                                              The Governor recently vetoed Hawaii HB 3021 (passed House and
                                               Senate) which would have banned MTBE by July 1, 2001.
Illinois....................................  FINAL ACTION.
                                              A proposal to ban MTBE was blocked on 4/11/2000 in an Illinois
                                               House committee. Rep. Bill Mitchell, (R-Forsyth), proposed the
                                               original amendment to Senate Bill 1046 that would have banned
                                               MTBE in Illinois by 2001.
                                              PENDING ACTION.
                                              Other resolutions have urged Congress and the executive branch to
                                               take immediate steps to ban MTBE.
Iowa........................................  FINAL ACTIONS.
                                                Iowa HB 2294 died in committee. It would have prohibited
                                               the sale of MTBE, but would have permitted the sale or storage of
                                               an ``incidental amount'' of MTBE if the Department of Natural
                                               Resources found no threat to public health/ environment.
                                                A resolution has been considered to urge Congress or the
                                               State's congressional delegation to change the Clean Air Act to
                                               phase out MTBE.
Kentucky....................................  FINAL ACTIONS.
                                                House Resolution 151, passed 3/23/2000, recognized the
                                               benefits of ethanol as an effective alternative to MTBE.
                                                HB 849, which would have banned the use of MTBE, died in
                                               committee with the end of the legislative session.
                                                Senate Joint Resolution 68, which urged KY's
                                               congressional delegation to support changes to the Clean Air Act
                                               that would allow the State to opt out of the Federal RFG program,
                                               passed in the Senate, but died in committee.
Maryland....................................  FINAL ACTIONS.
                                                Legislation has been enacted creating a State Task Force
                                               to investigate the contamination of water supplies MTBE and to
                                               examine potential health effects. (HB 823)
                                                Environmental officials have found the gasoline additive
                                               MTBE in 66 of the 1,060 public water systems in Maryland they
                                               investigated (03/08/2000).
Massachusetts...............................  FINAL ACTIONS.
                                                Resolution against MTBE failed in the legislature.
                                                Although no ban is likely to be proposed, the Dept. of
                                               Environmental Affairs is working with regional groups to monitor
                                               water contamination and to eventually phase out MTBE additives.
                                               NESCAUM, a coalition of New England regions, is the principle
                                               organization working to monitor the situation.
Michigan....................................  FINAL ACTION.
                                              On June 15, 2000, Michigan's Governor signed into law HB5570,
                                               which bans MTBE beginning 1/1/2003, and directs the department of
                                               environmental quality to study the environmental and health
                                               effects of MTBE.
Minnesota...................................  FINAL ACTION.
                                              Minnesota HB 3131, a complete ban on MTBE, died in committee at
                                               the end of this legislative session. However, SB2946, which
                                               instead limits MTBE content in gasoline to 1/3 of one percent by
                                               weight, and requires that MTBE be phased out by July 2005, was
                                               signed into law. (Codified in Chapter 434)
Missouri....................................  FINAL ACTIONS.
                                                Concurrent resolutions in the legislature urged the
                                               governor to exercise the State's right to opt out of the RFG
                                               program until a safe substitute for MTBE is identified (e.g., HCR
                                               32, HCR 14).
                                                Thus pressed by the Republicans, the Governor issued an
                                               executive order which will ban MTBE after the EPA and Congress
                                               meet certain conditions. These conditions include: a requirement
                                               that the EPA provide a waiver for Missouri from provisions in the
                                               Clean Air Act and the reformulated gasoline program (RFG); a
                                               requirement that Congress prevent price increases or a decline in
                                               air quality that could result from an MTBE ban; and assurance
                                               from Congress that Missouri will not lose Federal highway funds
                                               because of its ban of MTBE.
                                                SB 966 (HB 1801), which was to codify the Governor's ban
                                               on MTBE, died in committee at the end of the legislative session.
                                              PENDING ACTION.
                                              Missouri lawmakers are also urging quick action at the Federal
                                               levels to ban MTBE and to promote ethanol as a replacement. (03/
                                               29/2000)
Nebraska....................................  FINAL ACTION.
                                              The much-talked-about ethanol mandate in Nebraska appears to be
                                               finished for this year, and thus Gas station owners will not be
                                               required to sell an ethanol blend. The ethanol mandate instead
                                               evolved into a ban of MTBE (LB 1234), which was approved by the
                                               Governor on 4/12/2000.
New Hampshire...............................  FINAL ACTIONS.
                                                In 1999, New Hampshire signed three actions on MTBE into
                                               law; HB 592 established a legislative study committee to
                                               investigate actions for reducing the effects of MTBE on surface
                                               and groundwater; HJR 9 urges the U.S. Congress and the U.S.
                                               Environmental Protection Agency to eliminate Federal requirements
                                               for oxygenates; SB 70 requires that the commissioner of
                                               environmental services limit the concentration of MTBE allowed in
                                               gasoline and that the commissioner seek waivers from EPA for
                                               MTBE.
                                                SB 71, a complete ban on MTBE, passed the Senate in
                                               1999; however, its House companion bill failed to pass early this
                                               year.
                                                New Hampshire has also introduced legislation that would
                                               permit the State to enter into discussions with other
                                               northeastern States about implementing a regional gasoline that
                                               contains less MTBE.
New Jersey..................................  PENDING ACTION.
                                              New Jersey (AB 218, AB 1667, AB 1923, SB 527) has several pieces
                                               of legislation that would prohibit MTBE use. All are currently in
                                               committee, and will carry over to the next legislative session.
New York....................................  FINAL ACTION.
                                              Governor Pataki (R-NY) signed a bill banning MTBE by Jan. 1, 2004.
                                               The New York ban, drafted partly in response to contamination
                                               reported on Long Island and upstate, will prohibit the use, sale,
                                               and importation of MTBE beginning January 1, 2004 under penalty
                                               of up to $10,000, according to Pataki's office. (5/24/2000)
                                              PENDING ACTION.
                                              Legislation has also been proposed to direct State agencies to
                                               study MTBE contamination of water supplies and to examine its
                                               health effects.
Pennsylvania................................  FINAL ACTIONS.
                                                In June 1999, Pennsylvania chose to no longer
                                               participate in the Federal RFG program, citing MTBE health
                                               effects as its primary reason. SB 989 codified the governor's
                                               executive order for the phase out of MTBE.
                                                Studies found 73 percent of Pennsylvania's drinking
                                               water supplies were contaminated with MTBE.
Rhode Island................................  FINAL ACTION.
                                              House Resolution 7999 (passed 06/07/2000) requests that the
                                               Federal government lift the requirement for 2% oxygenate level in
                                               reformulated gasoline.
                                              PENDING ACTION.
                                              Legislation has been proposed to direct State agencies to study
                                               MTBE contamination of water supplies and to examine its health
                                               effects.
South Dakota................................  FINAL ACTION.
                                              South Dakota passed legislation (SB 1124 signed by the governor)
                                               that limits MTBE content in gasoline to no more than 2 percent by
                                               weight. PENDING ACTION. A proposed bill, South Dakota HB 1132,
                                               would prohibit MTBE use entirely.
Virginia....................................  FINAL ACTION.
                                              HB 909 was recently enacted (4/09/2000), which directs State
                                               agencies to study MTBE contamination of water supplies and to
                                               examine its health effects.
West Virginia...............................  FINAL ACTION.
                                              West Virginia SB 441, which would have prohibited MTBE use, died
                                               in committee at the end of the legislative session.
Wisconsin...................................  FINAL ACTION.
                                              AB 838, a proposed ban on MTBE, failed to pass the Wisconsin
                                               Assembly in 1999.
----------------------------------------------------------------------------------------------------------------
Source: National Conference of State Legislatures, July 2000.

                                ------                                


                              APPENDIX II

                                   List of Reformulated Gasoline Program Areas
                  U.S. Environmental Protection Agency, Office of Mobile Sources, April 5, 1999
----------------------------------------------------------------------------------------------------------------
                                                                  Clean Air Act: Required Areas
----------------------------------------------------------------------------------------------------------------
LOS ANGELES...................................  South Coast Air Basin, South East Desert, Ventura, CA
                                                Los Angeles County, CA
                                                Ventura County, CA
                                                Orange County, CA
                                                San Bernardino County (partial), CA
                                                Riverside County (partial), CA
SAN DIEGO County, CA..........................  San Diego County, CA
HARTFORD......................................  New Haven--Waterbury, CT
                                                Hartford County (partial), CT
                                                Litchfield County (partial), CT
                                                Middlesex County (partial), CT
                                                New London County (partial), CT
                                                New Haven County (partial), CT
                                                Tolland County (partial), CT
NEW YORK......................................  Northern New Jersey--Long Island--Connecticut area, NY-NJ-CT
                                                Fairfield County, CT
                                                Litchfield County, (partial), CT
                                                New Haven County (partial), CT
                                                Bergen County, NJ
                                                Essex County, NJ
                                                Hudson County, NJ
                                                Hunterdon County, NJ
                                                Middlesex County, NJ
                                                Monmouth County, NJ
                                                Morris County, NJ
                                                Ocean County, NJ
                                                Passaic County, NJ
                                                Somerset County, NJ
                                                Sussex County, NJ
                                                Union County, NJ
                                                Bronx County, NY
                                                Kings County, NY
                                                Nassau County, NY
                                                New York County, NY
                                                Orange County, NY
                                                Putnam, NY
                                                Queens County, NY
                                                Richmond County, NY
                                                Rockland County, NY
                                                Suffolk County, NY
                                                Westchester County, NY
PHILADELPHIA..................................  Wilmington--Trenton--Cecil County, MD area PA-NJ-DE-MD
                                                New Castle County, DE
                                                Kent County, DE
                                                Cecil County, MD
                                                Burlington County, NJ
                                                Camden County, NJ
                                                Cumberland County, NJ
                                                Gloucester County, NJ
                                                Mercer County, NJ
                                                Salem County, NJ
                                                Bucks County, PA
                                                Chester County, PA
                                                Delaware County, PA
                                                Montgomery County, PA
                                                Philadelphia County, PA
CHICAGO.......................................  Gary--Lake County, IL--Indiana--Wisconsin area
                                                Cook County, IL
                                                Du Page County, IL
                                                Kane County, IL
                                                Lake County, IL
                                                McHenry County, IL
                                                Will County, IL
                                                Grundy County, IL, (partial)
                                                Kendall County, IL,( partial)
                                                Lake County, IN
                                                Porter County, IN
BALTIMORE, MD.................................  Anne Arundel County, MD
                                                Baltimore County, MD
                                                Carroll County, MD
                                                Harford County, MD
                                                Howard County, MD
                                                The City of Baltimore, MD
HOUSTON.......................................  Galveston--Brazoria, TX
                                                Brazoria County, TX
                                                Chambers County, TX
                                                Fort Bend County, TX
                                                Galveston County, TX
                                                Harris County, TX
                                                Liberty County, TX
                                                Montgomery County, TX
                                                Waller County, TX
MILWAUKEE.....................................  Racine, WI
                                                Kenosha County, WI
                                                Milwaukee County, WI
                                                Ozaukee County, WI
                                                Racine County, WI
                                                Washington County, WI
                                                Waukesha County, WI
SACRAMENTO, CA * (newly required area)........  El Dorado County (partial), CA
                                                Placer County (partial), CA
                                                Sacramento County, CA
                                                Solano County (partial), CA
                                                Sutter County (partial), CA
                                                Yolo County, CA
CONNECTICUT, The Entire State 1...............  Litchfield County (partial), CT
                                                Hartford County (partial), CT
                                                Middlesex County (partial), CT
                                                New London County (partial), CT
                                                Tolland County (partial), CT
                                                Windham County, CT
DELAWARE,.....................................  The Entire State 1 Sussex nonattainment area
                                                Sussex County, DE
DISTRICT OF COLUMBIA..........................  Washington, DC-MD-VA area (DC portion)
                                                Entire District of Columbia
KENTUCKY......................................  Cincinnati-Hamilton KY-OH area (KY portion)
                                                Boone County, KY
                                                Campbell County, KY
                                                Kenton County, KY Louisville, KY-IN area (KY portion)
                                                Jefferson County, KY
                                                Bullitt County (partial), KY
                                                Oldham County (partial), KY
MARYLAND......................................  Washington, DC-MD-VA area (MD portion)
                                                Calvert County, MD
                                                Charles County, MD
                                                Frederick County, MD
                                                Montgomery County, MD
                                                Prince Georges County, MD Kent & Queen Anne's nonattainment area
                                                Queen Anne's County, MD
                                                Kent County, MD
MASSACHUSETTS,................................  The Entire State 1 Boston-Lawrence-Worcester (E. MA)
                                                Barnstable County, MA
                                                Bristol County, MA
                                                Dukes County, MA
                                                Essex County, MA
                                                Middlesex County, MA
                                                Nantucket County, MA
                                                Norfolk County, MA
                                                Plymouth County, MA
                                                Suffolk County, MA
                                                Worcester County, MA Springfield (Western MA) nonattainment
                                                 areas
                                                Berkshire County, MA
                                                Franklin County, MA
                                                Hampden County, MA
                                                Hampshire County, MA
MISSOURI (Effective Opt-In Date is June 1,      St. Louis nonattainment area
 1999).                                         St. Louis County
                                                St Louis (city)
                                                Franklin County
                                                Jefferson County
                                                St. Charles County
NEW HAMPSHIRE.................................  Boston-Lawrence-Worcester, MA-NH nonattainment area (NH portion)
                                                Hillsborough County, NH
                                                Rockingham County, NH
                                                Merrimack County, NH
                                                Strafford County, NH
NEW JERSEY,...................................  The Entire State 1 Allentown-Bethlehem-Easton area (NJ portion)
                                                Warren County, NJ Atlantic City nonattainment area
                                                Atlantic County, NJ
                                                Cape May County, NJ
NEW YORK......................................  Essex nonattainment area
                                                Dutchess County, NY
                                                Essex County (partial), NY
RHODE ISLAND,.................................  The Entire State Providence nonattainment area
                                                Bristol County, RI
                                                Kent County, RI
                                                Newport County, RI
                                                Providence County, RI
                                                Washington County, RI
TEXAS.........................................  Dallas-Fort Worth nonattainment area
                                                Collin County, TX
                                                Dallas County, TX
                                                Denton County, TX
                                                Tarrant County, TX
VIRGINIA......................................  Washington DC-MD-VA area (VA portion)
                                                Alexandria, VA
                                                Arlington County, VA
                                                Fairfax, VA
                                                Fairfax County, VA
                                                Falls Church, VA
                                                Loudoun County, VA
                                                Manassas, VA
                                                Manassas Park, VA
                                                Prince William County, VA
                                                Stafford County, VA Richmond, VA nonattainment area
                                                Charles City County, VA
                                                Chesterfield County, VA
                                                Colonial Heights, VA
                                                Hanover County, VA
                                                Henrico County, VA
                                                Hopewell, VA
                                                Richmond, VA Norfolk-Virginia Beach-Newport News area
                                                Chesapeake, VA
                                                Hampton, VA
                                                James City County, VA
                                                Newport News, VA
                                                Norfolk, VA
                                                Poquoson, VA
                                                Portsmouth, VA
                                                Suffolk, VA
                                                Virginia Beach, VA
                                                Williamsburg, VA
                                                York County, VA.

``Opt-Out'' Areas**

MAINE.........................................  Hancock and Waldo Counties, ME--Hancock County--Waldo County
PENNSYLVANIA..................................  Allentown--Bethlehem--Easton, PA
                                                Carbon County
                                                Lehigh County
                                                Northampton County Altoona, PA
                                                Blair County Erie, PA
                                                Erie County Harrisburg--Lebanon--Carlisle, PA
                                                Cumberland County
                                                Dauphin County
                                                Lebanon County
                                                Perry County Johnstown, PA
                                                Cambria County
                                                Somerset County Lancaster, PA
                                                Lancaster County Pittsburgh--Beaver Valley, PA
                                                Allegheny County
                                                Beaver County
                                                Fayette County
                                                Washington County
                                                Westmoreland County
                                                Armstrong County
                                                Butler County Reading, PA
                                                Berks County Scranton--Wilkes-Barre, PA
                                                Columbia County
                                                Lackawanna County
                                                Luzerne County
                                                Monroe County
                                                Wyoming County York, PA
                                                Adams County
                                                York County Youngstown, OH--Warren, OH--Sharon, PA*
                                                Mercer, PA * Ohio counties have not opted-in.
NEW YORK......................................  Albany--Schenectady--Troy, NY
                                                Albany County
                                                Greene County
                                                Montgomery County
                                                Rensselear County
                                                Saratoga County
                                                Schenectady County
                                                 Jefferson County, NY
                                                 Buffalo--Niagara Falls, NY
                                                Erie County
                                                Niagara County
A proposed rule to remove the above ``opt-
 out'' areas from the requirements of the
 reformulated gasoline program was published
 June 14, 1995. [On January 1, 1995, a
 temporary exemption of the RFG requirements
 in these areas went into effect. On July 1,
 1995 this stay was extended until the Agency
 took final action]. The final rule, published
 July 8, 1996 [61 FR 35673], formally removed
 these areas from the list of RFG covered
 areas and provided States with general opt-
 out procedures. The July 8 final rule was
 superseded by a final rule published October
 20, 1997 [62 FR 54552], revising the opt-out
 procedures.

ARIZONA.......................................  Phoenix nonattainment area
                                                Maricopa County (partial), AZ
Phoenix opted in the RFG program in 1997;
 retail stations were required to supply RFG
 by August 4, 1997. In September 1997, the
 Governor of Arizona submitted an RFG opt-out
 petition for purposes of adopting a more
 stringent State RFG program in Phoenix.
EPA approved the opt-out petition which became
 effective on June 10, 1998.
MAINE.........................................  The following counties in Maine ``opted-out'' of the RFG
                                                 program--the effective opt-out date was March 10, 1999: Knox &
                                                 Lincoln nonattainment area
                                                Knox County, ME
                                                Lincoln County, ME Lewiston-Auburn nonattainment area
                                                Androscoggin County, ME
                                                Kennebec County, ME Portland nonattainment area
                                                Cumberland County, ME
                                                Sagadahoc County, ME
                                                York County, ME
----------------------------------------------------------------------------------------------------------------
* Reclassification of Sacramento from Serious to Severe was effective June 1, 1995. RFG was required as of June
  1, 1996. ``Opt-In'' Areas (Voluntary):
**Note: These ``Opt-Out'' areas withdrew from the Federal RFG program before it went into effect on January 1,
  1995. See below for details.

                                ------                                


                              APPENDIX III

                                    Office of the Governor,
                                    Sacramento, CA, April 12, 1999.

The Honorable Carol M. Browner, Administrator,
Environmental Protection Agency,
401 M Street SW,
Washington, DC 20460.

Dear Ms. Browner: I am writing to request that the U.S. Environmental 
Protection Agency (EPA) take prompt action to waive Federal 
requirements that all gasoline sold in the Sacramento region and most 
of Southern California contain a minimum oxygen content pursuant to the 
provisions of the 1990 amendments to the Clean Air Act.
    As I am sure you are aware, on March 26, 1999, I concluded that the 
use of the oxygenate methyl tertiary-butyl ether (MTBE) in California 
gasoline poses a significant risk to California's environment, and, 
accordingly, directed that MTBE be phased out of California gasoline as 
soon as possible. A copy of my Executive Order D-5-99, which identifies 
the actions we will take to remove MTBE from gasoline, is enclosed.
    One of the essential elements for a rapid phase down, and eventual 
phase-out of MTBE in California, is action by the U.S. EPA to eliminate 
the current mandate that California gasoline subject to the Federal 
reformulated gasoline (RFG) program--about 70 percent of all gasoline 
in the State--must contain at least 2.0 percent by weight oxygen year-
round. Your action to provide this relief is needed for several 
compelling reasons.
    Many California refineries have the capability to produce 
significant amounts of gasoline that provides all of the required 
emission reductions without using MTBE or any other oxygenate. The only 
reason such MTBE-free gasoline is not being made available today is 
U.S. EPA's enforcement of the 2.0 percent oxygen requirement. Your 
approval of our requested action would enable several refiners to 
greatly reduce their use of MTBE in the very near future.
    In terms of the eventual phase-out of MTBE, your action is equally 
important. Under the current U.S. EPA requirements, once MTBE is phased 
out, the 70 percent of California gasoline that is sold in areas 
subject to the Federal RFG program would need to be oxygenated with 
ethanol. Relying on ethanol exclusively for this volume of gasoline, 
approximately 10 billion gallons per year, would increase the time 
needed to complete our phase-out of MTBE, and result in higher fuel 
costs to California consumers. Your action to allow the required 
emissions reductions to be achieved without using a minimum oxygen 
content in every gallon of fuel would allow us to reduce risks of 
future water contamination sooner, meet California's growing demand for 
fuel and allow flexibility to make more economical blends of gasoline.
    Finally, time is of the essence. California refineries must begin a 
time consuming and expensive retooling process to eliminate their 
current reliance on MTBE. In order to complete the phase-out of MTBE by 
December 31, 2002 or earlier, the refiners must start immediately with 
the planning and design phases of the necessary refinery and 
distribution system modifications. It is clear that the approach taken 
by industry will differ substantially depending on whether, upon 
completion of the modifications, refiners will be subject to a 
mandatory Federal RFG minimum oxygen requirement. Without the mandatory 
oxygen requirement, the industry can design in greater flexibility and 
less costly processes. But in order to make informed planning and 
design decisions, the refiner must know in 1999--not just in 2001 or 
2002 or 2003--that they will have flexibility with respect to oxygen 
requirements.
    Because California has historically experienced the worst air 
quality in the nation and has long been engaged in pioneering efforts 
to reduce the contribution of motor vehicles to air pollution, the 
State has been granted unique authority by the Clean Air Act and the 
EPA to administer a State fuels program to reduce motor vehicle 
emissions. California is the only area in the country where the Federal 
RFG requirements apply in conjunction with comprehensive and 
demonstrably more effective State standards for cleaner burning 
gasoline. The California regulations provide complete assurances that a 
waiver of the Federal RFG year-round minimum oxygen content requirement 
will not result in a loss of any air quality.
    Our regulations accomplish the needed emissions reductions without 
requiring a minimum level of oxygen. Numerous assessments by the auto 
and fuels industry, government agencies, and most recently scientists 
at the University of California confirm that a minimum oxygen content 
is not essential to making RFG that meets all emission reduction 
requirements. Therefore, application of the current minimum oxygen 
content requirement serves absolutely no purpose in California relative 
to its intended air quality rationale--to reduce ozone precursors and 
toxic emissions from vehicles.
    In contrast, the minimum oxygen content requirement is having one 
clear effect on another area of the environment. It is increasing the 
risk that leaking tanks and boat engine discharges pose to water 
quality. As the University of California study of MTBE indicated, 
California's ground and surface water resources are seriously at risk 
because of discharges of gasoline that has been oxygenated with MTBE. 
Over 60 percent of the reservoirs tested have detectable levels of 
MTBE, and many public drinking water sources in areas like Santa 
Monica, Santa Clara, Sacramento and South Lake Tahoe have been 
contaminated and shut down because of MTBE contamination. This is what 
led me to direct the appropriate State regulatory agencies to devise 
and carry out a plan to complete the expeditious phase-out of MTBE from 
California gasoline.
    However, in order for California to achieve this essential 
protection of water quality quickly and at an affordable cost, we must 
have flexibility relative to the minimum oxygen content currently 
enforced by U.S. EPA. We need this action quickly, and I am calling on 
you to use your broad authority to protect both the air and water 
environment by allowing California's reformulated gasoline rules, which 
provide all of the emission benefits of the Federal RFG, to be applied 
in lieu of the counterproductive Federal minimum oxygen content 
requirement.
    Your prompt approval of this request will help us limit any further 
contamination of drinking water while we transition away from MTBE. It 
will not risk any adverse impact on air quality due to California's 
more effective State gasoline regulations. It will enable us to devise 
the most expeditious and cost-effective solution to the MTBE problem in 
California. One that will protect our water and keep us on the road to 
clean air.
    Thank you for your consideration of this request. Enclosed is a 
more detailed discussion of this issue and materials that support our 
request. As always we are ready to work with you to ensure that 
California and the EPA are working together to ensure environmental 
protection.
            Sincerely,
                                                Gray Davis.

                                ------                                


                              APPENDIX IV

                      U.S. Environmental Protection Agency,
                             Washington, DC 20460, August 21, 2000.

The Honorable Thomas J. Bliley, Chairman,
Committee on Commerce,
U.S. House of Representatives,
Washington, DC 20515-6115

Dear Mr. Chairman: I am writing in response to your inquiry of July 31, 
2000, to Administrator Carol Browner regarding various issues related 
to the Environmental Protection Agency's (EPA's) consideration of 
California's request for waiver of the reformulated gasoline (RFG) 
program's oxygen content requirement. This letter and the enclosures 
provide information responsive to Questions 2 and 3 of your inquiry and 
follows our initial response of August 3, 2000. Other relevant 
documents will be provided in a subsequent letter according to the 
schedule agreed upon by committee and EPA staff.
    In response to Question 2 of your July 31, 2000 inquiry, we are 
providing all records relating to work performed by the Southwest 
Research Institute (SwRI) that relates to our consideration of 
California's request for a waiver from the Federal oxygen requirement 
in RFG. Enclosure 1 contains SwRI's submittals to EPA, which include 
draft versions of its assessment of California's predictive model and 
of alternative models, faxed submissions (data plots, data points for 
regression models) and e-mails of communication between SwRI and EPA. 
All records provided in this response are those created or that we 
received after March 1, 200() since records prior to this date were 
included in our March 10, 2000 response to the committee.
    In Question 3 you asked about the status of the various technical 
issues associated with the waiver decision. This is discussed below.
    The statute requires that, in order for EPA to grant a waiver from 
the oxygen requirement, EPA must determine that the requirement would 
prevent or interfere with an area attaining a National Ambient Air 
Quality Standard (NAAQS). California's request is the first and only 
request that EPA has received under this waiver provision. In order to 
make the determination of whether to grant a waiver, many complex legal 
and technical questions must be addressed.
    California claims that requiring the use of oxygen will increase 
emissions of oxides of nitrogen (NOx) compared to not requiring its use 
and thereby interfere with California's ability to meet the NAAQS for 
ozone (and for particulate matter through transformation of NOx). In 
order to evaluate such a claim, several issues must be evaluated.
    EPA must first evaluate the effect of fuel oxygen on any emissions 
that may affect ozone formation. These emissions include not only NOx 
but also emissions of volatile organic compounds (VOC) and carbon 
monoxide (CO). Although the NOx oxygen relationship is crucial in 
making any decision about an oxygen waiver, other information is just 
as crucial to a decision on the California request. This is because 
oxygen content can impact the level of VOC and CO emissions in both on-
road and off-road vehicles which, in turn, can affect ozone formation. 
Furthermore, the use of oxygen influences other properties of gasoline 
and these other property changes also have critical emissions effects. 
Finally, the use or non-use of oxygenates in gasoline can result in 
other effects such as commingling and permeation which are discussed 
below.
    Another critical issue concerns an assessment of the formulation of 
fuels California refiners would produce should a waiver be granted. 
This is crucial since if both the gasoline made with oxygen and without 
oxygen in California precisely meet California's Phase 3 standards, 
then no NOx increase or decrease would be experienced regardless of the 
existence of an oxygen requirement. California, however, presents 
evidence and arguments to show that, if a waiver were granted, the non-
oxygenated California RFG (CaRFG) would be produced having properties 
that result in NOx overcompliance. In order to evaluate if NOx 
overcompliance would actually occur, refinery modeling must be 
performed to estimate the properties of CA gasoline that refiners would 
choose to make in meeting Phase 3 standards with and without a waiver 
of the oxygen requirement. This type of modeling, which attempts to 
optimize California gasoline production, is complex and includes the 
use of many assumptions, such as the cost of various gasoline 
components in future years. In short, this type of analysis attempts to 
predict how California gasoline producers will formulate their gasoline 
in the future under different regulatory scenarios. Since it is 
infeasible to model each gasoline producer separately, this analysis 
estimates a set of properties representative of the gasoline pool.
    Other critical issues include the effect of fuel property changes 
on emissions of off-road engines, the potential that ethanol-containing 
fuels may cause increased evaporative emissions due to permeation 
through synthetic vehicle fuel system components, and the potential 
that a ``mixed market'' of ethanol-containing fuels and non-oxygenated 
fuels may produce higher evaporative emissions as a result of 
commingling of these two types of fuels in vehicle fuel tanks. For each 
of these issues (commingling, permeation, and fuel property effects on 
off-road emissions), limited data exist for a thorough evaluation. 
(Enclosure 2 is a summary of the technical issues that EPA has been 
studying which includes answers to your questions regarding the status 
of our evaluation.)
    Finally, once we have evaluated the various emissions effects 
produced by reformulation of California fuels and by the other factors 
mentioned above, EPA must then evaluate whether these emission changes 
will prevent or interfere with attainment of the ozone NAAQS.
    Although the initial California request for a waiver was received 
in April 1999, the State did not provide technical justification for 
the petition at that time. In July 1999 an initial technical analysis 
was received from California. Additionally, as you pointed out in your 
letter, EPA's Blue Ribbon Panel (BRP) on oxygenates did not complete 
its analysis until late July 1999 and the report was not published 
until September. We continue to believe that the conclusions of the 
Blue Ribbon Panel report were crucial in determining the appropriate 
policy objectives the Agency should take into consideration when 
considering oxygenate use.
    Based upon California's July 1999 submission, EPA responded to 
California on August 6, 1999, asking for clarification on several 
issues. Between August and December 1999, EPA and the California Air 
Resources Board (CARB) staff conducted two telephone conference calls 
in which CARB presented recalculations of emissions effects.
    In December 1999 two important developments occurred which 
significantly affected the course of EPA's work to evaluate 
California's request. First, on December 9, MathPro, Inc., completed an 
analysis for the California Energy Commission which presented 
information regarding how refineries in California might reformulate 
their gasolines in order to meet CARB fuel standards if there were no 
Federal oxygen requirement. Almost simultaneously, CARB adopted 
California RFG3 standards and changes to its predictive model. Shortly 
thereafter, on December 24, 1999, California submitted to EPA a major 
new analysis and technical justification for their request. This new 
submission precipitated additional EPA questions about the analysis and 
on January 20, 2000, EPA submitted questions to CARB. Four EPA staffers 
and an EPA contractor from Southwest Research Institute traveled to 
California and met with CARB staff to discuss the new analysis on 
January 24 and 25, 2000. Finally, on February 7, 2000, CARB submitted 
additional information to EPA based upon the January discussions. Upon 
an initial but non-comprehensive review of the February submission, EPA 
believed the State had submitted sufficient information for EPA to 
evaluate its waiver request.
    The developments between December 1999 and February 2000, were 
critical in defining the parameters associated with California's 
request and, therefore, the major part of EPA's analysis and evaluation 
has occurred since February. During that same timeframe, EPA began the 
necessary administrative procedures to contract with Southwest Research 
Institute to help EPA evaluate the statistical procedures and 
assumptions used by California to produce its predictive model, as well 
as to conduct an independent evaluation of the effect of fuel 
properties, including oxygen content, on NOx and VOC emissions. (This 
firm conducted much of the analysis associated with EPA's original 
complex model in the early 1990's.) This contractor analysis continues 
today.
    In late spring of this year, EPA staff began to assess whether 
further analyses needed to be performed. This included consideration of 
further analyses on one of the crucial questions at issue which is the 
expected level of oxygenate use should a waiver be granted. This is 
because the use or non-use of oxygenates in a portion of California 
gasoline would affect all of the properties and associated emissions of 
gasoline in the California marketplace under a waiver of the oxygen 
requirement. Therefore, the question of comparing emissions with and 
without an oxygen requirement would hinge, in part, on the expected use 
of oxygen should a waiver be granted.
    Among other things, EPA was utilizing the December MathPro study to 
help estimate the properties of California gasoline with and without a 
waiver in order to estimate emissions levels. Staff discussions with 
various experts have called into question some of the assumptions and 
conclusions of the MathPro study based upon newer information now 
available. Specifically, in the December 1999 report, MathPro estimated 
that approximately 60 percent of California summertime gasoline would 
be oxygenated with ethanol even if a waiver were granted. Furthermore, 
MathPro estimated that the gasoline that is oxygenated would contain 
oxygen at a level of 2.7 percent by weight. Since the study was 
conducted, California finalized its new Phase 3 standards and 
predictive model. Directionally, at least, the newly finalized model 
might lead refiners to use less oxygen should they have the choice. 
Additionally, in continuing discussions in May of this year, CARB staff 
said refiner reports indicated that less than 60 percent of the 
California market would be oxygenated should a waiver be granted. This 
called into question the MathPro analysis. Later, California staff also 
indicated that pipeline product specification development in California 
show that gasoline shippers believe that oxygenates are likely to be 
used at a 2.0 percent oxygen level and not the 2.7 percent originally 
predicted by MathPro. These discussions concerning the MathPro analysis 
also called into question the accuracy of some of the technical aspects 
of the modeling contained in the original December MathPro report. In 
early July, EPA began exploring contractual arrangements to have 
MathPro re-examine its study. EPA believes that further analyses of the 
original MathPro refinery modeling is central to deciding California's 
request, and important technical issues remain unresolved. We are 
taking steps to pursue this analysis to ensure that EPA's decision on 
the complicated issues underlying California's request is based on a 
sound, robust analysis.
    In addition, EPA has received comments from other stakeholders on 
many of these issues. The Renewable Fuels Association and the National 
Corn Growers Association have sent letters to EPA expressing 
substantive technical and legal views on California's waiver request. 
For example, these groups state that, if the waiver is granted, ethanol 
blending in California would not be widespread. They also question 
other results of the MathPro analysis and, in fact, present alternative 
refinery modeling results. As part of EPA's independent analysis of the 
waiver request, the Agency takes into account the comments it receives 
from other stakeholders.
    Once the analyses described above have been completed and we have 
evaluated the results, each piece must be integrated into the total 
picture of how these fuel changes will affect California's ability to 
meet the ozone and particulate NAAQS. We certainly understand the 
committee's interest in knowing when EPA will complete its evaluation 
and release a proposed decision on California's waiver request. As we 
have explained in previous correspondence to you and to other 
interested parties, the analysis and evaluation of these issues has 
proven to be far more complex than we had originally expected. The need 
to re-examine the MathPro refinery modeling was unforeseen, but is 
critical to our deliberations. We currently estimate that this work 
will take at least 10 to 12 weeks from this date to complete. At that 
point in time we would expect the other analyses described herein to 
also be complete. Since all of the work products are inter-related, 
EPA's technical and legal staff will then begin to integrate the 
various results into a complete and comprehensive analysis which we 
believe will allow us to go forward to propose a decision on the 
California waiver request. I can assure you this work will be completed 
as expeditiously as possible once all the individual technical work 
products are available to us.
    In summary, the technical analyses involved in consideration of 
California's request have been continuing since the end of last year 
when the actual parameters associated with California's predictive 
model and Phase 3 standards were finalized and the initial MathPro 
report was available. EPA has vigorously pursued answers to the 
questions associated with the request as is evidenced by the contractor 
analyses and the internal EPA analyses that have been performed. The 
question of interference with the NAAQS is an extremely complex issue. 
We are therefore making every effort to assure that our analysis is 
founded squarely on the best science and modeling available.
    Please note that the documents that we have provided in the 
enclosure to this letter are pre-decisional and deliberative in nature. 
In providing you with these records, we are not waiving the Agency's 
ability to invoke exemption 5 under the Freedom of Information Act 
(FOIA) for deliberative or attorney-client privileged documents or the 
work product/attorney client privileges in general. We therefore 
request that you preserve the confidentiality of these documents by 
refraining from providing copies of those records, or from otherwise 
communicating the contents of those records, to persons other than 
those with a need to know as part of this Congressional oversight 
review.
    I appreciate the opportunity to be of service, and trust that this 
information will help to clarify the current status of the Agency's 
deliberations.
            Sincerely,

                Robert Perciasepe, Assistant Administrator.

Enclosure 1: Documents responsive to Question 2 of July 31, 2000 letter 
from the Honorable Tom Bliley to Administrator Carol Browner [Note: 

Enclosure 1 is not included in this report].

Enclosure 2: Status of Technical Issues.
                                 ______
                                 

                Enclosure 2: Status of Technical Issues

                       OXYGENATE/NOX RELATIONSHIP

    Specific technical information EPA is reviewing or producing for 
review:
    We are examining the relationship of NOx emissions to oxygen 
content in reformulated gasoline. This requires that we consider the 
effect of changes of other fuel properties, as well as fuel oxygen 
content, on NOx emissions, since use of oxygen affects the other 
aspects of fuel composition. This involves use of emissions test and 
fuel property data from a number of separate studies designed to 
examine the effects of fuel property changes on emissions. California 
has combined these data into a single data base in order to develop a 
statistical model, the predictive model, which relates fuel property 
changes to emission changes. California has updated the predictive 
model for use with its phase 3 reformulated gasoline (CaRFG3). 
California has used this model to support its claim that use of oxygen 
will increase NOx emissions. We are reviewing development of the 
updated predictive model, and we are independently developing 
alternative models relating NOx emissions to fuel properties.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in January, 2000. EPA's contractor, 
Southwest Research Institute (SwRI), began working on this task in 
February, 2000.
    Specific issues being reviewed:
    Prior to development of the alternative NOx models, it was 
necessary for EPA to make a number of technical decisions. These 
decisions included evaluation of available data, characterization and 
treatment of high emitters, choice of statistical regression technique 
and choice of distillation parameters to include in the models. EPA 
must review its model development decisions and ensure that they are 
documented. EPA's model development process yielded a number of 
possible candidate models. EPA must review these alternative models and 
select the model or models which it believes best characterizes the 
oxygen/NOx relationship.

                       OXYGENATE/VOC RELATIONSHIP

    Specific technical information EPA is reviewing or producing for 
review:
    EPA is examining the relationship of exhaust VOC emissions to the 
oxygen content in reformulated gasoline. EPA's basic approach is 
similar to that described above to evaluate the oxygenate/NOx 
relationship. This approach involves use of emissions data to build 
models that relate exhaust hydrocarbon emissions to oxygen content and 
the other fuel properties.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA's contractor, SwRI, began working on this task in late April, 
2000.
    Specific issues being reviewed:
    The same issues applicable to EPA's evaluation of the oxygen/NOx 
relationship are applicable here. The normal emitter/high emitter issue 
may be more complicated with respect to the VOC model than the NOx 
model.

                              COMMINGLING

    Specific technical information EPA is reviewing or producing for 
review:
    We are examining the potential increases in VOC emissions that 
could result from the commingling of non-oxygenated fuels with ethanol-
oxygenated fuels in vehicle gas tanks.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in February, 2000.
    Specific issues being reviewed:
    The degree of commingling which will occur under a waiver is 
influenced by consumer brand and grade loyalty, the market shares for 
ethanol and non-oxygenated gasoline within a given area, and other 
factors relating to consumer refueling behavior and fuel oxygenate 
content. EPA is reviewing estimates of the commingling effect which 
various assumptions and models provided by CARB and other parties.

                               PERMEATION

    Specific technical information EPA is reviewing or producing for 
review:
    We are examining CARB's data and other data available on additional 
evaporative VOC emissions from permeation through soft rubber/plastic 
fuel system components, due to ethanol-blended gasoline.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in February, 2000.
    Specific issues being reviewed:
    We are reviewing estimates of additional VOC emissions associated 
with permeation. We are considering whether the reduction of VOC 
emissions (associated with eliminating permeation emissions through 
displacement of ethanol RFG with non-oxygenated fuels) offsets the 
increase in CO resulting from reduction of oxygen in RFG. We will 
review any new data or analyses which may better quantify the 
permeation effect.

                           REFINERY MODELING

    Specific technical information EPA is reviewing or producing for 
review:
    We are examining refinery modeling conducted by MathPro for 
Chevron/Tosco and for the California Energy Commission that predicts 
the penetration of non-oxygenated fuels if a waiver were to be granted, 
and also identifies the fuel parameters in non-oxygenated RFG. We are 
working to initiate new work to clarify MathPro's original analyses.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in February, 2000.
    Specific issues being reviewed:
    Degree of penetration of non-oxygenated fuels and what the fuel 
parameters are for non-oxygenated RFG with respect to varying degrees 
of penetration.

                           OFF-ROAD EMISSIONS

    Specific technical information EPA is reviewing or producing for 
review:
    We used EPA's report NR-003, ``Exhaust Emission Effects of Fuel 
Sulfur and Oxygen on Gasoline Nonroad Engines'' which summarized data 
from several emission testing studies of fuel oxygen effects on nonroad 
engine emissions. We are using information in this report to assess the 
specific mix of off-road engines and emissions inventory found in 
California.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in February, 2000.
    Specific issues being reviewed:
    Effect of oxygen on emissions of off-road vehicles in California.
    Integration of Emissions Analyses and Evaluation of NAAQS 
Interference.
    Specific technical information EPA is reviewing or producing for 
review:
    The other analyses and work products described herein and the 
California SIP.
    When the EPA or contract personnel began working to produce or 
review such technical information:
    EPA began work on this in March, 2000.
    Specific issues being reviewed:
    Net effect on emissions of the factors covered in the other 
analyses and the impact of these emissions on California's ability to 
attain the ozone and PM NAAQS.
                                ------                                


                               APPENDIX V

                       Summary of State Drinking Water and Groundwater Standards For MTBE
----------------------------------------------------------------------------------------------------------------
                 State                      Groundwater (ppb)              Type of Standard or Guideline
----------------------------------------------------------------------------------------------------------------
Alabama...............................  20.......................  Guideline or Action Level
Arizona...............................  35.......................  Guideline or Action Level
California............................  13/5.....................  Public Health Goal/ Enforceable Aesthetic
                                                                    Std.
Connecticut...........................  70.......................  Guideline or Action Level
Florida...............................  50/500...................  Primary Drinking Waster Std./Non-Potable
                                                                    Water Std.
Hawaii................................  20.......................  Groundwater Cleanup Level for Drinking Water
Idaho.................................  52/261/511...............  Pathway Dependent Action Level
Illinois..............................  70.......................  Guideline or Action Level
Kansas................................  20 to 40.................  Health Advisory
Louisiana.............................  18.......................  Guideline or Action Level (10% of MCL)
Maine.................................  35/25....................  Drinking Water Std./Action Level
Maryland..............................  10/50....................  Guideline or Action Level/Drinking Water Std.
Massachusetts.........................  70/50,000................  Primary Drinking Water Std./Vapors in
                                                                    Buildings
Michigan..............................  240/20 to 40.............  Enforceable Guideline/Aesthetic Guideline
Missouri..............................  400/40...................  Guideline for Non-potable and Potable Water
Montana...............................  30.......................  Guideline or Action Level
New Hampshire.........................  70/15/13.................  Current Primary Drinking Water Std./Action
                                                                    Level Prop. Primary Drinking Water Std. &
                                                                    Groundwater Cleanup Level
New Jersey............................  70.......................  Primary Drinking Water Std.
New Mexico............................  100......................  Interim Action Level
Nevada................................  20/200...................  Interim Action Level for Nearby Receptors/
                                                                    Incomplete Exposure Pathway
New York..............................  50/10....................  Primary Drinking Water Std./Groundwater
                                                                    Cleanup Std.
North Carolina........................  200......................  Guideline or Action Level
Ohio..................................  40.......................  Action Level
Oklahoma..............................  20.......................  Action Level
Oregon................................  20 to 40.................  Revised Guideline
Pennsylvania..........................  20 to 40.................  Health Advisory
Rhode Island..........................  40/500...................  Primary Drinking Water Std./Non-potable Water
South Carolina........................  20 to 40.................  Interim MCLG
Texas.................................  15.......................  Guideline or Action Level
Utah..................................  200/70...................  Groundwater Cleanup Level/Drinking Water
                                                                    Cleanup Level
Vermont...............................  40/1.....................  Primary Drinking Water Std./Action Level
Washington............................  20.......................  Guideline or Action Level
West Virginia.........................  20 to 40.................  Health Advisory
Wisconsin.............................  60/12....................  Groundwater Enforcement Std./Action Level
Wyoming...............................  200......................  Primary Drinking Water Std.
----------------------------------------------------------------------------------------------------------------
Source: New Hampshire Department of Environmental Services, January 20, 2000

                                ------                                


                              APPENDIX VI

    Tests on Oxygenated Fuels Containing Oxygenates Other than MTBE

              Source: U.S. Environmental Protection Agency

                             September 2000

Ethanol (EtOH)

    Subchronic Inhalation Toxicity Study, with Specific Health 
Effect Assessments.
    Fertility/Teratology Assessment, which includes animal 
studies designed to provide information on potential health 
hazards to the fetus arising from the mothers repeated 
inhalation exposure to vehicle/engine emissions before and 
during her pregnancy.
    In vivo Micronucleus Assay, which is an in vivo cytogenetic 
test which uses erythrocytes in the bone marrow of animals to 
detect chemical damage to the chromosomes or mitotic apparatus 
of mammalian cells.
    In vivo Sister Chromatid Exchange Assay to detect the 
ability of a chemical to enhance the exchange of DNA between 
two sister chromatids of a duplicating chromosome.
    Neuropathology Assessment including histopathological and 
biochemical techniques designed to develop data in animals on 
morphologic changes in the nervous system associated with 
repeated inhalation exposures.
    Glial Fibrillary Acidic Protein Assay to determine 
chemically induced injury to the brain and central nervous 
system.
    Histopathology Assessment including preparation of the 
animals targeted for pathologic examination of the lungs shall 
include inflation of the lungs with fixative which will permit 
later examination of the lung tissues by electron microscopy, 
if followup to light microscopy is indicated. In addition, 
respiratory tract histopathology shall be conducted.
    Immunotoxicity Screening describing the performance and 
analysis of the required primary antibody response (IgM) to 
sheep red blood cell antigen by either the Jerne and Nordin 
splenic antibody plaque forming cell assay or by an enzyme-
linked immunosorbent assay (ELISA).
    Inhalation Pharmacokinetic Studies which develop and 
validate a physiologically based pharmacokinetic (PBPK) model 
to quantitatively describe test substance disposition (uptake, 
distribution, metabolism and elimination).
Ethyl tertiary butyl ether (ETBE)
    Subchronic Inhalation Toxicity Study, with Specific Health 
Effect Assessments.
    Fertility/Teratology Assessment.
    In vivo Micronucleus Assay.
    In vivo Sister Chromatid Exchange Assay.
    Neuropathology Assessment.
    Glial Fibrillary Acidic Protein Assay.
    Histopathology Assessment.
    Immunotoxicity Screening.
    Inhalation Pharmacokinetic Studies.
Tertiary amyl methyl ether (TAME)
    Subchronic Inhalation Toxicity Study, with Specific Health 
Effect Assessments.
    Fertility/Teratology Assessment.
    In vivo Micronucleus Assay.
    In vivo Sister Chromatid Exchange Assay.
    Neuropathology Assessment.
    Glial Fibrillary Acidic Protein Assay.
    Histopathology Assessment.
    Immunotoxicity Screening.
    Inhalation Pharmacokinetic Studies.
Di-isopropyl ether (DIPE)
    Subchronic Inhalation Toxicity Study, with Specific Health 
Effect Assessments.
    Fertility/Teratology Assessment.
    In vivo Micronucleus Assay.
    In vivo Sister Chromatid Exchange Assay.
    Neuropathology Assessment.
    Glial Fibrillary Acidic Protein Assay.
    Histopathology Assessment.
    Immunotoxicity Screening.
    Inhalation Pharmacokinetic Studies.
Tertiary butyl alcohol (TBA)
    Subchronic Inhalation Toxicity Study, with Specific Health 
Effect Assessments.
    Fertility/Teratology Assessment.
    In vivo Micronucleus Assay.
    In vivo Sister Chromatid Exchange Assay.
    Neuropathology Assessment.
    Glial Fibrillary Acidic Protein Assay.
    Histopathology Assessment.
    Immunotoxicity Screening.
    Inhalation Pharmacokinetic Studies.

Tests on Non-Oxygenated Gasoline and MTBE-Gasoline

    Subchronic Inhalation Toxicity Study, with Specific Health 

Effect Assessments.

    Two-Generation Reproductive Study which includes animal 
studies designed to provide information on potential health 
hazards to the fetus arising from the mothers repeated 
inhalation exposure to vehicle/engine emissions before and 
during her pregnancy. This study will include neuropathology 
and Glial Fibrillary Acidic Protein Assay assessments conducted 
on the first generation of pups no sooner than 21 days after 
birth and no later than 28 days.
    In vivo Micronucleus Assay which is an in vivo cytogenetic 
test which uses erythrocytes in the bone marrow of animals to 
detect chemical damage to the chromosomes or mitotic apparatus 
of mammalian cells.
    In vivo Sister Chromatid Exchange Assay to detect the 
ability of a chemical to enhance the exchange of DNA between 
two sister chromatids of a duplicating chromosome.
    Neuropathology Assessment including histopathological and 
biochemical techniques designed to develop data in animals on 
morphologic changes in the nervous system associated with 
repeated inhalation exposures.
    Glial Fibrillary Acidic Protein Assay to determine 
chemically induced injury to the brain and central nervous 
system.
    Histopathology Assessment including preparation of the 
animals targeted for pathologic examination of the lungs shall 
include inflation of the lungs with fixative which will permit 
later examination of the lung tissues by electron microscopy, 
if followup to light microscopy is indicated. In addition, 
respiratory tract histopathology shall be conducted.
    Immunotoxicity Screening describing the performance and 
analysis of the required primary antibody response (IgM) to 
sheep red blood cell antigen by either the Jerne and Nordin 
splenic antibody plaque forming cell assay or by an enzyme-
linked immunosorbent assay (ELISA).
    Inhalation Pharmacokinetic Studies which develop and 
validate a physiologically based pharmacokinetic (PBPK) model 
to quantitatively describe test substance disposition (uptake, 
distribution, metabolism and elimination).
    Two-species Developmental Study which is a developmental 
study to determine chemically induced changes in development.
    Two-year cancer bioassay to determine the chemically 
induced development of tumors.
Exposure Testing
    Quantify personal exposures to motor vehicle gasoline and 
MTBE-oxyfuel emissions (both evaporative and combustion-
related) in microenvironments which represent the upper end of 
the frequency distribution of such exposures. This would 
include determination of the quantitative relationship between 
the personal exposures measured in the selected 
microenvironments, fixed site measurements in these 
microenvironments, and available ambient emission measurements; 
determination of how the high-end personal exposures (i.e., 
exposures approaching the 99th percentile), differ in cities 
and seasons of the year in which oxyfuel is used (MTBE-
containing reformulated gasoline (RFG) or wintertime oxygenated 
gasoline) as compared with cities and seasons in which oxyfuels 
are typically not used; determination of the relative 
contributions of fuel combustion vs. evaporation as the source 
of personal exposures to gasoline and oxyfuel emissions and the 
study would provide sufficient information to serve as a 
baseline for extrapolation to other sites and, if possible, 
other oxygenated fuels.

                                                                     Animal Testing
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Draft Report Due                        Final Report Due
           Test Group               Fuel Mixture      Toxicology Studies  Studies Initiation        to EPA        Comments Due to RG        to EPA
--------------------------------------------------------------------------------------------------------------------------------------------------------
Group A........................  Baseline Gasoline-- Study Set 1:         0 months..........  26 months.........  28 months.........  30 months
                                  Gasoline MTBE.      Subchronic
                                                      w/ Neurotoxicity,
                                                      Immunotoxicity,
                                                      and In Vivo/In
                                                      Vitro
                                                      Genotoxicity*.
                                                      Developmen
                                                      tal Toxicity (Two
                                                      Species).
                                                    ----------------------
                                                     Study Set 2:         12 months.........  36 months.........  38 months.........  40 months
                                                      Two
                                                      Generation
                                                      Reproductive
                                                      Toxicity.
                                                    ----------------------
                                                     Study Set 3:         12 months.........  52 months.........  54 months.........  56 months
                                                      Oncogenici
                                                      ty (One Species).
                                                    ----------------------
Group B........................  Gasoline Ethanol..  Study Set 4:         6 months..........  32 months.........  34 months.........  36 months
                                 Gasoline TAME.....   Subchronic
                                 Gasoline ETBE.....   w/Neurotoxicity,
                                                      Immunotoxicity,
                                                      and In Vivo/In
                                                      Vitro
                                                      Genotoxicity*.
                                                      Developmen
                                                      tal Toxicity (One
                                                      Species).
                                                    ----------------------
                                                     Study Set 5:         18 months.........  38 months.........  40 months.........  42 months
                                                      One
                                                      Generation
                                                      Reproductive
                                                      Toxicity.
                                                    ----------------------
Group C........................  Gasoline DIPE.....  Study Set 6:         18 months.........  38 months.........  40 months.........  42 months
                                 Gasoline TBA......   Subchronic
                                                      w/Neurotoxicity,
                                                      Immunotoxicity,
                                                      and In Vivo/In
                                                      Vitro
                                                      Genotoxicity*.
                                                      Developmen
                                                      tal Toxicity (One
                                                      Species).
                                                    ----------------------
                                                     Study Set 7:         30 months.........  50 months.........  52 months.........  54 months
                                                      One
                                                      Generation
                                                      Reproductive
                                                      Toxicity.
                                                    ----------------------
Group D........................  EtOH, TAME, ETBE,   Study Set 8:         6 months..........  26 months.........  28 months.........  30 months
                                  DIPE, TBA.          Neat
                                                      Oxygenate PK
                                                      (where applicable).
--------------------------------------------------------------------------------------------------------------------------------------------------------
*To include the in vivo micronucleus assay and the in vivo sister chromatid exchange assay, as well as the in vitro salmonella test specified in 40 CFR
  para. 79.68.

                                ------                                


                                                Exposure Studies
----------------------------------------------------------------------------------------------------------------
               Exposure Assessment Task                      Original Schedule             Revised Schedule
----------------------------------------------------------------------------------------------------------------
Incorporate going monitoring studies.................  not considered..............  6 months
API submits draft peer-reviewed protocol including     3 months....................  12 months
 individual peer review comments and disposition of
 comments.
EPA provides comments on draft protocol to API.......  5 months....................  14 months
API submits revised draft protocol to EPA............  7 months....................  16 months
EPA approves/disapproves revised draft protocol......  9 months....................  18 months
API submits draft final report for review by EPA       24 months...................  42 months
 including individual peer review comments and
 disposition of comments.
EPA provides comments on draft final report..........  26 months...................  44 months
API submits final report to EPA on results of testing  28 months...................  48 months
----------------------------------------------------------------------------------------------------------------

                                ------                                


                              APPENDIX VII

     Analysis of Policy Scenarios for Reducing or Eliminating MTBE

                               June 2000

Executive Summary

    In March, the Administration outlined a legislative 
framework for protecting the nation's drinking water from MTBE 
(Methyl Tertiary-Butyl Ether) contamination, that would also 
preserve clean air benefits and promote greater production and 
use of renewable fuels. Since then, several Members of Congress 
have requested that the Administration provide additional 
analysis to further inform the legislative process.
    The primary purpose of this analysis is to examine the 
economic consequences of either reducing or eliminating MTBE, 
while maintaining air quality and increasing the use of 
renewable fuels. It is our conclusion that legislation, along 
the lines of the Administration's principles, can address the 
MTBE problem in a cost-effective manner while providing 
additional benefits.
    Rationale for Action: The Clean Air Act Reformulated 
Gasoline (RFG) program has delivered significant benefits to 
the nation's air quality. However, MTBE--the primary oxygenate 
used in RFG--poses risks to the nation's drinking water. 
Consistent with the advice of the Federal Blue Ribbon Panel on 
Oxygenates in Gasoline, the Administration has advocated the 
significant reduction or phase-out of MTBE. Legislation is the 
fastest and best way to achieve this goal. If Congress fails to 
enact Federal legislation, the costs could be significant as 
States continue to ban MTBE (as California and New York have 
already done) and gasoline refiners work to meet the existing 
RFG program without the flexibility provided in the 
Administration's framework.
    Balanced Approach: A balanced legislative approach must not 
only reduce or eliminate MTBE, but must also maintain air 
quality benefits and replace the existing oxygenate requirement 
in the Clean Air Act with a renewable fuels standard. Such a 
standard will stimulate the biomass ethanol industry and permit 
annual and geographic averaging which allows refineries the 
flexibility to seek out low-cost approaches to produce fuel, 
something that unilateral State action would not achieve. 
Indeed, a renewable fuels standard that would result in the 
same volume of ethanol consumed nationwide as maintaining the 
current oxygenate mandate would have lower costs to refiners 
and consumers than retaining the oxygenate requirement.
    We modeled the effect of reducing or eliminating the use of 
MTBE, repealing the oxygenate requirement, and establishing a 
renewable fuels standard. The model estimated that maintaining 
air quality benefits and totally eliminating MTBE would cost 
about 3 cents per gallon while a 3 percent cap on the use of 
MTBE (which would achieve significant improvements in water 
quality) would cost about 2 cents per gallon. Eliminating MTBE 
or reducing to a 3 percent cap--with a repeal of the oxygenate 
requirement--would increase ethanol consumption to a level 
roughly comparable to the effect of a 1.7 percent renewable 
fuel standard. The cost of a 2 percent renewable fuels standard 
is estimated at about 2 cents per gallon in 2005. Maintaining 
toxic emissions benefits would have a modest impact on 
production costs. In 2005, legislation along these lines would 
reduce receipts into the Highway Trust Fund by about $600 
million to $900 million per year, depending on the amount of 
ethanol consumed.
    The actual costs in 2005 of this approach could be lower 
for several reasons. For example, the opportunities for 
refiners to reuse existing MTBE equipment could reduce capital 
costs more than was assumed in our analysis. Further, if States 
follow California and New York and ban MTBE while the oxygenate 
mandate remains in place, the cost of no action significantly 
rises, which would reduce the incremental costs of a balanced 
approach. Finally, we anticipate that costs would continue to 
fall after 2005 as additional technological breakthroughs 
further increase the efficiency of producing renewable fuels. 
In addition, if the ethanol tax incentive expires in 2007, as 
scheduled, the impact on the highway trust fund would be 
significantly diminished.
    Conclusion: We must take steps to protect America's 
drinking water supplies from further MTBE contamination and 
legislation is the fastest and best way to achieve this. 
Congress should adopt legislation consistent with the 
Administration's principles, which provide for addressing the 
MTBE problem while maintaining air quality gains and promoting 
growth in renewable fuels. Taken as a package, this approach 
represents a responsible and effective approach to addressing 
this serious problem.

I. The Reformulated Gasoline Program

            A. Origin of the Reformulated Gasoline Program
    To promote cleaner motor vehicles and cleaner fuels, the 
1990 Clean Air Act Amendments established the Federal 
reformulated gasoline (RFG) program. In 1995, this program was 
introduced to the market cleaner fuels meeting more stringent 
emission performance requirements. The 1990 Clean Air Act 
Amendments also required that RFG contain at least 2 percent 
oxygen by weight. The addition of oxygenates causes gasoline to 
burn cleaner and more efficiently, thereby reducing toxic air 
pollutants, carbon monoxide, and smog-forming emissions. \1\ 
The RFG program initially was mandated only for the nine 
metropolitan areas in the country with the worst smog: Los 
Angeles, San Diego, Chicago, Houston, Milwaukee, Baltimore, 
Philadelphia, Hartford, and New York City. Seventeen States and 
the District of Columbia currently use RFG, either because of 
Clean Air Act requirements, or on a voluntary basis to achieve 
air quality standards.
---------------------------------------------------------------------------
    \1\ The 1990 Clean Air Act Amendments also established a wintertime 
oxygenate gasoline program to reduce emissions of carbon monoxide 
starting in 1992. This program requires oxygenated gasoline to contain 
2.7 percent oxygen by weight. Oxygenated gasoline makes up about 3 
percent of all gasoline sold in the winter and 1.3 percent of all 
gasoline sold per year.
---------------------------------------------------------------------------
            B. Use of RFG Has Led to Cleaner Air

    The RFG program has produced substantial environmental 
benefits. Phase I of the RFG program (1995-1999) aimed to 
reduce air pollution that causes smog by 64,000 tons per year 
in RFG areas. Phase II, beginning this year, has more stringent 
standards that will reduce smog pollutants by an additional 
41,000 tons per year in RFG areas. This program also reduces 
emissions of toxic air pollutants such as benzene, a known 
human carcinogen. Phase I and Phase II RFG combined to reduce 
toxic pollutants by about 24,000 tons per year in RFG areas, 
the equivalent of eliminating the toxic emissions from over 13 
million vehicles. From 1995 through 1999, RFG exceeded the 
required average reductions of smog-forming volatile organic 
compounds (VOCs), tonics, and oxides of nitrogen (NOx) (Blue 
Ribbon Panel [BRP] 1999; see table 1). Most notably, overall 
toxics reductions averaged about 27 percent versus the 17 
percent required. Benzene showed the most dramatic declines 
with a median reduction of 38 percent in the first year of the 
program (EPA 1995). This year, Phase II RFG will implement more 
stringent emissions standards: a 27 percent reduction in VOCs, 
22 percent reduction in tonics, and a 7 percent reduction in 
NOx emissions.


        Table 1. Reformulated Gasoline Average Emission Reduction
                             Requirements\1\
------------------------------------------------------------------------
                                   Phase I RFG          Phase II RFG
------------------------------------------------------------------------
Volatile Organic Compounds..  17%.................  27%
Nitrogen Oxides.............  2%..................  7%
Toxics......................  17%.................  22%
------------------------------------------------------------------------
\1\Reductions are from 1990 nationwide baseline.

             RFG and the Gasoline Market

    The 1990 Clean Air Act Amendments require RFG to contain 2 
percent oxygen by weight, but neither the Act nor EPA requires 
the use of a specific oxygenate in RFG. Both ethanol and methyl 
tertiary-butyl ether (MTBE) are used as oxygenates in the 
current RFG program. MTBE is the oxygen additive most commonly 
used by the petroleum industry to satisfy the 2 percent oxygen 
mandate, primarily because of its low cost, ease of transport, 
and low volatility. Approximately 87 percent of RFG contains 
MTBE, and most of the rest contains ethanol. The petroleum 
industry has used MTBE in much smaller amounts to replace lead 
as an octane and performance enhancer since the late 1970's.
    In response to the 1990 Clean Air Act Amendments, 
refineries undertook substantial investments to increase their 
production of MTBE and other oxygenates. Between 1990 and 1994, 
MTBE consumption doubled. By 1997, MTBE consumption was more 
than three times the 1990 level (EIA 2000). Approximately 4.5 
billion gallons of MTBE are used each year in gasoline (nearly 
300,000 barrels per day out of a total of 8.2 million barrels/
day of gasoline). MTBE, ethanol, and other oxygenates combined 
allowed for the production of about 2.5 million barrels per day 
of RFG in 1997, nearly one-third of the total gasoline market 
(see figure 1). RFG now represents about half of all gasoline 
production on the east coast and a little less than 20 percent 
of gasoline production in the Midwest and gulf coast. The West 
Coast consumed 36 percent of all RFG in 1997 (EIA 2000).


II. MTBE
            A. The MTBE water Contamination Problem

    Significant concern has arisen about contamination of 
drinking water by MTBE in many areas of the country. Because of 
the odor and taste of MTBE-contaminated water, EPA established 
a drinking water advisory range of 20 to 40 parts per billion 
(ppb) (EPA 1997). Drinking water systems with MTBE 
concentrations at or above the advisory range may smell and 
taste so bad that the water becomes unusable for personal 
consumption. For example, Santa Monica in 1996 experienced MTBE 
concentrations up to 600 ppb (15 to 30 times greater than the 
EPA advisory range) necessitating the removal from service of 
half of the city's drinking water supply (Johnson et al. 2000).
    Some research also indicates that MTBE could potentially 
pose a public health risk. MTBE has been found to cause cancer 
in laboratory test animals. Based on this research, the 
National Science and Technology Council (1997) concluded that 
``it is reasonable to regard this alkyl ether oxygenate [MTBE] 
as posing a potential carcinogenic hazard and risk to humans'' 
(p. 4-29). No human carcinogenicity studies on MTBE, however, 
have been published to date.
    Current data on MTBE levels in ground and surface waters 
indicate widespread and numerous detections of MTBE at low 
levels (BRP 1999, Johnson et al. 2000). Recent testing by the 
United States Geological Survey showed the detection of MTBE in 
approximately 20 percent of the ground water in RFG areas and a 
2 percent detection rate in non-RFG areas (BRP 1999). In most 
instances, the concentrations of MTBE are below the levels of 
public health concern and are not above the range set by EPA's 
drinking water advisory. However, the detection rate of high 
levels of MTBE (greater than 20 ppb) is 19 times greater in RFG 
areas than in non-RFG areas (BRP 1999). The detection of MTBE 
at high concentrations usually results from leaking underground 
or aboveground Mel storage tanks and pipelines (BRP 1999).
    Several States have responded to concerns about MTBE by 
establishing drinking water standards (see table 2). In fact, 
California has banned MTBE effective no later than December 31, 
2002, and New York has banned MTBE effective in 2004.


 Table 2. State Drinking Water Standards, Guidelines, and Action Levels
------------------------------------------------------------------------

------------------------------------------------------------------------
States with primary drinking   Maine (35 ppb)
 water standards (health-      New Jersey (70 ppb)
 based).                       New York (50 ppb)
                               South Carolina (20-40 ppb)
States with a Secondary        California (5 ppb), enforceable
 Standard (aesthetic).
States with enforceable        Michigan (240 ppb), health-based
 guidelines.                   West Virginia (20-40 ppb), EPA advisory
States with a guideline or     Arizona (35 ppb), health-based
 action level in place.        California (13 ppb), health-based
                               Connecticut (70 ppb), health-based
                               Illinois (70 ppb), health-based
                               Kansas (20-40 ppb), EPA advisory
                               Maryland (10 ppb), aesthetically-based
                               Massachusetts (70 ppb), health-based
                               New Hampshire (15 ppb), aesthetically-
                                based
                               Pennsylvania (20-40 ppb), EPA advisory
                               Rhode Island (20-40 ppb), EPA advisory
                               Vermont (40 ppb), EPA advisory
                               Wisconsin (60 ppb), health-based
------------------------------------------------------------------------

            B. Blue Ribbon Panel Report on Oxygenates

    In response to water quality concerns associated with the 
use of oxygenates in gasoline, EPA established a Blue Ribbon 
Panel (BRP) of leading experts from public health and 
scientific communities, water utilities, environmental groups, 
industry, and local and State government, including California, 
to assess issues posed by the use of oxygenates in gasoline in 
California and the rest of the nation. The Panel was charged 
with: 1) examining the role of oxygenates in meeting the 
nation's goal of clean air; 2) evaluating each product's 
efficiency in providing clean air benefits and the existence of 
alternatives; 3) assessing the behavior of oxygenates in the 
environment; 4) reviewing any known health effects; and 5) 
comparing the cost of production and use and each product's 
availability--both at present and in the future. In September 
1999, the Blue Ribbon Panel made the following recommendations 
for blending fuel for clean air and water:
    ``Given the complexity of the national fuel system, the 
advantages and disadvantages of each of the fuel blending 
options the Panel considered (see Appendix A), and the need to 
maintain the air quality benefits of the current program, the 
Panel recommends an integrated package of actions by both 
Congress and EPA that should be implemented as quickly as 
possible. The key elements of that package, described in more 
detail below, are:
      Action agreed to broadly by the Panel to reduce 
the use of MTBE substantially (with some members supporting its 
complete phase-out), and action by Congress to clarify Federal 
and State authority to regulate and/or eliminate the use of 
gasoline additives that threaten drinking water supplies;
      Action by Congress to remove the current 2 
percent oxygen requirement to ensure that adequate fuel 
supplies can be blended in a cost-effective manner while 
quickly reducing usage of MTBE; and
      Action by EPA to ensure that there is no loss of 
current air quality benefits'' (BRP 1999, p. 6; emphasis in 
original).

            C. Administration's Principles

    Based on the findings and the recommendations of the Blue 
Ribbon Panel, the Administration has proposed a set of 
legislative principles to address concerns about the continued 
use of MTBE:
    Recommendation #1: Amend the Clean Air Act to provide the 
authority to significantly reduce or eliminate the use of MTBE.
    Recommendation #2: As MTBE use is reduced or eliminated, 
ensure that air quality gains are not diminished.
    Recommendation #3: Replace the existing oxygen requirement 
contained in the Clean Air Act with a renewable fuel standard 
for all gasoline.
    The Administration believes that these principles provide 
for an environmentally sound and cost-effective approach to 
addressing the risks posed by the current use of MTBE while 
helping the farm economy and promoting energy diversity.

            D. Environmental Benefits of Significantly Reducing or 
                    Eliminating the Use of MTBE

                         Water Quality Benefits

    Significantly reducing or eliminating MTBE, consistent with 
the Administration's principles, would provide substantial 
water quality benefits. With a 3 percent MTBE per gallon cap or 
MTBE phase-down, the share of MTBE in blended gas throughout 
the country would be lower than it is today in many non-RFG 
areas. The 3 percent cap would reduce MTBE to pre-1990 levels 
and should significantly reduce MTBE contamination of 
groundwater (Moran et al. 1998). This would generate 
significant benefits by reducing human exposure to MTBE, 
reducing the number of drinking water supplies requiring 
remediation, and reducing the need to find alternative drinking 
water supplies for those cases when MTBE contamination renders 
a supply unusable.
    The remediation costs of drinking water supplies 
contaminated with MTBE could be quite significant. Several 
surveys summarized by the Blue Ribbon Panel found that 
underground storage tank release sites contaminated with MTBE 
could have substantially higher clean-up costs than comparable 
sites without MTBE contamination. For example, a study on 
groundwater contamination in California found that ``on average 
MTBE-contaminated sites may be 140 percent of the cost of 
remediating conventional gasoline sites'' (BRP 1999, p. 56).

                          Air Quality Benefits

    Maintaining the emissions reductions goals under Phase II 
of the RFG program will preserve the significant environmental 
gains achieved by reducing smog-forming and toxic emissions. 
The air quality improvements expected under the RFG program 
provide important human health benefits since repeated 
exposures to unhealthy levels of ozone (smog) may increase 
susceptibility to respiratory infection, cause lung 
inflammation, and aggravate pre-existing respiratory diseases 
such as asthma. Further, preserving current toxics performance 
in gasoline ensures that the risk reductions from decreased 
exposure to carcinogens in vehicle exhaust achieved to date are 
not reversed.

III. Renewable Fuels Standard

            A. Benefits to Rural Communities

    The establishment of a renewable fuels standard would boost 
the use of renewable fuels, such as ethanol, and could benefit 
the nation's farmers. In an analysis conducted in 1999, USDA 
evaluated the effect a renewable feels standard would have on 
the domestic farm economy. In that analysis, renewable fuels 
account for 1 percent of the nation's gasoline in 2001 and 
increase linearly to 2.5 percent in 2010. The analysis was 
limited to the effects on the farm economy of increased 
production of corn-based ethanol. With 2.5 percent of the 
nation's gasoline consisting of ethanol by 2010, U.S. corn 
ethanol production would increase from a baseline projection of 
1.7 billion gallons in 2010 to 3 billion gallons. 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. With higher corn prices and greater corn 
production, U.S. net farm income would increase by $1.4 billion 
in 2010, and would average $750 million more per year during 
2002-2010 (USDA 1999).
    The establishment of a renewable fuels standard would also 
help boost the United States' fast-growing market for bioenergy 
generally. A standard would greatly increase the demand for 
energy crops and for agricultural and forest wastes of all 
types. Since the cost of transporting the raw materials is 
high, most of the value-added work would occur in rural 
communities, providing new revenue streams for farmers and 
cash-flow for rural economic development.

            B. Potentially Lower Fiscal Farm Program Outlays

    The Administration and the Congress have demonstrated a 
strong commitment to provide financial support to farmers when 
market prices fall. The government provides that support 
through two primary mechanisms: the Federal Agriculture 
Improvement and Reform Act of 1996 (1996 Farm Bill) and ad hoc 
emergency supplemental assistance legislation. Through these 
mechanisms, total farm program outlays rose to $10.1 billion in 
fiscal year 1998, $19.2 billion in fiscal year 1999, and will 
increase substantially in fiscal year 2000. Corn producers 
currently receive more in direct farm support payments than 
producers of any other commodity. A part of these payments is 
based on the price of corn. When the market price of corn is 
below the price support loan rate, corn producers receive a 
payment equal to the difference between the loan rate and the 
market price. These payments, known as loan deficiency payments 
or marketing loan gains, totaled $2.2 billion for 1999 corn 
production and are forecast to total $3.2 billion for 2000 
production.
    In the most recent USDA baseline projections, the price of 
corn rises well above the price support loan rate after 2002 
(WAOB 2000). Nevertheless, a renewable fuels standard could 
prevent or help offset some unexpected future decline in the 
price of corn below the loan rate. In such a scenario, the 
renewable standard could either prevent the market price of 
corn from falling low enough to trigger this government subsidy 
or could keep it from falling as far below as it might 
otherwise. From the farmers' perspective, the renewable 
standard would substitute for part or all of the loan 
deficiency program in maintaining the price of corn, while the 
Federal Government expenditures on agriculture would fall, 
freeing up resources for other socially beneficial uses. The 
renewable standard could also obviate the need for ad hoc 
assistance payments. \2\ However, if corn prices follow current 
USDA baseline projections, loan deficiency payments and ad hoc 
payments would not be expected, and the renewable standard 
would provide the kinds of benefits to farmers described above 
and not impact fiscal outlays.
---------------------------------------------------------------------------
    \2\ While potentially offsetting farm program outlays, a renewable 
standard could impact other aspects of the budget, such as the Highway 
Trust Fund. Please refer to section VI for a discussion of how 
increased ethanol consumption could reduce Highway Trust Fund receipts.
---------------------------------------------------------------------------

            C. Diversifying the Nation's Energy Portfolio

    A renewable fuels standard would increase the role of 
biofuels in the nation's energy portfolio. Because ethanol can 
substitute for petroleum-based products, it is an important 
strategic option for expanding the array of energy sources 
available to fuel the economy. Increasing the share of ethanol 
in all transportation fuel would decrease the amount of crude 
oil necessary to fuel vehicles.
    As mentioned above, in addition to current R&D; programs and 
tax incentives, a renewable fuels standard would stimulate the 
demand for ethanol, promoting further development of the 
biomass ethanol industry. Unlike the corn-based ethanol 
industry, ethanol made from cellulosic biomass uses trees, 
crops, and agricultural and forestry wastes. A recent EIA 
analysis finds that the nascent biomass ethanol industry should 
grow substantially over the coming decades (DiPardo 2000). EIA 
projects biomass ethanol production to increase by a factor of 
13 between 2001 and 2010. Even under a pessimistic technology 
case, biomass ethanol increases 9fold over this period. 
However, the optimistic high technology case would have biomass 
ethanol 16 times greater in 2010 than in 2001, and with a 
successful technological breakthrough in enzymatic hydrolysis, 
2020 production could exceed 2.8 billion gallons per year (see 
figure 2). Some other studies have found that the potential for 
biomass ethanol could be even greater with other technological 
breakthroughs. To the extent that it spurs the development of 
the domestic biomass industry generally, a renewable fuels 
standard could help drive technology breakthroughs that lead to 
the low cost production of electrical power, chemicals and 
other everyday products from biomass--further expanding both 
economic opportunities and energy diversity.


            D. Environmental Benefits

    Renewable fuels have the potential to provide substantial 
life-cycle carbon dioxide and greenhouse gas emission benefits 
relative to gasoline from crude oil. Fuels produced from food 
grains such as corn, which use fossil fuels in the farming 
process, typically provide a 10 to 30 percent reduction in 
life-cycle greenhouse gas emissions relative to gasoline. 
Future use of biomass feedstocks such as fast-growing grasses 
or trees, which would not be expected to utilize many fossil 
fuels in the growing process, could provide life-cycle 
greenhouse gas emission reductions of 60 to 80 percent relative 
to gasoline. \3\ Additionally, the deep-rooted plants commonly 
used for biomass--such as poplar, willow, and switch grass--are 
helpful in controlling erosion, filtering chemicals and 
sediment from water runoff, and slowing floodwaters.
---------------------------------------------------------------------------
    \3\ Substantial emissions reduction through biofuels is consistent 
with the Administration's larger objectives under the President's 
Bioenergy and Bioproducts Executive Order. Achieving the goal 
established with the release of this order would reduce 2010 greenhouse 
gas emissions by up to 100 million metric tons of carbon--the 
equivalent of taking more than 70 million cars off the road.
---------------------------------------------------------------------------

IV. The Economics of Oxygenate Production

            A. Economics of Replacing MTBE

    The refining industry uses MTBE for several reasons. First, 
MTBE is an oxygenate that is also high in octane. Second, MTBE, 
like all oxygenates, contains no sulfur or aromatics, making it 
easier to meet the gasoline sulfur and toxics standards. Third, 
MTBE has very good distillation characteristics, and refiners 
can transport gasoline blended with MTBE through the existing 
pipelines. Replacing barrels of MTBE thus requires refiners to 
replace a high quality component of gasoline.
    Several key issues can affect the cost of reducing or 
eliminating MTBE:
      Time. Providing more time may enable firms to 
further reduce costs by modifying production processes and 
building additional capacity and infrastructure. The California 
Energy Commission (1999), for example, concluded that 3 years 
to phase-out MTBE in California was sufficient to avoid severe 
gasoline shortages and price spikes while extending the phase-
out period for another 3 years could reduce costs by as much as 
60 percent. Adequate lead time also allows refiners to take 
advantage of new desulfurization technologies that could lessen 
the octane and yield loss that can occur with the reduction in 
sulfur content. This could mitigate some of the cost of an MTBE 
phase-down.
      Certainty. With a variety of environmental rules 
affecting or potentially affecting refinery production, 
regulatory certainty could facilitate refiner investment. This 
is also critical as refiners consider potential economies of 
scale in making investments that could address multiple 
environmental rules at once (for example, gasoline sulfur and 
MTBE).
      Flexibility. The petroleum industry comprises a 
wide variety of companies. The best decision for one may not be 
the best solution for all. Any legislation should allow the 
industry the flexibility to find the lowest cost method for 
achieving the goals consistent with the Administration's 
principles.
      Fungibility. The BRP notes that ``Refiners/
marketers have indicated that to meet consumer fuel demand and 
to minimize supply shortages, the scope of any future fuel 
changes should be national or regional. Permitting State-
specific fuel changes (e.g., RVP, low sulfur) may lead to 
greater uncertainty in fuel supply and may cause periodic 
shortages unless there is a mechanism to ensure consistency 
across State boundaries'' (p. 68).

            B. The Economics of Ethanol Production and Use

    Ethanol is the primary alternative oxygenate to MTBE. While 
ethanol has a higher oxygen content than MTBE, ethanol must be 
blended with higher cost blendstocks and it has higher 
transportation costs. It is more costly for producers to ship 
gasoline containing ethanol via pipelines because the residual 
water in the pipelines makes the ethanol separate from the 
gasoline. Instead, producers ship subgrades of gasoline and 
ethanol separately, blending the two at later points in the 
distribution system. The higher transportation costs 
concentrate ethanol consumption in the Midwest, home of most of 
the nation's ethanol production. Additionally, adding ethanol 
to conventional gasoline increases evaporative emissions, which 
can contribute to smog pollution. In RFG, blending ethanol with 
low volatility blend stock as well as geographic and annual 
averaging under a renewable fuels standard can address this 
problem. Finally, ethanol, like other oxygenates, has positive 
impacts on gasoline toxic emissions by changing gasoline 
blending characteristics.
    Continued expansion of the ethanol industry depends on 
several factors: petroleum markets, market factors affecting 
the net feedstock cost, new technological advances, and energy, 
environmental, and agricultural policy. Currently, ethanol 
receives a $0.54 per gallon tax incentive that has positively 
affected its production. Expansion of existing ethanol plants 
and construction of new plants require capital investment. Both 
capital and operation and maintenance costs have declined 
significantly during the past 10 years, and are expected to 
decline further in the near future. Capital investment per 
gallon of ethanol for the dry mill process has decreased from 
$2 per gallon in early 1980's to about $1.10 per gallon today. 
The wet mill ethanol plants require a larger capital investment 
and have higher operation and maintenance costs; however, the 
net corn cost per gallon is significantly lower relative to a 
dry mill. Lowering net feedstock costs and other costs 
associated with ethanol production will improve the 
competitiveness of ethanol as a fuel or fuel additive. Analysis 
published by USDA suggests that long-term technological 
improvements could reduce ethanol production costs by 9 to 15 
cents per gallon. USDA researchers believe that additional 
savings of 8 to 13 cents per gallon may be possible through co-
product development and process improvement (Holmann and 
Rendleman 1993).

V. Analysis of Addressing MTBE

    A few studies have examined the gasoline production costs 
of reducing the use of MTBE (MathPro 2000, Hadder 1999). The 
models employed in these studies can assess the increased 
capital and production costs associated with a change in MTBE 
policy. They can also characterize the change in production 
processes and fuel inputs, such as for ethanol. These models 
can estimate total and average costs, but not marginal costs. 
EIA's National Energy Modeling System (NEMS), however, can 
project not only total costs, but also marginal costs (which 
includes a return on capital investment). EIA does this by 
modeling the entire gasoline market, including costs of 
production in both domestic and foreign refineries. In a well-
functioning market with adequate supply capacity, the marginal 
cost of producing a gallon of gasoline equals the price of a 
gallon of gasoline paid by consumers.
    This marginal cost reflects the cost to produce the last, 
or marginal, gallon of gasoline in the market. A refiner 
produces a gallon of gasoline only if the market price is equal 
to or above the cost to produce this gallon. If the market 
price is below the cost of producing this gallon, then a 
refiner would not find it profitable to produce it. Therefore, 
the increase in the gasoline price under a new oxygenate policy 
corresponds to the marginal cost of producing this last gallon 
of gasoline under this policy. The estimate of marginal cost is 
a very important measure since this determines the production 
decisions of refiners (where marginal cost of production equals 
market price) and reflects the cost borne by consumers of a new 
oxygenate policy. Marginal costs and average costs are not 
comparable, although for a given oxygenate policy, the marginal 
cost of gasoline generally should exceed its average cost.
    Using price changes based on estimated marginal costs has 
several advantages over focusing on average cost differences 
alone. Refinery models do not account for the impact of higher 
production costs on consumer demand and foreign refinery 
production. Thus, this type of model produces estimates of cost 
changes that are less than the likely price changes that will 
be paid by consumers. The impact of any change in oxygenate 
policy on the Highway Trust Fund depends on the total demand 
for gasoline, which would vary depending on the price changes 
associated with this policy.
    In its Annual Energy Outlook 2000 study, EIA (1999) 
evaluated an MTBE reduction scenario using the NEMS model. EIA 
made the following key assumptions in the analysis:
      The 2 percent oxygenate mandate is eliminated in 
2003.
      The MTBE content of gasoline would be limited to 
3 percent of gasoline by volume per gallon starting in 2003.
      California would discontinue its MTBE ban and opt 
for the 3 percent cap.
      Consistent with the Blue Ribbon Panel 
recommendations, toxic emissions benefits are maintained.
    Following on this work, the Administration requested that 
EIA undertake several additional analyses to better understand 
the implications of various oxygenate policies.

            A. Methodology

    EIA performed the MTBE analyses using the petroleum market 
module (PMM) in HEMS. The PMM represents domestic refinery 
operations and the marketing of petroleum products to 
consumption regions. PMM solves for petroleum product prices, 
crude oil and product import activity (in conjunction with the 
international energy module and the oil and gas supply module), 
and domestic refinery capacity expansion and fuel consumption. 
PMM is a regional, linear programming representation of the 
U.S. petroleum market. Refining operations are represented by a 
three region linear programming formulation of the five 
Petroleum Administration for Defense Districts (PADDs). PADDs I 
(East Coast) and V (West Coast) are each treated as single 
regions, while PADDs II (Midwest), III (Gulf Coast), and IV 
(Rocky Mountains) are aggregated into one region. Each region 
is considered as a single firm where more than 59 distinct 
refinery processes are modeled. Refining capacity is allowed to 
expand in each region over each 3-year period. That is, in 2001 
the model looks ahead to 2004 to determine how much new 
capacity is required and then allows additions of new capacity 
in 2002, 2003, and 2004. The capacity planning decisions begin 
anew for 2007 at the end of the 2004. As a result, cumulative 
investment for any given year may include investment for future 
expectations. Products are produced to annual average 
specifications and demands with calibrations to account for 
non-linear blending qualities such as RVP in motor gasoline. 
EIA models EPA's complex model requirements through 
specification constraints on aromatics, benzene, sulfur, RVP, 
E200, E300, olefins, and oxygen content. The specification 
constraints conform to EPA's complex model requirements for 
emissions reductions of VOCs, NOx, and tonics. Changes to the 
PMM for the MTBE analyses included the return on investment 
(ROI) charge rate from 15 percent ROI to a 10 percent ROI to be 
more consistent with other analyses. Investment decisions ROI 
remained at 15 percent.

            B. Scenarios

    EIA evaluated four scenarios under the assumption that the 
oxygenate requirement is waived and emissions of air toxics are 
held to their current level (maintaining toxic emissions 
benefits) (see table 3). The various options for each scenario 
included banning MTBE in 2003, imposing a 3 percent by volume 
cap (the pre-1990 MTBE content of gasoline) in 2003, no 
renewable fuels standard, and a 2 percent renewable fuels 
standard in 2005 \4\. The MTBE content refers to a nationwide 
standard including California and New York, despite existing 
State laws to phase-out MTBE. EIA did not undertake an analysis 
of reducing or banning MTBE and maintaining the oxygenate 
mandate. \5\
---------------------------------------------------------------------------
    \4\ Note that a 2 percent renewable fuels standard in 2005 would 
likely have comparable 2005 effects as a 3 percent standard for 2010. 
Since current renewable fuel production is slightly over 1 percent of 
the market, constant growth necessary to achieve a 3 percent target in 
2010 would require renewable fuels to make up about 2 percent of the 
market in 2005
    \5\ Performing analyses of scenarios that represent States banning 
MTBE without Federal actions to eliminate the oxygenate mandate would 
require significant changes to the EIA Petroleum Market Model (PMM). 
First, representation of imported supplies of RFG requires re-
estimation of supply curves. EIA constructs import supply functions for 
all imported petroleum products using the World Oil Refining, 
Logistics, and Demand (WORLD) model, which is a worldwide refinery LP 
that requires significant resources to operate and generate import 
supply curves. Second, EIA's PMM would require significant structural 
changes to handle imported subspecification blends of RFG that would be 
shipped to the demand regions where final blending with ethanol occurs. 
Third, testing of the PMM capability to manufacture all the domestic 
supplies to RFG as subspecification blends of RFG has not been 
completed. Finally, EIA would have to re-estimate RFG specifications 
that would conform to EPA's RFG2 complex model on an annual basis.
    \6\ This is the same scenario as the AEO2000 MTBE side case, 
however EIA modified this scenario from the AEO2000 to correct for an 
error detected while performing the additional MTBE analyses. The 
oxygenate specification for sub-specification gasoline, which is 
blending with ethanol to bring it into specification, was incorrect in 
the reference case. This correction changed the differential investment 
and gasoline prices for the AEO MTBE reduction side case to 1.9 cents 
per gallon and 2.4 cents per gallon in 2003 and 2005 respectively. 
Additional, differential cumulative investment for 2005 changed to $1.9 
billion.


               Table 3. Scenarios Evaluated with EIA Model
------------------------------------------------------------------------
                                                       Renewable Fuels
          Scenario                MTBE Content,      Standard, effective
                                effective in 2003          in 2005
------------------------------------------------------------------------
EIA1\6\.....................  3%..................  0%
EIA2........................  0%..................  0%
EIA3........................  3%..................  2%
EIA4........................  0%..................  2%
------------------------------------------------------------------------

            C. Key Assumptions

    In undertaking this analysis, EIA made a number of critical 
assumptions that could affect the results and the conclusions 
drawn from this work. The key premises, limitations, and 
uncertainties are:
      Geographic coverage of MTBE 3 percent cap. To 
simplify the analysis, the cases analyzing the 3 percent MTBE 
cap assume that both California and New York decide to repeal 
their laws requiring the phase-out of MTBE and instead opt for 
the 3 percent cap.
      Starting date of repeal of oxygenate mandate. The 
elimination of the RFG oxygenate requirement becomes effective 
starting in 2003.
      Maintaining toxic emissions benefits. Maintaining 
toxic emissions benefits refers to keeping the current levels 
of toxic emissions in RFG, without allowing for toxic emissions 
to fall to the level of the Phase II standards. Failing to 
maintain toxic emissions benefits could result in toxic 
emissions at the Phase II standard level.
      Low sulfur assumptions. EIA's model does not 
account for the recently promulgated Tier 2/gasoline sulfur 
regulations. Because refineries will already be making 
renovations to meet low sulfur gasoline requirements, 
additional modifications to accommodate limits on MTBE may 
prove less costly than if the refineries had to modify their 
processes to accommodate the MTBE policy change alone. As a 
result, the EIA model would overestimate the costs if such 
positive synergies exist. However, reducing the sulfur content 
of gasoline may require making up both octane and volume 
losses, potentially increasing the costs of restricting the use 
of MTBE.
      Assumed gasoline demand. The gasoline forecast is 
based on EIA's Annual Energy Outlook 2000 demand forecast: 9.4 
million barrels per day in 2005 and 10.2 million barrels per 
day in 2010.
      Starting date of renewable fuels standard. The 
renewable fuels standard cases involve the phasing up of the 
share of ethanol in the gasoline market through 2005 based on 
the level established in the standard. National credit trading 
and annual averaging is allowed under the renewable fuels 
standard to provide the industry flexibility in complying with 
the standard.
      Cost of increased ethanol production. The ELk 
model solves for the increase in ethanol prices resulting from 
greater demand. There is substantial uncertainty about the 
price increases resulting from a near doubling of ethanol 
volumes. In these analyses, ethanol production costs are 
projected to increase by 33 to 37 cents per gallon.

            D. Results

    In the scenarios evaluated by EIA, a 3 percent MTBE per 
gallon cap in 2003 is projected to increase gasoline prices 
about 2 cents per gallon, while eliminating MTBE would increase 
gasoline prices about 3 cents per gallon (see figure 3). Adding 
a 2 percent renewable fuels standard is projected to increase 
gasoline prices in the 5 cents per gallon range in 2005 (see 
figure 4). The actual costs in 2005 could be lower for several 
reasons. For example, the opportunities for refiners to reuse 
existing MTBE equipment could reduce capital costs more than 
was assumed in our analysis. We anticipate that costs would 
continue to fall after 2005 as additional technological 
breakthroughs further increase the efficiency of producing 
renewable fuels. Finally, if States continue to ban MTBE while 
the oxygenate mandate remains in effect, the costs of the 
current Federal policy could be significant.



    The required reduction or elimination of MTBE significantly 
increases the demand for ethanol despite the assumed repeal of 
the 2 percent oxygenate requirement (see figure 4). In the 
scenario where MTBE is limited to 3 percent volume per gallon 
without a renewable fuels standard, the volume of ethanol 
consumed increases 60 percent between 2000 and 2005. 
Eliminating MTBE results in about a 65 percent increase in 
ethanol over this period of time. The ethanol increase under 
the two ``no renewable standard'' scenarios is comparable to 
the effect of a 1.7 percent renewable standard in 2005. A 
renewable fuels standard of 2 percent results in a little less 
than 90 percent increase in ethanol consumption over this 5-
year period. With a significant reduction or elimination of 
MTBE and improvement in ethanol production methods, the cost of 
the renewable standard will decline over time.



            E. Results from Other Analyses

    Two other studies have also analyzed the impacts of 
eliminating or reducing the use of MTBE on a national level 
under a variety of scenarios:

      The National Petroleum Council (NPC) study 
(MathPro 2000) used MathPro Incorporated's refinery LP modeling 
system.
      Oak Ridge National Laboratory used its ORNL 
Refinery Yield Model (see Hadder 1997, 1999 for previous 
modeling results).

    Both models have detailed representations of refinery 
production and can provide information about the impacts of a 
change in MTBE policy on production costs, ethanol demand, and 
other relevant issues. However, these models take total 
domestic gasoline production as an assumption, and do not 
account for the change in consumer demand and foreign 
production in response to price changes that would alter the 
total gasoline produced in domestic refineries. Thus, while 
assumptions about the total amount of gasoline produced may 
bias cost estimates up or down, we believe that this summary of 
modeling work is illustrative of what the relative impacts of 
different policy scenarios could be. The results from these two 
models can further characterize the economic implications of 
various policy options associated with a change in MTBE policy 
and complement the results from EIA.

Maintaining Toxic Emissions Benefits

    The EIA model did not assess the impacts that failing to 
maintain current air toxic emissions benefits would have on 
gasoline prices and ethanol demand. However, ORNL and MathPro 
did evaluate a set of scenarios with different assumptions 
about the allowed toxic emissions and are useful for 
identifying the potential impact a requirement to maintain air 
quality benefits could have. Maintaining current toxic 
emissions levels would likely increase the demand for ethanol. 
For example, in the ORNL analysis, ethanol use in the East and 
Gulf Coasts double under this requirement relative to a 
scenario without such a requirement. The effects of maintaining 
toxic emissions benefits on production costs appear to be 
relatively modest. In the ORNL analyses, this requirement 
increases the average production cost of fuel by 0.2 to 0.7 
cent more per gallon for all gasoline produced in East and Gulf 
Coast refineries. \7\ The MathPro analysis found this 
requirement would increase the average production cost by about 
0.2 cent per gallon.
---------------------------------------------------------------------------
    \7\ It is important to note that the results from the MathPro and 
ORNL analyses represent average costs, while the EIA results reflect 
marginal costs. Thus, the results between these analyses are not 
comparable.
---------------------------------------------------------------------------

Repealing the Oxygenate Mandate

    One of the Administration's principles is to repeal the 
oxygenate mandate for RFG. Without a repeal, but with a phase-
down or elimination of MTBE, refiners making RFG will be faced 
with a de facto requirement to use ethanol in all RFG produced. 
This creates a demand for significantly greater volumes of 
ethanol than are currently available, a need to move ethanol to 
new and more distant markets, and increased difficulty and 
costs for producing summer RFG (ethanol's higher volatility 
would need to be offset by less volatile petroleum blendstocks) 
in RFG areas where ethanol is not now used. While ethanol, like 
other oxygenates, has valuable characteristics for making RFG, 
cost savings and greater production reliability will be gained 
from allowing refiners flexibility to choose when, where, and 
in what amounts to use it. For summer RFG these average 
production cost savings are on the order of 1 cent per gallon 
of RFG. A renewable fuels standard with averaging on a national 
and annual basis would provide refiners more flexibility to 
produce and transport gasoline to meet Clean Air Act 
requirements, thereby helping to hold down increases in 
gasoline production costs. Indeed, a renewable fuels standard 
that would result in the same volume of ethanol consumed 
nationwide as maintaining the current oxygenate mandate would 
have lower costs to refiners and consumers than the oxygenate 
mandate. The opportunity to average, or trade, geographically 
and across the seasons of the year is a critical distinction 
between the renewable fuel standard and the oxygenate mandate.

Renewable Fuels Standard

    The MathPro study did not assess the impacts of a renewable 
fuels standard. The ORNL analysis, however, did consider 
several scenarios including a 2 percent standard. Banning MTBE 
with a 2 percent renewable fuels standard would increase 
average production costs by up to 2.0 cents per gallon in the 
East and Gulf Coasts, and 1.1 cents per gallon in the Midwest. 
The saline scenarios without the 2 percent renewable standard 
would have slightly lower cost impacts. East and Gulf Coast 
average gasoline production costs would increase up to 1.7 
cents per gallon and Midwest costs would increase 0.7 cent per 
gallon. The 2 percent renewable standard in the ORNL analyses 
increase ethanol production by 24 percent, with average 
gasoline production costs increases ranging from less than 20 
percent (0.3 cent per gallon) in the East arid Gulf Coasts to 
more than 50 percent (0.4 cent per gallon) in the Midwest.

VI. Highway Trust Fund Receipt Impacts

    The principal source of revenue impacts for the Highway 
Trust Fund would reflect a shift from gasoline to gasoline-
ethanol blends. Gasohol, gasoline blended with ethanol, bears a 
lower tax rate than gasoline as part of an existing program to 
promote renewable fuels. \8\ The substitution of gasohol (taxed 
at 13 to 15.3 cents per gallon depending on ethanol content) 
for gasoline (taxed at 18.4 cents per gallon) would result in 
reduced receipts for the Highway Account of the Highway Trust 
Fund.
---------------------------------------------------------------------------
    \8\ The Energy Tax Act of 1978 (P.L. 95-618) began the renewable 
fuel tax incentives program, which has undergone several modifications 
since then, most recently through TEA-21 (P.L. 105-178). The renewable 
final tax incentive program expires in 2007.
---------------------------------------------------------------------------
    In addition, the General Fund retains a portion of the tax 
on gasohol or other ethanol fuel. This retention is unique to 
alcohol fuels among all highway feels. For each gallon of 
gasoline-ethanol blended product, the General Fund retains 2.5 
cents per gallon of the tax. If the blend contains 10 percent 
ethanol, then the Fund retains 3.1 cents per gallon. At current 
ethanol usage rates, the Highway Trust Fund receives about $1 
billion per year less in revenues because of the reduced tax 
rate and diversion of some receipts to the General Fund.

            A. Impact of Highway Trust Fund revenue reductions on the 
                    Federal-aid Highway Program

    With the passage of the Transportation Equity Act for the 
21st Century (TEA-21) (P.L. 105-178), the funding level for the 
Federal-aid Highway Program is directly linked to income to the 
Highway Account of the Highway Trust Fund. When the President's 
Budget is submitted to Congress, the Federal-aid Highway 
Program authorization and obligation limitation levels are 
adjusted to the extent that new projections of Highway Account 
receipts for the budget year and actual Highway Account 
receipts for the year 2 years earlier are higher or lower than 
the receipt estimates used for TEA-21. Increased use of ethanol 
blends would reduce Trust Fund tax receipts and reduce the size 
of the Highway Program on a dollar-for-dollar basis. Funding 
for each element of the Federal-aid Highway Program (except 
emergency relief) and the Motor Carrier Safety Assistance 
Program would be reduced as a result of the reduced income to 
the Trust Fund.
    Based on the EIA model results, we assessed the impacts of 
four MTBE policy scenarios on Highway Trust Fund receipts. The 
Department of the Treasury conducted this analysis using the 
same methodology as in the fiscal year 2001 Administration 
budget submission to Congress. TEA-21 expires in fiscal year 
2003, so these scenarios also assume a continuation of current 
law. Tax receipts appropriated to the Highway Trust Fund are 
estimated to total $37.6 billion in fiscal year 2005. Thus, the 
potential trust fund impacts, 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 (see figure 5). 
However, if the tax incentive expires in 2007, as currently 
scheduled, the impact on the trust fund would be significantly 
diminished.



            B. Impact of shift to ethanol fuels on the distribution of 
                    certain highway program funds

    Statutory formulas determine the distribution of most 
Federal-aid Highway Program funds among the States. TEA-21 
established the current apportionment formulas that reflect a 
negotiated balance among the States for equitable formulas. In 
two cases, these formulas use ``contributions'' to the Highway 
Account of the Highway Trust Fund as a factor in apportioning 
funds among the States. For the Surface Transportation Program, 
authorized at almost $6 billion a year through 2003, 35 percent 
of the funds each year are distributed among the States based 
on each State's relative share of contributions to the Highway 
Account of the Highway Trust Fund. A second formula, the 
Minimum Guarantee, guarantees that each State's share of 
apportionments of Federal-aid Highway Program funds will be not 
less than 90.5 percent of its share of contributions to the 
Highway Account of the Highway Trust Fund. The Minimum 
Guarantee has an indefinite authorization (such sums as may be 
necessary). Almost $7 billion were distributed under the 
Minimum Guarantee for fiscal year 2000. Analysis of the 
distributional impacts on the Highway Trust Fund will be 
provided separately.

VII. Conclusion

    We must take steps to protect America's drinking water 
supplies from further MTBE contamination and legislation is the 
fastest and best way to achieve this. Based on the examination 
of the economic consequences of policies reducing or 
eliminating MTBE presented here, we believe that that 
legislation, along the lines of the Administration's 
principles, can address the MTBE problem in a cost-effective 
manner while providing additional benefits. The risks posed to 
the nation's water supplies by MTBE contamination can be 
addressed while maintaining the air quality benefits of the 
reformulated gasoline program. Moreover, repealing the 
oxygenate mandate while implementing a renewable feels standard 
would promote growth in renewable feels while providing greater 
flexibility to refiners. 'oaken as a package, this approach 
represents a responsible and effective approach to addressing 
this serious problem.

VIII. References

    Blue Ribbon Panel on Oxygenates in Gasoline. 1999. 
Achieving Clean Air and Clean Water: The Report of the Blue 
Ribbon Panel on Oxygenates in Gasoline. Washington, DC: 
Environmental Protection Agency. EPA420-R-99-021. September 15.
    California Environmental Protection Agency. 1999. Potential 
Health Risks of Ethanol in Gasoline. Of floe of Environmental 
Health Hazard Assessment. December.
    DiPardo, J. 2000. Outlook for Biomass Ethanol Production 
and Demand. Washington, DC: Energy Information Administration, 
Department of Energy.
    Energy Information Administration. 2000. MTBE, Oxygenates, 
and Motor Gasoline. Washington, DC: Energy Information 
Administration, Department of Energy. http://www.eia.doe.gov/
emeu/steo/pub/special/mtbe.html.
    Energy Information Administration. 1999. Annual Energy 
Outlook 2000. Washington, DC: Energy Information 
Administration, Department of Energy. DOE/EIA-0383.
    Environmental Protection Agency. 1997. Drinking Water 
Advisory: Consumer Acceptability Advice and Health Effects 
Analysis on Methyl Tertiary-Butyl Ether (MTBE). Washington, DC: 
Of lice of Water, Environmental Protection Agency.
    Environmental Protection Agency. 1995. National Air Quality 
and Emissions Trends Report. Washington, DC: Environmental 
Protection Agency.
    Hadder, G.R. 1999. Estimating Refining Impacts of Revised 
Oxygenate Requirements for Gasoline. Draft report. Oak Ridge, 
TN: Oak Ridge National Laboratory. May 10.
    Hadder, G.R. 1997. Re-estimation of the Refining Cost of 
Reformulated Gasoline NOx Control. Draft report. Oak Ridge, TN: 
Oak Ridge National Laboratory. February 26.
    Holmann, Neil and C. Matt Rendleman. 1993. Emerging 
Technologies in Ethanol Production. Washington, DC: Economic 
Research Service, USDA. AIB-693.
    Johnson, R., J. Pankow, D. Bender, C. Price, and J. 
Zogorski. 2000. MTBE: To What Extent Will Past Releases 
Contaminate Community Water Supply Wells? Environmental Science 
and Technology, May 1, pp. 2A-9A.
    MathPro, Inc. 2000. The Refining Economics of a National 
MTBE Ban and a National Standard for Driveability Index. A 
study performed for the National Petroleum Council Committee on 
Refining. West Bethesda, MD. March 15, 2000.
    Moran, Michael J., John S. Zogorski, and Paul J. Squillace. 
1998. MTBE in Ground Water of the United States--Occurrence, 
Potential Sources, and Long-Range Transport. In: American Water 
Works Association Proceedings, June 21-25, 1998. Texas: 
American Water Works Association, vol. D, pp. 287-309.
    National Science and Technology Council. 1997. Interagency 
Assessment of Oxygenate Fuels. Washington, DC: Committee on 
Environment and Natural Resources, NSTC.
    U.S. Department of Agriculture. 1999. Preliminary Analysis 
of a Minimum Renewable Fuels Standard for Gasoline. Washington, 
DC: Of lice of Energy Policy and New Uses, USDA. July 28.
    World Agricultural Outlook Board (WAOB). 2000. Agricultural 
Baseline Projections to 2009. Washington, DC: WAOB, Of floe of 
the Chief Economist, USDA. Prepared by the Interagency 
Agricultural Projections Committee. Staff Report No. WAOB-2000-
1. February.

Impacts of Various MTBE Reduction Scenarios on the Federal-aid Highway 
        Programs

    The report, Analysis of Policy Scenarios for Reducing or 
Eliminating MTBE, analyzed the economic consequences of either 
reducing or eliminating MTBE, while maintaining air quality and 
increasing the use of renewable fuels. Four different scenarios 
were evaluated under the assumption that the oxygenate 
requirement is waived and emissions of air toxics are held to 
their current level (maintaining toxic emissions benefits). The 
various options for each scenario included banning MTBE 
beginning in 2003, imposing a 3 percent by volume cap (the pre-
1990 MTBE content of gasoline) in 2003, no renewable fuels 
standard, and a 2 percent renewable fuels standard in 2005. The 
MTBE content refers to a nationwide standard including 
California and New York, despite existing State laws to 
phaseout MTBE. Note that while the scenarios evaluated contain 
elements of a number of legislative proposals, they do not 
correspond to specific bills.


                           Scenarios Evaluated
------------------------------------------------------------------------
                                                       Renewable Fuels
          Scenario                MTBE Content       Standard Effective
                                Effective in 2003          in 2005
------------------------------------------------------------------------
EIA1........................  3%..................  0%
EIA2........................  0%..................  0%
EIA3........................  3%..................  2%
EIA4........................  0%..................  2%
------------------------------------------------------------------------

    This document illustrates the impact of the scenarios on 
the distribution of funds under the Federal-aid Highway 
Program. The assumptions of the scenarios impact the Federal-
aid Highway Program in two ways: First, in cases where ethanol 
blends are substituted for gasoline, receipts to the Highway 
Account of the Highway Trust Fund are reduced compared to the 
estimates made for the fiscal year 2001 President's Budget 
submission. Under current law, which expires at the end of 
fiscal year 2003, Federal-aid Highway Program authorizations 
are linked to the receipts to the Highway Account.
    Second, there would be distributional effects. These are 
caused by the fact that two of the components of the Federal-
aid Highway Program--the Surface Transportation Program and the 
Minimum Guarantee--use contributions to the Highway Account of 
the Highway Trust Fund as a factor in the distribution of 
funds. States using increasing amounts of ethanol fuels, which 
are taxed at lower rates than gasoline, will contribute a 
smaller share of the Highway Account receipts. Thus, the 
Federal-aid Highway Program ``pie'' is smaller and the portion 
of the reduced pie that each State receives also shifts. States 
using increased amounts of ethanol will contribute less to the 
Highway Account and receive proportionately smaller shares of 
the reduced funding and other States will receive 
proportionately larger shares of the funds.
    The following table shows estimates of the share of the 
Federal-aid Highway Pro gram apportioned funds (formula funds) 
that each State would receive under each scenario in fiscal 
year 2005. The shares resulting from the scenarios are compared 
to a baseline that reflects current fuel consumption patterns 
and the fiscal year 2001 President's Budget revenue estimates.
                                ------                                



                    Comparison of fiscal year 2005 State Shares of Federal-Aid Highway Program Apportionments under MTBE Scenarios\2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Scenario EIA1       Scenario EIA2       Scenario EIA3       Scenario EIA4
                                                                         -------------------------------------------------------------------------------
                           State                             Baseline\3\              Delta               Delta               Delta               Delta
                                                                          Share (%)    (%)    Share (%)    (%)    Share (%)    (%)    Share (%)    (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama....................................................      2.0092      1.9740  -0.0352     1.9683  -0.0409     1.9743  -0.0349     1.9684  -0.0408
Alaska.....................................................      1.1753      1.1546  -0.0207     1.1506  -0.0247     1.1548  -0.0205     1.1503   0.0250
Arizona....................................................      1.6864      1.6924   0.0060     1.6930   0.0065     1.6922   0.0057     1.6936   0.0072
Arkansas...................................................      1.3166      1.3338   0.0171     0.3414   0.0247     1.3337   0.0170     1.3414   0.0247
California.................................................      9.0883      9.1678   0.0795     9.1797   0.0914     9.1667   0.0785     9.1833   0.0950
Colorado...................................................      1.1547      1.1344  -0.0203     1.1305  -0.0242     1.1346  -0.0201     1.1302  -0.0245
Connecticut................................................      1.4979      1.4716  -0.0264     1.4665  -0.0315     1.4718  -0.0262     1.4661  -0.0319
Delaware...................................................      0.4364      0.4287  -0.0077     0.4272  -0.0092     0.4288  -0.0076     0.4271  -0.0093
Dist. of Col...............................................      0.3902      0.3833  -0.0069     0.3820  -0.0082     0.3834  -0.0068     0.3819  -0.0083
Florida....................................................      4.7102      4.8680   0.1578     4.8967   0.1865     4.8676   0.1574     4.8967   0.1865
Georgia....................................................      3.5052      3.6143   0.1091     3.6356   0.1304     3.6141   0.1088     3.6357   0.1304
Hawaii.....................................................      0.5107      0.5017  -0.0090     0.4999  -0.0107     0.5017  -0.0089     0.4998  -0.0109
Idaho......................................................      0.7646      0.7512  -0.0134     0.7486  -0.0160     0.7513  -0.0133     0.7484  -0.0162
Illinois...................................................      3.3359      3.2771  -0.0588     3.2658  -0.0701     3.2776  -0.0583     3.2649  -0.0710
Indiana....................................................      2.4439      2.3815  -0.0624     2.3663  -0.0776     2.3810  -0.0629     2.3676  -0.0763
Iowa.......................................................      1.1857      1.1648  -0.0209     1.1607  -0.0249     1.1649  -0.0207     1.1604  -0.0252
Kansas.....................................................      1.1558      1.1354  -0.0204     1.1315  -0.0243     1.1356  -0.0202     1.1312  -0.0246
Kentucky...................................................      1.7638      1.8080   0.0441     1.8166   0.0528     1.8078   0.0440     1.8167   0.0529
Louisiana..................................................      1.6160      1.6655   0.0494     1.6750   0.0590     1.6653   0.0493     1.6750   0.0590
Maine......................................................      0.5257      0.5166  -0.0091     0.5148  -0.0109     0.5167  -0.0091     0.5147  -0.0111
Maryland...................................................      1.5721      1.6191   0.0469     1.6276   0.0554     1.6189   0.0468     1.6276   0.0555
Massachusetts..............................................      1.8549      1.8226  -0.0324     1.8162  -0.0387     1.8228  -0.0321     1.8258  -0.0392
Michigan...................................................      3.1541      3.1818   0.0227     3.1840   0.0299     3.184    0.0273     3.184    0.0307
Minnesota..................................................      1.4789      1.4529  -0.0261     1.4478  -0.0311     1.4531  -0.0258     1.4475  -0.0315
Mississippi................................................      1.2335      1.2714   0.0379     1.2789   0.0454     1.2713   0.0378     1.2789   0.0454
Missouri...................................................      2.4439      2.5005   0.0567     2.5114   0.0675     2.5003   0.0565     2.5115   0.0677
Montana....................................................      0.9794      0.9621  -0.0173     0.9588  -0.0206     0.9623  -0.0171     0.9586  -0.0208
Nebraska...................................................      0.7662      0.7527  -0.0135     0.7501  -0.0161     0.7528  -0.0134     0.7499  -0.0163
Nevada.....................................................      0.7149      0.7023  -0.0126     0.6999  -0.0150     0.7024  -0.0125     0.6997  -0.0152
New Hampshire..............................................      0.5126      0.5036  -0.0090     0.5019  -0.0107     0.5037  -0.0089     0.5017  -0.0108
New Jersey.................................................      2.6027      2.6671   0.0644     2.6784   0.0757     2.6669   0.0642     2.6787   0.0760
New Mexico.................................................      0.9750      0.9578  -0.0172     0.9545  -0.0205     0.9579  -0.0170     0.9542  -0.0207
New York...................................................      5.0926      5.0029  -0.0897     4.9855  -0.1070     5.0036  -0.0890     4.9843  -0.1083
North Carolina.............................................      2.7913      2.7734  -0.0179     2.7703  -0.0210     2.7729  -0.0184     2.7712  -0.0202
North Dakota...............................................      0.6464      0.6350  -0.0114     0.6328  -0.0136     0.6351  -0.0113     0.6326  -0.0137
Ohio.......................................................      3.4228      3.3196  -0.1032     3.3081  -0.0114     3.3200  -0.1027     3.3072  -0.1155
Oklahoma...................................................      1.5242      1.5617   0.0375     1.5708   0.0466     1.5616   0.0374     1.5708   0.0466
Oregon.....................................................      1.2215      1.2004  -0.0212     1.1962  -0.0253     1.2005  -0.0210     1.1959  -0.0256
Pennsylvania...............................................      4.9868      4.9001  -0.0866     4.8832  -0.1036     4.9008  -0.0859     4.8819  -0.1049
Rhode Island...............................................      0.5910      0.5806  -0.0104     0.5786  -0.0124     0.5807  -0.0103     0.5785  -0.0125
South Carolina.............................................      1.6380      1.6896   0.0515     1.6995   0.0614     1.6895   0.0514     1.6995   0.0614
South Dakota...............................................      0.7208      0.7084  -0.0124     0.7060  -0.0149     0.7085  -0.0123     0.7058  -0.0150
Tennessee..................................................      2.2566      2.3258   0.0692     2.3393   0.0827     2.3256   0.0690     2.3393   0.0827
Texas......................................................      7.2594      7.3417   0.0823     7.3532   0.0938     7.3408   0.0814     7.3547   0.0953
Utah.......................................................      0.7724      0.7627  -0.0097     0.7609  -0.0116     0.7626  -0.0098     0.7612  -0.0112
Vermont....................................................      0.4511      0.4431  -0.0079     0.4416  -0.0095     0.4432  -0.0079     0.4415  -0.0096
Virginia...................................................      2.5311      2.5007  -0.0304     2.4969  -0.0342     2.5003  -0.0308     2.4978  -0.0334
Washington.................................................      1.7632      1.7321  -0.0311     1.7261  -0.0371     1.7324  -0.0308     1.7257  -0.0375
West Virginia..............................................      1.1165      1.0968  -0.0197     1.0930  -0.035      1.0970  -0.0195     1.0928  -0.0237
Wisconsin..................................................      1.9645      1.9299  -0.0346     1.9232  -0.0413     1.9302  -0.0343     1.9227  -0.0418
Wyoming....................................................      0.6889      0.6769  -0.0121     0.6745  -0.0144     0.6770  -0.0120     0.6743  -0.0146
    Total..................................................    100.0000    100.0000  .......   100.0000  .......   100.0000  .......   100.0000  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This document is a supplement to the report, Analysis of Policy Scenarios for Reducing or Eliminating MTBE. A full description of the analysis and
  the development of the scenarios may be found in that report.
\2\ The scenarios evaluated do not correspond to specific legislative proposals and are for illustrative purposes only.
\3\ For comparison purposes a baseline is provided. It is based on current fuel consumption patterns and revenue estimates for fiscal year 2005 from the
  fiscal year 2001 President's Budget.

                              ----------                              

                                      Department of Energy,
                               Washington, DC 20585, July 17, 2000.

The Honorable Bob Smith, Chairman,
Committee on Environment and Public Works,
U.S. Senate,
Washington DC 20510

Dear Mr. Smith: As you requested in your letter of June 30, 2000, we 
have developed a ``State Action'' MTBE ban scenario. The ``State 
Action'' scenario assumes that States ban MTBE but that no Federal 
action related to the oxygen requirement for reformulated gasoline 
(RFG) will occur. This scenario supplements four other scenarios 
related to MTBE reduction, that were completed at the request of the 
President's Council of Economic Advisers in May 2000.
    The ``State Action'' scenario assumes no waiver of the Federal 
oxygen requirement for RFG, States ban MTBE starting in 2003, and all 
areas currently participating in the RFG program continue to do so. 
Given these assumptions the average price of all gasoline (both RFG and 
conventional) in the United States is between 7 and 8 cents per gallon 
higher between 2003 and 20 35 than the reference case Since RFG makes 
up about 30 percent of the national gasoline pool, the expected price 
increases for complying gasoline in RFG areas would be substantially 
higher. In the ``State Action'' scenario, ethanol demand increases to 
229,000 barrels per day in 2005, which is more than double the 
consumption estimated for 2000, and about 100,000 barrels per day above 
the reference case demand in 2005. Further details about results and 
methodology of the Estate Actions scenario are provided in the enclosed 
summary document.
    We appreciate the opportunity to contribute to the analysis of this 
issue. If you have any questions or comments, please contact me or have 
your staff contact Mary Hutzler at 586-2222.
            Sincerely,
                         L.A. Pettis, Acting Administrator,
                                 Energy Information Administration.
                                 ______
                                 

Summary of ``State Action'' Scenario Requested by the Senate Committee 
                      on Environment Public Works

    The Energy Information Administration completed this 
analysis at the request of the Senate Committee on Environment 
and Public Works as part of its assessment of legislative 
options related to methyl tertiary butyl ether (MTBE) reduction 
The committee requested a ``State Action'' scenario, which 
assumes that MTBE will be banned by States, but the Federal 
oxygen requirement for reformulated gasoline (RFG) will not be 
waived. This ``State Action'' scenario supplements four MTBE 
related scenarios completed earlier at the request of the 
President's Council of Economic Advisers. The ``State Action'' 
scenario resulted in about 100,000 barrels per day additional 
ethanol blending and U.S. average gasoline prices (both RFG and 
conventional) of 7 to 8 cents per gallon higher than the 
reference case. Since RFG makes up about 30 percent of the 
national gasoline pool, the expected price increases for 
complying gasoline in RFG areas would be substantially higher. 
The incremental price increase of this scenario is larger than 
any of the options explored previously. The methodology and 
results of this analysis as they compare to the reference case 
and the previous MTBE scenarios are described below.
Methodology
    The analysis was performed using the Petroleum Market 
Module (PMM) in the National Energy Modeling System (NEMS). The 
PMM represents domestic refinery operations and the marketing 
of petroleum products to consumption regions. PMM solves for 
petroleum product prices, crude oil and product import activity 
(in conjunction with the international energy module and the 
oil and gas supply module), and domestic refinery capacity 
expansion and fuel consumption. PMM is a regional, linear 
programing representation of the U.S. petroleum market. 
Refining operations are represented by a three region linear 
programming formulation of the five Petroleum Administration 
for Defense Districts (PADDs). PADDs I (East Coast) and V (West 
Coast) are each treated as single regions, while PADDs II 
(Midwest), III (Gulf Coast), and IV (Rocky Mountains) are 
aggregated into one region. Each region is considered as a 
single firm where more than 59 distinct refinery processes are 
modeled. Refining capacity is allowed to expand in each region 
over each non-overlapping 3-year period. That is, in 2001 the 
model looks ahead to 2004 to determine how much new capacity is 
required and then allows additions of new capacity in 2002, 
2003, and 2004. The capacity planning decisions begin anew for 
2007 at the end of 2004. As a result, cumulative investment for 
any given year includes investment to meet future expectations 
of market demand. As with the four previous scenarios, the 
``State Action'' scenario assumes a return on investment (ROI) 
component of 10 percent with a 15 percent hurdle rate for 
investment decisions.
    In the model, products are produced to actual average 
specifications and demands with calibrations to account for 
non-linear blending, qualities such as Reid Vapor Pressure 
(RVP) in motor gasoline. The PMM models EPA's complex model 
requirements through specification constraints on aromatics, 
benzene, sulfur, RVP, E200, E300, olefins, and oxygen content. 
The specification constraints conform to EPA's complex model 
requirements for emissions reductions of VOCs, NOx, and toxics.

Key Assumptions of ``State Action'' Scenario
    States ban MTBE in 2003.

      The Federal minimum oxygen requirement of 2.0 
percent (weight) for RFG remains intact. No waivers of the 
Federal statutory requirement are granted.
      No renewable fuels standard is assumed.
      Maintaining toxic emissions benefits. Air toxic 
emissions from RFG are assumed to be maintained at current 
levels.
      Low sulfur assumptions. The PMM does not accost 
for the recently promulgated Tier 2/gasoline sulfur 
regulations. Investments for meeting the low-sulfur gasoline 
requirements may simplify additional modifications to 
accommodate limits on MTBE, making MTBE reduction less costly 
than it would have been on its own. On the other hand, sulfur 
reduction may result in both octane and volume losses, 
potentially increasing the costs of restricting the use of 
MTBE.
      Assumed gasoline demand. The gasoline forecast is 
based on the Annual Energy Outlook 2000 demand forecast: 9.4 
million barrels per day in 2005 and 10.2 million barrels per 
day in 2010.
      Areas that currently use RFG are assumed to 
continue to use RFG.
      MTBE use outside the United States will continue. 
As with the previous scenarios, no ban or reduction in the use 
of MTBE is assumed for other countries. Assuming an 
international reduction in MTBE use would have implications for 
import availability that have not been analyzed.
      Cost of increased ethanol blending. The PMM 
solves for the increase in ethanol prices resulting from 
greater demand. All additional ethanol requirements are assumed 
to be met win domestic supply. The level of ethanol production 
required this scenario is associated with production costs 
which are between 35 and 40 cents per gallon higher than the 
reference case between 2003 and 2005. These costs do not 
reflect any additional infrastructure costs that might be 
associated with the expansion of ethanol blending.
Results of the ``State Action'' Scenario
    The results of this scenario can be evaluated in terms of 
incremental differences from a reference case Like the ``State 
Action'' case, the reference case assumes that the Federal 
oxygen requirement for RFG remains intact. However, the 
reference case reflects no phase-out of MTBE outside of 
California. \1\
---------------------------------------------------------------------------
    \1\ The reference case is similar to the reference case in the 
Annual Energy Outlook 2000, but uses a return on investment (ROI) of 10 
percent instead of 15 percent, to be more consistent with other 
industry studies. This reference case also includes a minor correction 
to the specifications of sub-specification gasoline which is blended 
with ethanol to produce finished gasoline.
---------------------------------------------------------------------------
    The ``State Action'' scenario resulted in higher U.S. 
average gasoline prices of about 8 cents per gallon in 2003, 
declining to 7 cents per gallon by 2005 compared to the 
reference case In this scenario ethanol demand increases to 
229,000 thousand barrels per day in 2005 which is more than 
double the consumption estimated for 2000, and about 100,000 
barrels per day above the reference case demand.
                              ----------                              


                             Appendix VIII



                                Hearings

    On December 9, 1997, the Committee on Environment and 
Public Works held a field hearing on the presence of MTBE in 
the nation's water supply. The hearing was held in Sacramento, 
California. Testimony was given by Nancy J. Balter, principal, 
Center for Environmental Health and Human Toxicology, and 
former associate professor of pharmacology, Georgetown 
University Medical Center; Nachman Brautbar, professor of 
clinical medicine, University of Southern California School of 
Medicine; Cynthia Dougherty, Director, Office of Groundwater 
and Drinking Water, Environmental Protection Agency; Stephen K. 
Hall, executive director, Association of California Water 
Agencies; The Honorable Tom Hayden, California State Senator; 
The Honorable Richard Mountjoy, California State Senator; Gary 
Patton, counsel, The Planning and Conservation League; Craig 
Perkins, Director of Environment and Public Works Management, 
City of Santa Monica, California; Peter M. Rooney, Secretary, 
California State Environmental Protection Agency; David Spath, 
Chief, Drinking Water and Environmental Management Division, 
California State Environmental Protection Agency; and John 
Zogorski, Chief of National Synthesis on Volatile Organic 
Compounds and MTBE, U.S. Geological Survey.
    On September 16, 1998, the Committee on Environment and 
Public Works held a hearing on S. 1576, a bill to amend the 
Clean Air Act to permit the exclusive application of California 
State regulations regarding reformulated gasoline in certain 
areas within the state. Testimony was given by The Honorable 
Brian Bilbray, U.S. Representative from the State of 
California; John D. Dunlap, III, chairman, California Air 
Resources Board; Douglas A. Durante, executive director, Clean 
Fuels Development Coalition; The Honorable Dianne Feinstein, 
U.S. Senator from the State of California; Daniel S. Greenbaum, 
president, Health Effects Institute; Al Jessel, senior fuels 
specialist, Chevron Products Company; and Ned Sullivan, 
commissioner, Maine Department of Environmental Conservation.
    On October 5, 1999, the Subcommittee on Clean Air, 
Wetlands, Private Property and Nuclear Safety of the Committee 
on Environment and Public Works held a hearing on the Blue 
Ribbon Panel findings on MTBE. Testimony was given by Robert H. 
Campbell, chairman and chief executive officer, Sunoco, Inc.; 
The Honorable Jake Garn, vice chairman, Huntsman Corporation; 
Daniel S. Greenbaum, president, Health Effects Institute; and 
Michael P. Kenny, executive officer, California Air Resources 
Board.
    On June 14, 2000, the Subcommittee on Clean Air, Wetlands, 
Private Property and Nuclear Safety of the Committee on 
Environment and Public Works held a hearing on the 
environmental benefits and impacts of ethanol under the Clean 
Air Act. Testimony was given by Dan Greenbaum, president, 
Health Effects Institute; Blake Early, environmental 
consultant, American Lung Association; Michael Graboski, 
director, Colorado Institute for Fuels and High Altitude Engine 
Research, Colorado Department of Chemical Engineering, Colorado 
School of Mines; Bob Slaughter, director, National 
Petrochemical & Refiners Association; Jack Huggins, vice 
president, Williams Energy Services; Jason Grumet, executive 
director, Northeast States for Coordinated Air Use Management; 
Stephen Gatto, president and chief executive officer, BC 
International; Gordon Proctor, director, Ohio Department of 
Transportation; The Honorable Charles Grassley, United States 
Senator from the State of Iowa; The Honorable Tom Harkin, 
United States Senator from the State of Iowa; The Honorable 
Richard Durbin, United States Senator from the State of 
Illinois.

                          Legislative History

    On July 27, 2000, S. 2962 was received in the Senate, read 
twice, and referred to the Committee on Environment and Public 
Works. On September 7, 2000, the committee held a business 
meeting to consider the bill. The bill, as amended, was ordered 
Reported on September 7, 2000.

                            Roll Call Votes

    On September 7, 2000 at 9:30 a.m., the committee held a 
business meeting to consider S. 2962. A manager's amendment 
offered by Senator Smith was agreed to by unanimous consent. An 
amendment relating to the waivers under the Clean Alternative 
Fuel program the offered by Senator Inhofe was agreed to by 
voice vote. A second amendment relating to limiting liability 
for mandated fuel additives offered by Senator Inhofe was 
defeated by voice vote. An amendment to establish a Transition 
Investment Program for MTBE producers offered by Senator 
Hutchison was defeated by voice vote. Two amendments that 
struck most provisions of the bill, one on risk analysis and 
another authorizing additional funds for MTBE cleanup, offered 
by Senator Bennett were defeated en bloc by voice vote. The 
committee recessed at 11:35 a.m. to reconvene at the call of 
the chair.
    The committee reconvened at 12:20 p.m. in the President's 
Room (S-216, U.S. Capitol). The committee continued 
consideration of S. 2962. Upon no further discussion of the 
bill, a motion to report the bill was taken by recorded vote. 
Senator Boxer's motion to report the bill, as amended, was 
agreed to by 11 ayes, 6 nays, and 1 not voting. Voting in favor 
were Senators Baucus, Boxer, Chafee, Crapo, Graham, Lautenberg, 
Moynihan, Reid, Voinovich, Wyden, and Smith. Voting against 
were Senators Bennett, Bond, Hutchison, Inhofe, Thomas, and 
Warner. Senator Lieberman was recorded as not voting.

                      Regulatory Impact Statement

    The regulatory authority granted by this bill is structured 
to streamline and make flexible the imposition of any new 
requirements.
    The authority to waive the oxygen mandate granted to 
Governors under Section 2 of this bill requires no regulatory 
action to become effective. Section 2 authorizes regulations to 
establish new performance standards for toxic emissions and 
aromatic content of gasoline. If regulations are not 
promulgated within 270 days, statutory performance standards 
become effective, rendering regulations unnecessary. The 
statutory performance standards could be revised by regulation 
based on data described in Section 2. Compliance with the 
performance standards is managed through existing regulatory 
structures under Section 211 (k) of the CAA.
    No regulatory action is required to effect the elimination 
of MTBE. Regulatory authority is provided to the Administrator 
to implement a phase down prior to the ban on use of MTBE. Use 
of this authority is not mandated by the bill. The 
Administrator's existing authority to limit the use of fuels or 
fuel additives is expanded by the bill to allow consideration 
of water pollution effects.
    The provision in Section 4 that allows for adjusting RVP 
requirements relies entirely on existing authority and 
regulatory structures for revision and approval of SIPs.
    Section 6 creates new regulatory authority to implement 
market-based compliance strategies. It is expected that the 
credit-trading regulations could largely be drawn from existing 
regulatory structures used to implement Title 2 and Title 4 of 
the CAA. Regulations necessary to govern the calculation of 
credits are the exception and would be new. The definitions of 
vehicles eligible for credits under this section have been 
primarily drawn from existing regulatory structures and 
promulgated regulations, including the Tier 2 vehicle emission 
regulations.
    Section 6 provides new regulatory authority for granting 
waivers of the provisions of this section. This authority would 
only be used in response to a waiver application by one or more 
States.
    The provisions in Section 7 regarding additional opt-in 
areas rely entirely on existing authority and regulatory 
structures for revisions and approvals of SIPs.
    Section 9 of the bill adds mandatory deadlines for the 
exercise of EPA's existing regulatory authority to maintain air 
quality through standards and performance requirements for 
motor fuels, fuel additives, and vehicles. The Administrator 
must issue regulations: a) not later than 7 years after 
enactment, to ensure that the requirements of this bill 
affecting motor vehicle fuels and fuel additives will not lead 
to a worsening of air quality or significantly increased 
emissions on a per gallon average compared to a 1998-2000 
baseline; and b) not later than 10 years after enactment, to 
establish performance requirements for motor vehicle fuels, 
fuel additives, and vehicles which are necessary to adequately 
protect public health and the environment and achieve specific 
reductions in the use of compounds or associated emission 
products that pose the greatest risk to human health. Both 
regulations are preceded by analyses which require the 
Administrator to consider the entire life cycle of the 
production, distribution, and use of motor vehicle fuels, fuel 
additives, and vehicles. Compliance with both regulations is 
required as expeditiously as practicable, taking into account 
costs and lead time, similar to conditions in Section 202 (i) 
of the CAA.

                          Mandates Assessment

    In compliance with the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), the committee finds that this bill imposes no 
Federal intergovernmental unfunded mandates on State, local or 
tribal governments. All of the bill's governmental directives 
are imposed on Federal agencies. Furthermore, Section 2 of the 
bill provides relief from the mandate in current law that RFG 
contain 2 percent oxygen by weight. This bill provides 
authority to the Governor of a State to waive that CAA mandate. 
In addition, the committee finds that this bill does not 
preempt any State, local or tribal law.
    The committee finds that this bill imposes two mandates on 
the private sector. Section 3 of the bill prohibits the use of 
MTBE as a fuel additive. This ban requires the private sector 
to identify and use alternative fuel additives, which may 
increase fuel production costs. Section 6 of the bill 
establishes a Clean Alternative Fuel program that reserves an 
increasing portion of the total motor vehicle fuel pool for 
fuel that: 1) reduces pollution relative to conventional fuel 
usage; and 2) displaces some petroleum consumption. This new 
program is expected to increase the cost of fuel production.
    Section 423(c) of the Unfunded Mandates Reform Act requires 
each report to contain an estimate of the direct costs to the 
private sector required to comply with the Federal mandates. 
The committee is unable to include such estimates at this time 
because the Congressional Budget Office has not completed an 
analysis of the bill as reported by the committee.

                          Cost of Legislation

    Section 403 of the Congressional Budget and Impoundment Act 
requires each report to contain a statement of the cost of a 
reported bill prepared by the Congressional Budget Office. 
Senate Rule XXVI paragraph 11(a)(3) allows the report to 
include a statement of the reasons why compliance by the 
committee is impracticable. The committee is unable to include 
a statement of the cost at this time because the Congressional 
Budget Office has not finished an analysis of the bill.

            Additional Views of Senator George V. Voinovich

    As a member of this committee, I supported S. 2962 because 
I believe it contains three of my main environmental priorities 
banning MTBE, protecting air and water quality, and encouraging 
the use of ethanol and other alternative fuels.
    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 
nation's dependence on foreign oil.
    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 also has 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 ground 
water 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 increased ethanol use would have on the 
Highway Trust Fund.
    The sale of ethanol-blended gasoline results in a loss of 
highway revenues because of the ethanol tax credit. Under 
current law, the tax on gasohol comprised of 10 percent ethanol 
is 5.4 cents per gallon less than the tax on gasoline. As a 
result, tax deposits to the Highway Trust Fund's highway 
account will be reduced approximately $387 million this year 
alone. By increasing the sale of ethanol blended fuel, the bill 
will exacerbate that revenue loss, perhaps by a substantial 
amount.
    Ohio's contribution to the highway trust fund is reduced by 
8.5 cents for each gallon of ethanol-blended fuel sold in the 
State. I would expect that ethanol use will continue to rise 
and will continue to reduce not only Ohio's contributions to 
the trust fund, but other States' as well.
    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 construction budget. And, it 
equals the Ohio Department of Transportation's budget for 
routine bridge repair and replacement each year.
    There is a way to ameliorate that problem to some extent. 
Specifically, over $400 million per year of the tax on ethanol-
blended fuels is diverted from the Highway Trust Fund into the 
General Fund. Before the next highway reauthorization bill is 
enacted, we should work with the Finance Committee to shift 
that tax into the Highway Trust Fund where it belongs.
    Under current law, 10 percent ethanol-blended gasohol is 
taxed at 13 cents per gallon. 9.8 cents is deposited into the 
Highway Trust Fund; 0.1 cent goes to the Leaking Underground 
Storage Tank Fund; and the remaining 3.1 cents goes to the 
General Fund. I received a commitment from the chairman and 
ranking member of this committee to encourage the Finance 
Committee to move the 3.1-cent ethanol tax out of the General 
Fund and into the Highway Trust Fund.
    Further, I am pleased that the committee adopted an 
amendment that I offered to place an average annual cap of 26 
percent by volume on the amount of aromatics to be used in 
Reformulated Gasoline (RFG). Aromatics are produced in the 
gasoline refining process. They along with oxygenates have high 
octane and are used to increase performance in vehicles. It is 
likely that the aromatic content of gasoline would increase due 
to the removal of oxygenates from RFG. During the combustion 
process, aromatics are partially converted to benzene a known 
carcinogen xylene and toluene. In addition, aromatics are known 
to increase ozone pollution.
    Essentially what this bill will do, with the inclusion of 
my amendment, is prevent any potential air pollution increases 
associated with aromatics, including benzene, xylene and 
toluene. The purpose of S. 2962 is to address a water 
contamination problem caused by the use of MTBE. However, with 
the inclusion of the aromatics amendment, this committee has 
sent a signal that the use of aromatics, which increase 
pollution and emissions of known carcinogens, is not 
acceptable.

     Additional Views of Senators Lautenberg, Moynihan, and Chafee

    We support the bill as the most viable approach to 
eliminating the use of MTBE as a gasoline additive, while 
preserving the air quality benefits of the reformulated 
gasoline (RFG) program. We are taking this opportunity to 
clarify our views regarding the conditions under which a State 
may waive the Clean Alternative Fuel Requirements of the bill.
    Without the waiver provision, the bill could ultimately 
lead to a near tripling of ethanol use nationwide. Our view is 
that ethanol should be used in gasoline when it can help reduce 
air pollution, that ethanol should not be used if the result is 
increased air pollution, and that implementation of the Clean 
Alternative Fuel Requirements Waiver Program should reflect 
this philosophy.
    Ethanol use can provide important environmental benefits. 
For example, ethanol use helps to reduce carbon monoxide 
tailpipe emissions from older vehicles. Also, because ethanol 
is a good source of octane that contains no aromatics and 
modest levels of sulfur, refiners can use it to help achieve 
limits on toxic aromatics and sulfur in the RFG program.
    At the same time, however, ethanol use can have substantial 
environmental drawbacks. Ethanol can significantly increase 
volatility when mixed with gasoline. Therefore, because 
evaporation of gasoline hydrocarbons is a major contributor to 
smog in most areas, ethanol use can complicate reduction of 
summertime smog. In addition, some tests show that ethanol in 
RFG increases tailpipe emissions of nitrogen oxides (NOx). 
Furthermore, tests also indicate that NOx increases are 
converted in the atmosphere to particulate pollution.
    In addition to environmental considerations, we appreciate 
the fact that the bill allows economic harm to be considered in 
granting a waiver from the Clean Alternative Fuel Requirements. 
Oil refiners have warned us that excessive use of ethanol, 
particularly in the summertime, may cause supply dislocations. 
We strongly believe the EPA should implement the waiver program 
in a way that prevents such supply dislocations.
    We strongly believe the U.S. Environmental Protection 
Agency (EPA) should take environmental and economic factors, 
such as those mentioned here, into consideration when deciding 
whether to grant a State's request to waive the requirements.

               Additional Views of Senator Barbara Boxer

    I was pleased to support S. 2962 as reported by the 
committee. I am also pleased to join in the majority views 
contained in this report. On August 4, 1999, the full Senate 
approved my Sense of the Senate calling for the phase-out of 
MTBE. In S. 2962, this committee has crafted a comprehensive 
solution to the MTBE problem that gives effect to the view of 
the Senate that MTBE must be phased out.
    I write separately here to underscore the committee's work 
on two very important issues, and to urge the adoption of the 
bill by the full Senate.
    The first issue is the committee's decision to provide for 
a direct and complete phase-out of MTBE. The second issue is 
the committee's decision to reject efforts to protect oil 
companies from lawsuits that would hold them responsible for 
cleaning up MTBE-contaminated groundwater and drinking water 
across the nation.
    Almost 3 years ago, my friend, the late Senator John 
Chafee, permitted me to chair what turned out to be the first 
of many hearings this committee would hold on MTBE. I held that 
hearing in the wake of news that Santa Monica, California had 
lost the majority of its drinking water supply because a 
little-known fuel additive called MTBE had leaked into Santa 
Monica's major drinking water wells from underground fuel 
tanks.
    Since Santa Monica, it has been estimated that some 10,000 
groundwater wells in California are likely to be contaminated 
with MTBE. Lake Tahoe, Glenville, and other small communities 
in California have lost drinking water supplies to the 
turpentine taste and smell of MTBE. And we also now know, MTBE 
is not just a California problem. According to a March 2000 
report of the U.S. Geological Survey, up to one third of the 
nation's drinking water supplies may now be contaminated with 
MTBE.
    The basic facts I learned at that first MTBE hearing led me 
to call for MTBE's phase-out. Those facts remain unchallenged 
today and accurately foretold the contamination crisis we now 
face.
    First, MTBE is one of the most widely used chemicals in the 
U.S. In 1997, in fact, MTBE was the second most-produced 
chemical in the nation. Second, it only takes a very small 
amount of MTBE to contaminate a drinking water supply with the 
detectable taste and odor of turpentine. Third, MTBE is 
classified by the Environmental Protection Agency (EPA) as a 
possible human carcinogen. Fourth, when MTBE leaks from an 
underground storage tank, from a motor boat or from a gas tank 
after a car accident into groundwater, it moves through that 
water very fast and very far. And, finally, unlike the other 
harmful toxins in gasoline, MTBE resists degrading once in 
water and is very expensive to remove from water.
    In the years which followed that first hearing, a variety 
of solutions were proposed and considered before the solution 
of a complete MTBE phase-out was ultimately embraced by the 
committee in S. 2962. A discussion of those other proposals 
helps show why the committee found a complete phase-out to be 
the best solution to the MTBE problem.
    The first proposed approach to the MTBE problem was simply 
to upgrade our nation's underground fuel storage tanks to 
prevent MTBE leaks. Proponents of this approach noted that any 
leak of gasoline from an underground tank poses a serious 
threat because, in addition to MTBE, gasoline contains highly 
toxic chemicals like benzene. Because such leaks are clearly 
dangerous for a variety of reasons, the argument went, we 
should focus upon making that system fail-safe.
    While we must do all we can to ensure that underground fuel 
tanks don't leak, I did not believe that simply replacing old 
fuel tanks with new ones would solve the MTBE problem. The tank 
proposal ignores the other routes MTBE follows to our drinking 
water. It also ignores the fact that, as the EPA MTBE Blue 
Ribbon Panel noted, tanks--even new ones--will leak. Sometimes 
tanks aren't installed properly or have other defects that 
contribute to leaks.
    For example, a July 22, 1999 study by the Santa Clara 
Valley Water District found that many of its new tanks are 
leaking. The study reviewed a total of 28 sites with fully 
upgraded storage tank systems which had not previously shown 
MTBE contamination to observe whether MTBE had leaked from 
those tanks. MTBE was detected in groundwater at 13 of these 
sites at concentrations ranging from 1 part per billion to 
200,000 parts per billion.
    The second approach to dealing with the MTBE problem was a 
proposal to amend the Clean Air Act to remove the requirement 
that reformulated gasoline contain 2 percent oxygen by weight. 
Proponents of this approach argued that oil companies only use 
MTBE to meet this Clean Air Act mandate. If that legal mandate 
were removed, the argument went, oil companies would 
voluntarily stop using MTBE and there would be no need for a 
direct MTBE ban.
    But the Clean Air Act requirement is not the only reason 
oil companies choose to use MTBE. MTBE has been used since the 
1970's as an octane booster and as a cheap way stretch gasoline 
supplies. So long as there are reasons for oil companies to use 
MTBE unrelated to the Clean Air Act's oxygen requirement, it 
was my view that oil companies would go right on using it.
    And I didn't need to look further than California to prove 
it.
    In California, the San Francisco Bay Area complies with 
clean air standards and, as a result, the Clean Air Act oxygen 
mandate doesn't apply there. Even in the absence of that 
mandate, however, in May 1999, two large oil companies added 
substantial amounts of MTBE to gasoline there in order to 
stretch supplies. There was no reason to believe that it 
wouldn't happen again.
    The third approach to dealing with the MTBE problem was to 
substantially reduce its use, but to not phase it out entirely. 
This was, in fact, the recommendation of approximately half of 
the EPA MTBE Blue Ribbon Panel. (The remainder of the members 
called for a total phaseout.)
    If it were the case that it took a large amount of MTBE to 
contaminate a drinking water supply, this approach may have 
worked. Unfortunately, it only takes an extremely small amount 
of MTBE to contaminate a drinking water supply. Public water 
agencies in California estimate that a single tablespoon of 
MTBE can contaminate the amount of water it takes to fill an 
Olympic-size pool.
    The fourth approach, and the one the committee adopted in 
S. 2962, was to simply phaseout MTBE over a 4-year period. That 
is the approach taken in my legislation (S. 1037). That is the 
approach I have urged EPA to take since 1998, and which finally 
culminated in the EPA Toxic Substances Control Act (TSCA) 
rulemaking to ban MTBE, which is now in its preliminary stages.
    In my view, a total and complete phase-out is the only way 
to ensure that MTBE does not continue to poison our nation's 
drinking water.
    The other issue I would like to underscore here is the 
committee's consideration and rejection of the Big Oil bailout 
amendment. That amendment would have provided oil companies 
with broad protection from lawsuits seeking to hold them 
responsible for cleaning up MTBE contamination. The rejection 
of this amendment was particularly important to California 
because several such cases have been brought there, including 
in Santa Monica and Lake Tahoe.
    Proponents of the bailout amendment argued in committee 
that providing oil companies with protection from lawsuits is 
appropriate because Congress told oil companies to use MTBE.
    But the words ``methyl tertiary butyl ether'' appear 
nowhere in the Clean Air Act.
    Others argued that through adoption of the oxygen mandate, 
Congress was responsible for creating the market for MTBE and 
encouraging its use. Some of my colleagues also argued that oil 
companies didn't realize that MTBE would pose the pervasive 
drinking water threat we now know it to be.
    As a result, amendment proponents concluded that Congress--
and by extension American taxpayers--should pay to clean up 
MTBE contamination.
    The history of both MTBE use and the committee's 
consideration of the oxygen requirement, however, don't support 
any of these arguments for the Big Oil bailout amendment.
    First, long before the first word of the Clean Air Act 
Amendments of 1990 was ever written, oil companies were both 
using MTBE and planning to increase its use. In 1979, ARCO 
first asked EPA for approval to use MTBE in gasoline at volumes 
up to 7 percent as a way of boosting octane after lead was 
removed from gasoline. Noting that this decision ``increase[d] 
dramatically'' the use of MTBE, in 1986 EPA's Interagency 
Testing Committee recommended MTBE for listing and testing 
under TSCA.
    So the market for MTBE existed long before the oxygen 
requirement of the Clean Air Act was written. MTBE was not a 
product invented to comply with that law.
    Second, long before MTBE became an issue in California and 
elsewhere, oil companies knew it would pose a drinking water 
threat. The first noted release of MTBE wasn't Santa Monica in 
1996, but Rockaway, New Jersey in 1980. There, a MTBE release 
from a Shell gas station contaminated a public drinking water 
supply.
    By 1986, the Maine Department of Environmental Protection 
(DEP) presented a paper to the National Waterworks Association 
and the American Petroleum Institute accurately concluding that 
MTBE ``is more soluble and [a] more rapidly spreading ground 
water contaminant than other components of gasoline'' and that 
MTBE ``is more difficult to remove from contaminated water than 
other components of gasoline.''
    The Maine DEP urged the oil industry not to use MTBE stored 
in underground fuel tanks, and to adopt other stringent 
protections if the industry still chose to continue using it 
despite the warnings.
    The oil industry response to both the Maine paper and EPA's 
proposed MTBE TSCA listing was to defend MTBE rather than 
publicly investigate the concerns. In comments to the agency on 
the TSCA listing, oil companies argued that MTBE did not 
present a significant risk to the environment, that sufficient 
data existed to make that claim, and that EPA should not 
require companies to develop that data in order to evaluate the 
risk MTBE posed to drinking water.
    So, it's not right to say that the MTBE drinking water 
problem is a surprise to the oil industry.
    Third, it is not entirely accurate to say Congress foisted 
the 2 percent requirement on a reluctant oil industry. In fact, 
at least one major oil company both advocated the adoption of 
the 2 percent oxygen requirement and touted the ``environmental 
benefits'' of using MTBE to meet it. That testimony is found in 
the committee's 1989 hearing record on the Clean Air Act 
Amendments of 1990. Other segments of the oil industry 
supported the oxygen requirement as a means to defeating an 
alternative fuels requirement.
    But even if all this history didn't exist, what possible 
justification could there be for preventing a full and 
impartial airing of the liability issue in our courts? Just 
like the manufacturer of any other defective product, the oil 
industry should not be let off the hook without such a hearing 
for what promises to be an extremely costly environmental 
cleanup effort.
    While there is no reliable national estimate of what these 
costs will be, the estimated cost of cleaning up the MTBE-
contaminated water in Santa Monica alone is $150 to $200 
million. That's just one water supply and does not include the 
substantial legal costs Santa Monica has incurred or the costs 
of importing water to the people there.
    Discovery is now going on in the California litigation. We 
can expect that this will produce a clearer picture of just 
what the oil industry knew or should have known about MTBE. The 
committee didn't see fit to cutoff this process, and I would 
urge my colleagues in the full Senate and House to reject any 
attempt to add such liability protection to S. 2962 as it moves 
forward for full consideration.

                  Minority Views of Senator Jim Inhofe

    As the chairman of the Clean Air, Wetlands, Private 
Property and Nuclear Safety Subcommittee I must object 
strenuously to S. 2962 as reported by the Environment and 
Public Works Committee. The bill completely rewrites major 
sections of the Clean Air Act without the benefit of 
Congressional hearings to understand the complete impact on our 
Nation's environment and energy policy.
    While I chaired two subcommittee hearings on MTBE and 
ethanol, and the full committee held two hearings on MTBE, none 
of the hearings addressed the issue of a renewable fuels 
mandate, which comprises the bulk of the legislation reported 
out of the committee. In addition, the expanded authority for 
the EPA to regulate fuels and motor vehicles under Section 9 
has not been justified or vetted through the hearing process, 
and is an issue which should be considered as part of the 
broader Clean Air Reauthorization process which this committee 
has committed to addressing in the next Congress.
    I agree with the necessity of addressing the problem of 
MTBE being found in the drinking water of several States. 
However, I believe this legislation, as reported out of the 
Environment and Public Works Committee addresses too many 
extraneous issues to the problem at hand. A far better approach 
would be targeted legislation which addresses this specific 
issue of MTBE in the drinking water. In my opinion, the 
committee has failed to address this issue by trying to address 
too much. The following are specific comments of the various 
sections of the legislation and the accompanying majority 
report. In addition, I am attaching a copy of a letter from Mr. 
J.L. Frank, the President of Marathon Ashland Petroleum LLC.

Section 2. Waiver of Oxygen Content Requirement for Reformulated 
        Gasoline

    The bill would substantially tighten air toxics and 
aromatics emission standards for reformulated gasoline 
(``RFG'') where the oxygenate mandate is waived. It will grant 
EPA authority to issue standard-setting regulations. However, 
27.5 percent air toxics emission reduction and 26 percent, by 
volume, aromatics requirements will apply if EPA fails to issue 
regulations within 270 days, or declines to promulgate them.
    The proposed toxics and aromatics provisions far exceed 
simply maintaining the air toxics benefits of the RFG program. 
EPA is unlikely to be able to promulgate the air toxics and 
aromatics regulations called for by the bill within 270 days. 
Therefore, the reality is that the 27.5 percent air toxics 
emission reduction and 26 percent, by volume, aromatics 
requirements specified in the bill will be applicable. The 
nationwide 27.5 percent toxics standard equals the highest 
level of current regional over-compliance (this occurs in the 
Northeast U.S.). Enforcing this amount of over-compliance 
nationally will further restrict refiners' ability to make and 
distribute Federal RFG and will impose unfair additional costs 
on refineries exceeding current environmental requirements by a 
smaller margin than those in the Northeast.
    For example, RFG currently delivered to the Louisville, KY, 
St. Louis, MO, Dallas, TX, and Houston, TX areas over-complies 
with the existing toxics requirement for RFG but does not 
achieve a 27.5 percent reduction. If the Governors of these 
States waive the oxygenate mandate, refiners serving any of 
these areas are likely to have to modify their refineries to 
meet the more stringent standards, yet the bill provides no 
time to allow for these changes. This could adversely affect 
gasoline supplies and consumers, leading to fuel shortages and 
price spikes.
    Also important is the fact that EPA recently issued a 
Notice of Proposed Rulemaking to further regulate mobile source 
air toxics. Congress should work with EPA and its technical 
experts rather than act independently. The air toxics and 
aromatics requirements specified in S. 2962 are not needed or 
justifiable. If Congress nevertheless chooses to act on toxics, 
it should maintain RFG toxics over-compliance on a regional 
basis in the context of legislation that reduces MTBE usage and 
eliminates the oxygen requirement.
    The majority report gratuitously urges EPA to expeditiously 
act on the auto industry's 1999 petition to limit the 
distillation index of gasoline. Like many provisions of this 
bill, resolution of the distillation index issue is not 
necessary to address the MTBE issue.

Section 4. Exclusion from Reid Vapor Pressure Requirement

    Section 4 allows States to eliminate the 1-psi RVP waiver 
for conventional gasoline blended with ethanol. If States can 
eliminate the existing 1 psi RVP waiver for ethanol blends, 
this will adversely affect conventional gasoline supply and 
cost. The cost to manufacture the appropriate blendstock will 
increase since extra-low volatility gasoline will be required 
in order to make room for ethanol's higher volatility. Also, 
moving a special low RVP blendstock through the distribution 
system will probably create supply problems, reduce ethanol 
blending, and reduce total gasoline supply in the Midwest. 
Tight gasoline supplies could drive up prices and hurt 
consumers.

Section 6. Clean Alternative Fuels Program

    The Clean Alternative Fuels Program mandates a dramatic 
increase in ethanol via a renewable fuels requirement. The 
program requires that ethanol make up 0.6 percent of the total 
motor fuel pool in 2002 and 1.1 percent in 2007. However, the 
percentages are misleading because compliance is based on 
gasoline-equivalent (or energy-equivalent) gallons and the 
mandate is over all motor vehicle fuels, including diesel. The 
actual volumes over the national gasoline pool are larger with 
percentages ranging from 1.1 percent in 2002 to 2.0 percent in 
2007. This will significantly expand the mandated use of 
ethanol under Federal RFG and oxy-fuel programs, which is 
currently roughly one-half of 1 percent of the national 
gasoline market. These provisions would quadruple the federally 
mandated ethanol use by requiring an ethanol level of 2.0 
percent of the national gasoline pool in 2007. This compares 
with 14 percent growth in gasoline consumption over this time 
period, according to the most recent DOE projections.
    In 2008, even more ethanol is required. The mandate grows 
to 2.2 percent in 2008 and to 2.7 percent in 2011. This would 
increase the federally mandated share of ethanol in 2011 by 
roughly more than 400 percent relative to today's level. There 
is no justification for this magnitude of increase, especially 
considering that the growth of the gasoline market will be less 
than 20 percent over this time period.
    The bill prefers ethanol to other renewable fuels over the 
early years of the program. The bill discourages the use of 
other alternative fuels by restricting the amount of such fuels 
that can be used during the transition period of the renewable 
fuels mandate. In later years, i.e., 2008 and beyond, the bill 
supposedly structures an alternative fuels mandate, but it will 
remain an ethanol mandate. Bin 1 and bin 2 vehicles may not be 
successful in the marketplace. Also, once refiners and fuel 
distributors have put ethanol blending and distributing 
infrastructure in place in the early years of the program, it 
is unlikely that they will switch in a significant way to non-
ethanol alternative fuels in the out years due to the incentive 
to avoid stranded investments. Ethanol will remain the only 
realistic option to meet the mandated levels contained in the 
legislation.
    This legislation will have large adverse consequences for 
the Highway Trust Fund due to the existing 5.4 cents per gallon 
excise tax exemption for 10 percent ethanol blends and the 2.5 
cents per gallon diversion from the Highway Trust Fund to 
general revenues for ethanol-containing motor fuel. Loss to the 
Fund will grow from the current annual level of $1.2 billion to 
$2.4 billion in 2007 and to $3.5 billion in 2011 under this 
legislation.
    The ethanol mandate will have two additional negative 
impacts: it will likely increase the cost of gasoline and 
further limit refiners' ability to provide adequate supply. 
This is especially true if coupled with elimination of the 1 
psi RVP waiver for ethanol blends of conventional gasoline. The 
bill requires that the mandates be met on a semi-annual basis, 
thus forcing use of ethanol during the summer when the 
volatility of gasoline must be controlled. Required summertime 
use of ethanol will increase the cost of making gasoline to 
meet environmental specifications imposed by State and Federal 
law. Refiners will have to pay more to make special low-
volatility blend stocks for ethanol blending. Limited 
availability of these blend stocks played an important role in 
limiting refiners' ability to deal with supply interruptions in 
the Midwest earlier this year, and according to the 
Congressional Research Service was a significant factor in the 
recent Midwest market volatility.
    The mandates will likely mean higher-cost gasoline in the 
Northeast. Yet, it will not provide people in the Northeast any 
benefits. In addition, the legislation attempts to maintain the 
air quality benefits of the RFG program while requiring the use 
of ethanol, just as EPA's renewable oxygenate rule tried to do 
in 1994, but that is unlikely to be the case. The D.C. Circuit 
held that the mandated use of ethanol would likely increase 
smog at the beginning and end of the summertime high ozone 
season. American Petroleum Institute v. EPA, 52 F.3d 1113 (D.C. 
Cir. 1995). It should go without saying that the air quality 
benefits of the RFG program can be maintained without requiring 
use of ethanol.
    Some in the Northeast States assert that the proposed new 
mandate will mean more ethanol in the Midwest, while Northeast 
refiners will avoid using ethanol by purchasing credits. This 
is unlikely. Refiners cannot base their compliance plans on the 
hope that excess credits will be available, and recent EIA/DOE 
analysis indicates that wide-spread ethanol use will occur in 
all regions of the country should this legislation by enacted 
into law, in part because few, if any, credits will be 
generated.
    When discussing the credit trading provisions of section 6, 
the majority report suggests that credits can only be generated 
through the use of bin 1 or 2 vehicles. That is incorrect. 
Section 6 of the bill expressly provides that credits can be 
generated through the use of more renewable fuels than 
required.
    The majority report suggests that the renewable fuel/
alternative fuel mandate will decrease U.S. dependence on 
imports. That is unlikely. It is not expected that the 
increased ethanol use that would result as a consequence of 
enactment of this legislation would significantly reduce 
petroleum consumption in the United State since for every 100 
Btu generated through the combustion of ethanol it takes 75 Btu 
of petroleum products to manufacture the ethanol.
    The majority report suggests that the cost of the mandates 
will likely be in the range of 3-5 cents per gallon in 2005. 
The majority's cost estimates do not reflect the U.S. 
government's most recent projections. A DOE/EIA analysis 
indicates an average increase in gasoline prices of 5.7 cents 
per gallon under this legislation, exceeding the 3-5 cents 
ranged stated above. The analysis also indicates that RFG 
prices would be significantly above the estimated price 
increase of 5.7 cents per gallon for average gasoline 
(conventional gasoline and RFG).
    The majority report states that ``Should the bill not be 
enacted, and multiple States ban MTBE, and the oxygen content 
requirement is not made optional, the Administration's analysis 
suggests that gasoline could be as much as 7-8 cents per gallon 
more in 2005 than is otherwise expected.'' Once again, the 
majority's projections do not reflect the U.S. government's 
most recent projections. A recent DOE/EIA analysis indicates 
that should the bill not be enacted, and multiple States ban 
MTBE and the Federal 2 (wt percent) oxygen requirement be 
repealed and no renewable or alternative fuel standards be 
imposed that average gasoline prices would rise by 3.1 cents 
per gallon. This option represents the most cost-effective 
solution to addressing the MTBE issue and is why the EPA-
appointed Blue Ribbon Panel recommended this approach.

Section 7. Additional Opt-In Areas under Reformulated Gasoline Program

    The RFG opt-in provision permits any area of the country to 
opt into the RFG program, using a SIP (State Implementation 
Plan) revision process. This provision overturns provisions in 
the Clean Air Act Amendments and fails to consider the impact 
of RFG opt-ins on the gasoline distribution system and the 
increase in overall costs. In addition, it also overturns a 
court decision American Petroleum Institute v. EPA, 198 F. 3d 
275 (DC Cir. 2000). Congress should not overturn a court 
decision without at least conducting hearings to understand the 
implications involved in the court decision. In 1990, the 
dimensions of the RFG program were debated extensively by 
Congress, which rejected a national RFG program based on need, 
supply, and cost. These same factors apply with all the more 
force now since refining capability already risks being 
substantially constrained as a result of numerous costly new 
fuels regulations industry must comply with in a short 
timeframe. Extending the RFG program to attainment areas cannot 
be justified.

Section 9. Analysis of Motor Vehicle Fuel Changes and Additional 
        Performance Requirements

    The legislation also contains provisions requiring EPA to 
issue two sets of additional regulations within 10 years of 
enactment. One set, to be finalized within 7 years, will 
require that emissions from motor vehicle fuel and fuel 
additives will not be significantly greater on a per gallon 
average basis in any region than in 1998-2000 and that they 
will not result in worse air quality. The second set of 
regulations will be completed in 10 years and could affect both 
fuels and vehicles. They will set performance standards to 
protect public health and the environment and achieve a 
specific reduction in the use of compounds or associated 
emission products that threaten the most risk to human health.
    These provisions of the bill unnecessarily lock EPA into 
rulemaking activity and fail to take into account EPA's ongoing 
rulemaking activity and authority under the existing Act. EPA 
just recently promulgated more stringent Tier 2 vehicle 
standards and more stringent gasoline sulfur requirements. EPA 
also recently proposed to regulate diesel sulfur, and gasoline 
benzene levels. Furthermore, EPA has authority under existing 
sections 202 and 211 to regulate vehicles and fuels if needed 
to protect the public health and welfare.
    The majority report states that ``A more than de minimis 
increase in contribution to any criteria or toxic air pollutant 
is presumed to worsen air quality unless the Administrator 
determines that other factors ameliorate the effect of such 
increases.'' That is not an accurate reflection of the bill 
language. Furthermore, there is no basis to presume that a mere 
increase in mass emissions necessarily translates into air 
pollution that may reasonably be anticipated to endanger public 
health or welfare.

Other Issues

    The General Statements and Background section refers to the 
U.S. Geological Survey which estimated up to 20 percent of the 
nation's drinking supplies are at risk due to their proximity 
to underground fuel storage tanks. It is important to note that 
this survey was conducted between 1988 and 1998 when most 
systems were still out of compliance. According to the 
Association of State and Territorial Solid Waste Management 
Officials less than 50 percent of all underground storage tanks 
were in compliance prior to 1998 and that as recent as 1996 
only 30 percent were in compliance. Therefore, the detection 
data reflects a time period before most of the underground 
tanks were upgraded to the current standards.
    The General Statements and Background section of the 
majority's report contains numerous misstatements and errors. 
It states that opt-in areas are required to remain in the RFG 
program for 4 years. That is incorrect. Opt-in areas are 
required to remain in the RFG program until the end of 2003. If 
an area were to opt into the RFG program today, it would only 
be required to remain in the program until the end of 2003, not 
4 years.
    The General Statements and Background section also states 
that ``Recent data suggests that refiners have achieved a 27 
percent or higher reduction in toxic air pollutants from the 
1990 baseline.'' This is an overstatement. While a 27 percent 
reduction was attained in the Northeast, the amount of over-
compliance was less in other areas of the country. That is why 
the imposition of a statutorily mandated 27.5 percent reduction 
results in an increase in stringency rather than just 
maintenance of current over-compliance.
    The General Statements and Background section asserts that 
EPA has not yet met its rulemaking obligation under section 
202(l) of the existing law. That is incorrect. The reformulated 
gasoline and conventional gasoline anti-dumping regulations 
that EPA promulgated in 1994 controlled air toxics from all 
U.S. gasoline. Those regulations were based on the study 
required under section 202(l) of the Act.
    The General Statements and Background section states that 
``Generally, the addition of oxygenates to gasoline allows for 
more complete fuel combustion, and lowers emissions of ozone 
precursors, such as nitrogen oxides and volatile organic 
compounds.'' This statement fails to take into account the 
findings of the National Research Council, Ozone-Forming 
Potential of Reformulated Gasoline, 1999. (requested by EPA), 
which stated ``The use of commonly available oxygenates in RFG 
has little impact on improving ozone air quality and has some 
disadvantages.''
    The General Statements and Background section fails to 
mention that the EPA Blue Ribbon Panel recommended a targeted 
approach to address the MTBE issue, and did not recommend a 
renewable fuels or alternative fuels mandate. Specifically, the 
BRP recommended a phase-down of MTBE to pre-RFG levels and the 
elimination of the Federal 2 (wt percent) oxygen requirement in 
RFG.
    In conclusion, I commend the chairman for his agreement to 
work through a number of these issues prior to floor action on 
the committee Bill, and I agree with him that a number of these 
issues will have to be debated before the whole Senate. I 
appreciate his willingness to work with me on these issues and 
his commitment to solving the problem of MTBE in our drinking 
water supply.
                                ------                                


               Letter from Marathon Ashland Petroleum LLC

                                                 September 8, 2000.

The Honorable James Inhofe,
U.S. Senate,
453 Russell Senate Office Building,
Washington, DC 20510-3603

Dear Senator Inhofe: I write today to express my profound concern 
regarding yesterday's decision by the Environment and Public Works 
Committee to report for full Senate consideration S. 2962, the Federal 
Reformulated Fuels Act of 2000. This bill goes far beyond providing a 
narrow legislative solution to the issues which have arisen concerning 
the use of MTBE (methyl tertiary butyl ether) in gasoline. Instead it 
represents a massive rewrite of the fuels provisions of the Clean Air 
Act.
    As the president of a major U.S. refining, marketing and 
transportation company, I find this action astonishing. It has only 
been a matter of weeks since I personally appeared before Congressional 
committees and participated in numerous member requested meetings to 
answer questions about the critical gasoline supply and demand 
imbalances in the Midwest, which led to significant price spikes during 
late spring and early summer of this year.
    Throughout this difficult period, as we identified a series of 
factors which contributed to these imbalances including the roll out of 
the Phase II Reformulated Gasoline (RFG) program, I was told repeatedly 
that my industry had failed to warn public officials that supply 
imbalances were likely to occur.
    This time, as Congress considers legislating another set of radical 
changes to Federal fuel requirements, l feel compelled to go on record 
to state clearly our belief that implementation of the provisions of S. 
2962 will impose a burden on the consuming public of unacceptable and 
entirely unnecessary price spikes.
    We strongly oppose the sweeping changes to Title II of the Clean 
Air Act contained in this legislation. Provisions such as the 
imposition of new air toxics standards for RFG and conventional 
gasoline areas, and the imposition of an aromatics cap, which will 
dangerously restrict refining flexibility, are serious, substantive 
changes which threaten to impose long range negative effects on both 
our industry and the economy at large.
    An eleventh hour rush to legislate absent the benefit of the fact 
finding and robust debate that characterize traditional Clean Air Act 
Reauthorization efforts is bad public policy. Given the logistical 
impossibility of this sort of reasoned approach in the remaining days 
before adjournment, we strongly urge you to go no further in this 
Congress with this piece of legislation.
    You may have heard that the oil industry opposes this legislation 
because of its expansive renewable fuels requirement. My company is the 
single largest blender of ethanol in gasoline in the United States. Let 
me explain our perspective on this issue.
    We categorically oppose fuel mandates because history has shown 
that they inevitably lead to higher gasoline costs and tighter and less 
reliable fuel supplies, not because we want to avoid using ethanol. 
Ethanol is a significant element of our gasoline pool and we will 
continue to blend it into our product so long as it remains an 
economically viable component of gasoline. We simply believe that 
additional mandates are unnecessary and ill advised.
    There are other unintended negative consequences of this 
legislation. The bill provides for a nearly unfettered ability by 
States to adopt Federal RFG requirements. This flies in the face of 
what we understood in 1990 to be the intent of Congress, which was that 
cleaner and more expensive gasoline should be required only in areas 
experiencing the worst air quality problems. S. 2962 ignores this 
intent and dismisses the impact on the nation's supply and distribution 
systems of a radically expanded RFG program.
    Further, facilitating the ability of States to opt in to the RFG 
program significantly increases the risk posed by the proliferation of 
boutique fuels. To the extent that this patchwork approach to fuels 
increases, our industry's ability to respond to supply shortages 
decreases radically due to the limitations in the existing supply and 
distribution infrastructure.
    Additionally, damage to our nation's highway system will be 
inevitable under this legislation. Due to the disparate Federal excise 
tax treatment of gasoline and gasohol (gasoline blended with ethanol), 
every gallon of gasoline replaced by gasohol represents a loss to the 
tax-funded Highway Trust Fund. When such losses are multiplied by the 
annually increasing mandate for ethanol usage in S. 2962, the deficit 
to the Trust Fund amounts to billions of dollars.
    I would like to close by emphasizing that we strongly support the 
need to address the problems associated with the use of MTBE. To that 
end, we urge Congress to support a much more narrow legislative 
approach, such as that which is embodied in legislation introduced by 
Senators Inhofe and Bingaman, which addresses the issue of oxygen 
content in RFG consistent with the recommendations of the EPA's own 
Blue Ribbon Panel on Oxygenates.
            Sincerely,
                                     J.L. Frank, President.
             Minority Views of Senator Christopher S. Bond

    I commend the chairman for his diligence and attempt to 
find a workable solution to the MTBE water contamination issue. 
S. 2962 could provide some tremendous gains for the use of 
ethanol which would be a positive step for our environment, 
rural farm economy, and a positive step in reducing our 
dependence on foreign oil.
    This country, requires a renewable, environmentally 
friendly alternative to MTBE that helps create local jobs, 
which adds value to our farmer's products, and which moves us 
away from this energy hostage situation we are in 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.
    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. When the Clean Air Act Amendments of 1990 were 
passed, there were more than 500,000 American troops stationed 
in the Middle East poised to begin Desert Storm. Promoting 
renewables that are domestically produced, such as ethanol, is 
a critical element toward regaining our independence from 
foreign oil. Finally, we knew that oxygenates would provide an 
opportunity to help the U.S. farm economy which was suffering 
from falling export markets and low prices by creating 
additional opportunities for our domestic resources and 
products such as ethanol.
    So, Congress enacted the oxygenate program as a means of 
providing clean octane to address air quality, but also to 
address the problems of energy security and rural economic 
development. Today, the fundamental objectives of providing 
clean octane for clean air, reducing dependence on imported 
petroleum, and increasing farm income remain as valid 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. Unfortunately, some are trying to use the sins of 
MTBE as a reason to pull the plug 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 emissions. In addition, ethanol is an 
organic, non-toxic, biodegradable substance, that will not harm 
our nation's water quality.
    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. 
In a letter written by Secretary Glickman, where he assumes a 
phaseout of MTBE and maintaining the oxygenate requirement, he 
stated, ``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.''
    It is clear to me and many others that ethanol is good for 
the environment, both our water and our air, as well as our 
economy.
    Therefore, I support the Clean Alternative Fuel Program 
contained in this legislation which encourages the use of 
domestically produced resources such as ethanol. By encouraging 
growth in domestic renewable energy resources we will reduce 
our nation's dependence on imported oil and provide a much-
needed economic stimulus to rural economies with the added 
environmental benefit of reducing emissions.
    S. 2962 also allows areas wishing to opt into the 
reformulated gasoline program the clear authority to do so. The 
court ruling earlier this year created some confusion and 
disappointment, especially for areas seeking to opt-in as a way 
to avoid new violations under the Clean Air Act.
    Finally, the legislation attempts to address the issue of 
leaking underground storage tanks and MTBE. By authorizing 
resources to help with the MTBE clean-ups necessary because of 
leaking underground storage tanks we can help the States 
address this problem that could unfortunately still grow.
    However, I believe the bill falls far short of protecting 
and maintaining the clean air benefits that were made possible 
by the oxygenate requirement. I firmly believe that if we 
eliminate the oxygenate requirement we need to ensure the 
benefits of the requirement, both public health and clean air, 
are at minimum maintained. Benefits of oxygenates are less 
aromatics, less olefins, reduced carbon monoxide, reduced 
ozone, and lower toxic emissions. Unfortunately, few of these 
things are adequately addressed.
    In addition, I believe that this bill could result in some 
unintended consequences. There are provisions in the 
legislation which are drafted in ways that are too broad and 
which provide new authority to the EPA which was never the 
intent of this legislation.
    This bill does contain many positives, most importantly 
because it recognizes the importance of domestic resources such 
as ethanol and the role these resources can play in our fuel 
supply and the environment. However, improvements still must be 
made. I am committed to continuing my efforts on this issue to 
ensure that any enacted legislation is a good clean air bill, 
good clean water bill, good rural farm economy bill, and a good 
domestic energy bill.

              Minority Views of Senator Robert F. Bennett


DISSENTING VIEWS ON S. 2962, THE FEDERAL REFORMULATED FUELS ACT OF 2000

    I submit these views to explain my opposition to S. 2962, 
the Federal Reformulated Fuels Act of 2000, as approved by the 
Senate Committee on Environment and Public Works. In summary, I 
am concerned that the statutory ban on the use of MTBE in motor 
vehicle fuels is arbitrary and sets a dangerous precedent for 
private sector participation in future federally mandated 
environmental programs. Further, I have concerns about the 
Clean Alternative Fuel program becoming a vehicle for mandating 
greater consumption of ethanol rather than truly encouraging 
the development of various alternative fuels. I am also 
disturbed by the manner in which the bill attempts to ensure 
environmental anti-backsliding and the creation of additional 
authority for the Environmental Protection Agency to regulate 
motor vehicles.

        SECTION 3--BANNING THE SALE OF GASOLINE CONTAINING MTBE

    Section 3 of S. 2962 would make three amendments to the 
Clean Air Act: (1) it would amend the Clean Air Act to include 
new authority for EPA to regulate, control or prohibit a fuel 
or fuel additive based on water pollution; (2) it would give 
California special authority beyond that already given to any 
other state to regulate motor vehicle emissions for the purpose 
of protecting water quality; and (3) it would require the EPA 
Administrator to ban the use of MTBE in gasoline not later than 
4 years after the date of enactment. I have concerns with each 
of these provisions.

The Clean Air Act Should Not be Used to Regulate Water Quality

    Section 3(a) of S. 2962 amends Section 211(c)(1) of the 
Clean Air Act to give EPA the authority to regulate fuels and 
fuel additives not only to protect air quality, but also to 
prevent water pollution. This amendment would create a clumsy 
and inefficient overlap of regulatory authorities. The Clean 
Air Act is intended to regulate air quality. The committee has 
failed to show that other existing authorities, such as the 
Clean Water Act and Subtitle I of the Resource Conservation and 
Recovery Act pertaining to leaking underground storage tanks 
containing petroleum, are inadequate to address the problem of 
groundwater contamination. Even if such a showing were made, 
the appropriate response would be to modify those authorities, 
not add new authorities in an unrelated statute. Unless and 
until Congress develops one comprehensive environmental 
statute, the Clean Air Act should not be used to regulate water 
quality.

The State of California Should Not be Given Special Authority to 
        Regulate Water Quality

    Section 3(a) of S. 2962 amends Section 211(c)(4)(B) to give 
the State of California additional authority to regulate water 
quality. For the reasons cited above, I believe it is 
inappropriate to use the Clean Air Act to give any jurisdiction 
additional authority to regulate water quality.

The ban on MTBE is arbitrary and unprecedented

    Section 3 of S. 2962 requires the EPA Administrator to ban 
the use of MTBE in gasoline not later than 4 years after the 
date of enactment. This statutory prohibition is arbitrary and 
unprecedented in several respects.
    First, the bill makes no finding that MTBE presents a 
serious risk to public health. Indeed, the proponents of the 
bill acknowledge that the health effects of exposure to low 
levels of MTBE are unknown. Clearly, additional scientific 
analysis is needed.
    The committee fails to take any notice of information 
indicating that recent efforts to prevent gasoline (including 
MTBE) from being released into the environment are succeeding 
and, as a result, human exposure to MTBE is diminished. The 
committee's action obviously is rooted in the consequences of 
underground storage tanks that were allowed to leak gasoline 
into groundwater supplies in the early and mid-1990's. Since 
then, however, new regulations on underground storage tanks 
have gone into effect, minimizing the potential for releases of 
gasoline into the environment. In addition, prohibitions on the 
use of two-cycle engines on lakes and reservoirs has further 
minimized the risk of gasoline (including gasoline containing 
MTBE) in drinking water supplies. Unfortunately, the 
committee's action fails to take into account these 
developments. As a result, the bill bears little logical 
relation to the actual factual circumstances.
    While Congress has acted to ban certain toxic chemicals, it 
has never done so without an extensive scientific record and, 
in some cases, with an opportunity for the appropriate 
administrative agency to revisit the prohibition based on 
additional factual information. Congress has enacted only one 
statutory prohibition on a toxic chemical, a ban on PCBs in the 
Toxic Substances Control Act, enacted in 1976. But even this 
prohibition allowed EPA to permit the use of PCBs where it 
could be shown that there was no unreasonable risk. 
Furthermore, while EPA has taken regulatory action before to 
take chemicals out of commerce, such as asbestos, lead, and a 
few major pesticides, EPA only exercised its authority after 
substantial scientific analysis and an opportunity for public 
review and comment. Contrary to this precedent, S. 2962 neither 
allows EPA to make additional findings concerning the actual 
risk to human health nor allows EPA to exercise its regulatory 
expertise to provide for exceptions or changes based on changed 
circumstances. In this respect, the ban of MTBE is both 
arbitrary and unprecedented.
    The ban of MTBE in also objectionable because it is to be 
implemented in 4 years or less. In other parts of the Clean Air 
Act, Congress has taken action to prohibit the sale of certain 
chemicals or change the design of certain products, but never 
according to such an abrupt schedule. In Title VI of the 1990 
Clean Air Act Amendments, for example, Congress mandated a 
phaseout of Class I chlorofluorocarbons (CFCs) over a 10-year 
period, and a phaseout of Class II CFCs over a 30-year period. 
Likewise, in Title IV of the 1990 Clean Air Act Amendments, 
Congress ordered a reduction in emissions of sulfur dioxide 
over a 10-year period. Title II of the 1990 Clean Air Act 
Amendments provides for a tightening of standards for 
automobile emissions that extends in a two-step process over 11 
years. Indeed, the investments required to make the Clean Air 
Act RFG work were substantial enough to warrant a 5-year 
planning and implementation period. It is hard to understand 
the rationale for banning the use of MTBE in 4 years or less.
    The ban on MTBE in 4 years or less raises issues of both 
workability and fairness. MTBE constitutes approximately 3 
percent of the total national gasoline pool, and approximately 
10 percent of the gasoline pool in areas of the United States 
using RFG. It is unlikely that gasoline markets can adjust to 
this lost volume without significant price increases and supply 
disruptions. And even as more crude oil is used to meet the 
demand for motor vehicle fuels, the supplies of crude oil 
necessary to produce home heating oil are reduced.
    Finally, the ban on MTBE in 4 years or less is unfair to 
those who took risks and committed significant resources to 
make the RFG program successful. As Chairman Smith has stated 
on several occasions, Congress created the market for fuel 
additive oxygenates for an important purpose--to address 
serious air quality problems in many areas of the United 
States. MTBE producers, especially petrochemical companies, 
made significant investments to provide the necessary volumes 
of oxygenates. The ban on MTBE in 4 years or less deprives 
these producers of a reasonable return on their investment and 
may threaten their economic well being and the economic well 
being of their shareholders.
    The ban on MTBE not only harms MTBE manufacturers, it also 
sets a dangerous precedent that could inhibit the success of 
federally mandated environmental programs in the future. While 
Congress can establish conditions for participating in 
interstate commerce, it cannot compel a business to produce a 
particular product. Thus, to encourage the development of such 
products, Congress must ensure that the rules for participating 
in markets are clear and fair, and that the participant has a 
reasonable expectation to earn a return on an investment. The 
proposed ban on MTBE in 4 years or less sends a disquieting 
message that Congress can arbitrarily change the rules at any 
time, with potentially ruinous consequences for those who have 
taken risks and made good faith investments.

                SECTION 6 CLEAN ALTERNATIVE FUEL PROGRAM

    Section 6 of S. 2962 creates a program intended to 
encourage the use of alternative fuels. In fact, this extremely 
complex provision raises a myriad of problems related to the 
federally mandated threefold expansion of ethanol in both 
gasoline and diesel fuels sold throughout the United States.
    While some have argued that this Program provides a measure 
of competition, I believe that the consensus view is that the 
Program constitutes a virtual mandate for ethanol. The amount 
of ethanol usage eventually required under the Program, given 
our understanding of the term ``gasoline equivalency,'' would 
be almost four times current usage. Given the probable role 
that the use of ethanol played in the high Midwestern gasoline 
prices this summer, and given that each gallon of ethanol sold 
subtracts yet another 54 cents from the Highway Trust Fund, I 
am troubled by an ethanol mandate. Further, at the June 14, 
2000, hearing before our Subcommittee on Clean Air, Wetlands, 
Private Property and Nuclear Safety, I raised the following 
environmental objections to increased ethanol use:
    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 
either to assist with energy security or control of 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 is of 
greater public health concern than MTBE. Finally, because 
combustion of ethanol releases harmful aldehydes, it is of 
little assistance in controlling air toxics.
    In short, because the proposed Clean Alternative Fuels 
Program does not address the threats posed to energy price and 
security, to America's infrastructure, and to the environment, 
I believe the Program would be bad public policy.

   SECTION 9--ANALYSIS OF MOTOR VEHICLE FUEL CHANGES AND ADDITIONAL 
                        PERFORMANCE REQUIREMENTS

    Section 9 of the bill amends Section 211 of the Clean Air 
Act to impose two new sets of rulemaking requirements on EPA. 
The problems with each of these sets of rulemaking requirements 
are described below.

The Anti-Backsliding Analysis and Regulations Fail to Protect Public 
        Health

    Section 9 provides that not later than 5 years after the 
date of enactment, EPA must complete an analysis of ``the 
changes in emissions of air pollutants and air quality due to 
the use of motor vehicle fuel and fuel additives resulting 
from'' the implementation of S. 2962. Two years later, i.e., 
not later than 7 years after the date of enactment, EPA must 
promulgate regulations to ensure that, as compared with 
emissions due to the use of motor vehicle fuel and fuel 
additives during the period of 1998 through 2000, emissions due 
to the use of motor vehicle fuel and fuel additives will not 
(1) be significant greater on a per-gallon average basis in any 
region; or (2) cause air quality to be significantly worse in 
any region.
    EPA's analysis will almost certainly show that air quality 
has deteriorated as a result of implementation of the 
provisions of S. 2962. First, the anti-backsliding provisions 
that will apply in areas that have waived out of the oxygen 
requirement for RFG are inadequate: they do not cover all 
pollutants that come from motor vehicles, and the statutory 
default standards are weaker than actual levels already 
attained under Phase I of the RFG program. Second, Section 3 
requires EPA to ban the use of MTBE in motor vehicle fuel, but 
provides no assurance that the additives used to replace MTBE 
will not result in increased air emissions. While Section 3 
gives EPA 4 years to institute a ban on MTBE, it also gives EPA 
broad authority to begin a phaseout earlier. Therefore, it is 
altogether possible that the increased air emissions that would 
result from the phaseout of MTBE would be recorded in the 
analysis which is required under this part of Section 9 of the 
bill. Third, the use of an increasing amount of alternative 
fuel in motor vehicle fuels, as prescribed by Section 6 of the 
bill, is also likely to contribute to air quality 
deterioration.
    The anti-backsliding provisions of Section 9 would likely 
be insufficient to prevent any air quality deterioration that 
would occur as the provisions of S. 2962 are implemented. As 
described above, the adverse air quality impacts of the bill 
would begin just 9 months after the date of enactment--the 
latest date on which the oxygen waiver provision can become 
effective--and would continue as the MTBE ban becomes effective 
under Section 3 and as the alternative fuel requirements are 
implemented under Section 6. However, the regulations intended 
to prevent such deterioration are not due until 7 years after 
the date of enactment, and even then, the effective date of any 
standards promulgated by the regulations would be a year or two 
later. So, for a period of 7 years or more, air quality is 
allowed to degrade.

The additional authority provided to EPA to regulate motor vehicles, 
        fuels and fuel additives is overly broad

    Section 9 of S. 2962 contains a second grant of authority 
to EPA which is equally problematic. Not later than 10 years 
after the date of enactment, EPA is required to issue 
regulations establishing performance standards for motor 
vehicle fuel and fuel additives, the use of motor vehicle fuel 
and fuel additives, and motor vehicles that are necessary (1) 
to ensure adequate protection of public health and the 
environment and (2) to achieve specific reductions in the use 
of compounds or associated emission projects that pose the 
greatest risk to human health. The bill further requires that 
in conducting the analysis required, the Administrator must 
take into account the effects of motor vehicle fuel and fuel 
additives on public health and the environment over the entire 
life cycle of the production, distribution, and use of motor 
vehicle fuel and fuel additives evaluated in the analyses.
    The problem with this grant of authority to EPA is that it 
fails to provide the EPA Administrator with any intelligible 
parameters for decisionmaking. It compels the EPA Administrator 
to promulgate regulations not only for motor vehicle fuels and 
fuel additives, but also for motor vehicles themselves, at a 
highly subjective standard i.e., ``to ensure adequate 
protection of public health and the environment.'' The same 
standards must also achieve ``specific reductions'' in the use 
of compounds or associated emission products emission products 
that pose the greatest risk to human health, but fails to 
provide any guidance as to what levels reductions are 
appropriate. This provision of the bill clearly represents an 
overly broad delegation of authority to EPA.


             Minority Views of Senator Kay Bailey Hutchison

    I would like to elaborate on some of the objections I 
raised at the mark-up regarding the need for appropriate 
transitional incentives for manufacturers of MTBE. These 
incentives would facilitate the transition of productive 
manufacturing facilities to new generations of clean-fuel 
additives. Although I have serious misgivings about the 
alternative fuel mandate contained in the bill, one thing is 
clear: having a variety of clean-fuel additives--including 
those made by current MTBE manufacturers--makes sense if we are 
to have an adequate, reasonably priced supply of clean burning 
fuel.
    At the committee mark-up, the chairman noted that the MTBE 
manufacturing base ``was created as a result of a Congressional 
mandate to clean up the Nation's air. And I believe that you 
are justified in making the point that whether it be a 
transition from MTBE to something else or retrofitting, 
whatever it takes to make this product or to either eliminate 
the product or make the product such that it does not cause the 
problems, I think you're justified in saying that industry 
should have transition funding.'' Of course, I certainly agree 
with the chairman on this point and wish to expound further.
    This is at first a fairness issue. The Federal Government 
mandated the private investment of billions of dollars in 
bringing additional MTBE capacity on line in order to meet the 
requirements of the Clean Air Act. By any measure, the 
reformulated gasoline program has been a great success, 
exceeding its air quality objectives. Under the circumstances, 
it was a reasonable expectation on the part of these companies 
and their workers that the program would be in place for time 
sufficient to justify the investment. If we are now to end this 
mandate, it is only fair that we provide incentives to 
transition away from MTBE to other alternatives.
    Consumer considerations justify a transition incentive 
program. This bill establishes an enormous government mandate 
for the use of ethanol. Certain physical properties of ethanol, 
including its volatility, difficulty in transporting, and 
expensive blendstocks, make it more expensive to use than MTBE. 
Indeed, the Congressional Research Service, in a June 16, 2000, 
memorandum, observed that use of ethanol contributed to the 
severe gasoline price increases in the upper Midwest this 
summer. To avoid greatly exacerbating this problem, we must 
seek all alternatives that technology can provide. A transition 
fund can help do that.
                        Changes in Existing Law

    In compliance with section 12 of rule XXVI of the Standing 
Rules of the Senate, changes in existing law made by the bill 
as reported are shown as follows: Existing law proposed to be 
omitted is enclosed in [black brackets], new matter is printed 
in italic, existing law in which no change is proposed is shown 
in roman:
                              ----------                              


                            CLEAN AIR ACT\1\


           [As Amended Through P.L. 106-55, August 17, 1999]

              Part A--Air Quality and Emission Limitations


                         findings and purposes

      Sec. 101. (a) The Congress finds--
---------------------------------------------------------------------------
    \1\ The Clean Air Act (42 U.S.C. 7401-7626) consists of Public Law 
159 (July 14, 1955; 69 Stat. 322) and the amendments made by subsequent 
enactments.

           *       *       *       *       *       *       *

---------------------------------------------------------------------------

                          regulation of fuels

      Sec. 211. (a) * * *

           *       *       *       *       *       *       *

      (b)(1) For the purpose of registration of fuels and fuel 
additives, the Administrator shall require--
            (A) the manufacturer of any fuel to notify him as 
        to the commercial identifying name and manufacturer of 
        any additive contained in such fuel; the range of 
        concentration of any additive in the fuel; and the 
        purpose-in-use of any such additive; and
            (B) the manufacturer of any additive to notify him 
        as to the chemical composition of such additive.
      (2) For the purpose of registration of fuels and fuel 
additives, the Administrator [may also] shall, on a regular 
basis require the manufacturer of any fuel or fuel additive--
            [(A) to conduct tests to determine potential public 
        health effects of such fuel or additive (including, but 
        not limited to, carcinogenic, teratogenic, or mutagenic 
        effects), and]
            (A) to conduct tests to determine potential public 
        health and environmental effects of the fuel or 
        additive (including carcinogenic, teratogenic, or 
        mutagenic effects); and
            (B) to furnish the description of any analytical 
        technique that can be used to detect and measure any 
        additive in such fuel, the recommended range of 
        concentration of such additive, and the recommended 
        purpose-in-use of such additive, and such other 
        information as is reasonable and necessary to determine 
        the emissions resulting from the use of the fuel or 
        additive contained in such fuel, the effect of such 
        fuel or additive on the emission control performance of 
        any vehicle, vehicle engine, nonroad engine or nonroad 
        vehicle, or the extent to which such emissions affect 
        the public health or welfare.
Tests under subparagraph (A) shall be conducted in conformity 
with test procedures and protocols established by the 
Administrator. The results of such tests shall not be 
considered confidential.
      (3) Upon compliance with the provisions of this 
subsection, including assurances that the Administrator will 
receive changes in the information required, the Administrator 
shall register such fuel or fuel additive.
      (c)(1) The Administrator may, from time to time on the 
basis of information obtained under subsection (b) of this 
section or other information available to him, by regulation, 
control or prohibit the manufacture, introduction into 
commerce, offering for sale, or sale of any fuel or fuel 
additive for use in a motor vehicle, motor vehicle engine, or 
nonroad engine or nonroad vehicle (A) if in the judgment of the 
Administrator any fuel or fuel additive or emission product of 
such fuel or fuel additive causes, or contributes, to [air 
pollution which] air pollution, or water pollution, that may 
reasonably be anticipated to endanger the public health or 
welfare, or (B) if emission products of such fuel or fuel 
additive will impair to a significant degree the performance of 
any emission control device or system which is in general use, 
or which the Administrator finds has been developed to a point 
where in a reasonable time it would be in general use were such 
regulation to be promulgated.
      (2)(A) No fuel, class of fuels, or fuel additive may be 
controlled or prohibited by the Administrator pursuant to 
clause (A) of paragraph (1) except after consideration of all 
relevant medical and scientific evidence available to him, 
including consideration of other technologically or 
economically feasible means of achieving emission standards 
under section 202.
      (B) No fuel or fuel additive may be controlled or 
prohibited by the Administrator pursuant to clause (B) of 
paragraph (1) except after consideration of available 
scientific and economic data, including a cost benefit analysis 
comparing emission control devices or systems which are or will 
be in general use and require the proposed control or 
prohibition with emission control devices or systems which are 
or will be in general use and do not require the proposed 
control or prohibition. On request of a manufacturer of motor 
vehicles, motor vehicle engines, fuels, or fuel additives 
submitted within 10 days of notice of proposed rulemaking, the 
Administrator shall hold a public hearing and publish findings 
with respect to any matter he is required to consider under 
this subparagraph. Such findings shall be published at the time 
of promulgation of final regulations.
      (C) No fuel or fuel additive may be prohibited by the 
Administrator under paragraph (1) unless he finds, and 
publishes such finding, that in his judgment such prohibition 
will not cause the use of any other fuel or fuel additive which 
will produce emissions which will endanger the public health or 
welfare to the same or greater degree than the use of the fuel 
or fuel additive proposed to be prohibited.
      (3)(A) For the purpose of obtaining evidence and data to 
carry out paragraph (2), the Administrator may require the 
manufacturer of any motor vehicle or motor vehicle engine to 
furnish any information which has been developed concerning the 
emissions from motor vehicles resulting from the use of any 
fuel or fuel additive, or the effect of such use on the 
performance of any emission control device or system.
      (B) In obtaining information under subparagraph (A), 
section 307 (a) (relating to subpenas) shall be applicable.
      (4)(A) Except as otherwise provided in subparagraph (B) 
or (C), no State (or political subdivision thereof) may 
prescribe or attempt to enforce, for the purposes of motor 
vehicle emission control, any control or prohibition respecting 
any characteristic or component of a fuel or fuel additive in a 
motor vehicle or motor vehicle engine--
            (i) if the Administrator has found that no control 
        or prohibition of the characteristic or component of a 
        fuel or fuel additive under paragraph (1) is necessary 
        and has published his finding in the Federal Register, 
        or
            (ii) if the Administrator has prescribed under 
        paragraph (1) a control or prohibition applicable to 
        such characteristic or component of a fuel or fuel 
        additive, unless State prohibition or control is 
        identical to the prohibition or control prescribed by 
        the Administrator.
      (B) Any State for which application of section 209(a) has 
at any time been waived under section 209(b) may at any time 
prescribe and enforce, for the purpose of motor vehicle 
emission control or water quality protection, a control or 
prohibition respecting any fuel or fuel additive.
      (C) A State may prescribe and enforce, for purposes of 
motor vehicle emission control, a control or prohibition 
respecting the use of a fuel or fuel additive in a motor 
vehicle or motor vehicle engine if an applicable implementation 
plan for such State under section 110 so provides. The 
Administrator may approve such provision in an implementation 
plan, or promulgate an implementation plan containing such a 
provision, only if he finds that the State control or 
prohibition is necessary to achieve the national primary or 
secondary ambient air quality standard which the plan 
implements. The Administrator may find that a State control or 
prohibition is necessary to achieve that standard if no other 
measures that would bring about timely attainment exist, or if 
other measures exist and are technically possible to implement, 
but are unreasonable or impracticable. The Administrator may 
make a finding of necessity under this subparagraph even if the 
plan for the area does not contain an approved demonstration of 
timely attainment.
    (5) Ban on the use of mtbe.--
            (A) In general.--Not later than 4 years after the 
        date of enactment of this paragraph, the Administrator 
        shall ban use of methyl tertiary butyl ether in 
        gasoline.
            (B) Regulations concerning phase-out.--The 
        Administrator may establish by regulation a schedule to 
        phase out the use of methyl tertiary butyl ether in 
        gasoline during the period preceding the effective date 
        of the ban under subparagraph (A).
    (d) Penalties and Injunctions.--
            (1) Civil penalties.--Any person who violates 
        subsection (a), (f), (g), (k), (l), (m), or (n) of this 
        section or the regulations prescribed under subsection 
        (c), (h), (i), (k), (l), (m), [or (n)] (n), or (o) of 
        this section or who fails to furnish any information or 
        conduct any tests required by the Administrator under 
        subsection (b) of this section shall be liable to the 
        United States for a civil penalty of not more than the 
        sum of $25,000 for every day of such violation and the 
        amount of economic benefit or savings resulting from 
        the violation. Any violation with respect to a 
        regulation prescribed under subsection (c), (k), (l), 
        [or (m)] (m), or (o) of this section which establishes 
        a regulatory standard based upon a multiday averaging 
        period shall constitute a separate day of violation for 
        each and every day in the averaging period. Civil 
        penalties shall be assessed in accordance with 
        subsections (b) and (c) of section 205.
            (2) Injunctive authority.--The district courts of 
        the United States shall have jurisdiction to restrain 
        violations of subsections (a), (f), (g), (k), (l), (m), 
        and (n) of this section and of the regulations 
        prescribed under subsections (c), (h), (i), (k), (l), 
        (m), [and (n)] (n), and (o) of this section, to award 
        other appropriate relief, and to compel the furnishing 
        of information and the conduct of tests required by the 
        Administrator under subsection (b) of this section. 
        Actions to restrain such violations and compel such 
        actions shall be brought by and in the name of the 
        United States. In any such action, subpoenas for 
        witnesses who are required to attend a district court 
        in any district may run into any other district.

           *       *       *       *       *       *       *

    (k) Reformulated Gasoline for Conventional Vehicles.--
            (1) EPA regulations.--[Within 1 year after the 
        enactment of the Clean Air Act Amendments of 1990]
                    (A) In general.--Not later than November 
                15, 1991, the Administrator shall promulgate 
                regulations under this section establishing 
                requirements for reformulated gasoline to be 
                used in gasoline-fueled vehicles in specified 
                nonattainment areas. Such regulations shall 
                require the greatest reduction in emissions of 
                ozone forming volatile organic compounds 
                (during the high ozone season) and emissions of 
                toxic air pollutants (during the entire year) 
                achievable through the reformulation of 
                conventional gasoline, taking into 
                consideration the cost of achieving such 
                emission reductions, any nonair-quality and 
                other air-quality related health and 
                environmental impacts and energy requirements.
                    (B) Waiver of oxygen content requirement.--
                            (i) Authority of the governor.--
                                    (I) In general.--
                                Notwithstanding any other 
                                provision of this subsection, a 
                                Governor of a State, upon 
                                notification by the Governor to 
                                the Administrator during the 
                                90-day period beginning on the 
                                date of enactment of this 
                                subparagraph, or during the 90-
                                day period beginning on the 
                                date on which an area in the 
                                State becomes a covered area by 
                                operation of the second 
                                sentence of paragraph (11)(D), 
                                may waive the application of 
                                paragraphs (2)(B) and (3)(A)(v) 
                                to gasoline sold or dispensed 
                                in the State.
                                    (II) Opt-in areas.--A 
                                Governor of a State that 
                                submits an application under 
                                paragraph (6) may, as part of 
                                that application, waive the 
                                application of paragraphs 
                                (2)(B) and (3)(A)(v) to 
                                gasoline sold or dispensed in 
                                the State.
                            (ii) Treatment as reformulated 
                        gasoline.--In the case of a State for 
                        which the Governor invokes the waiver 
                        described in clause (i), gasoline that 
                        complies with all provisions of this 
                        subsection other than paragraphs (2)(B) 
                        and (3)(A)(v) shall be considered to be 
                        reformulated gasoline for the purposes 
                        of this subsection.
                            (iii) Effective date of waiver.--A 
                        waiver under clause (i) shall take 
                        effect on the earlier of--
                                    (I) the date on which the 
                                performance standard under 
                                subparagraph (C) takes effect; 
                                or
                                    (II) the date that is 270 
                                days after the date of 
                                enactment of this subparagraph.
                    (C) Maintenance of toxic air pollutant 
                emission and aromatic hydrocarbon content 
                reductions.--
                            (i) In general.--As soon as 
                        practicable after the date of enactment 
                        of this subparagraph, the Administrator 
                        shall--
                                    (I) promulgate regulations 
                                consistent with subparagraph 
                                (A) and paragraph (3)(B)(ii) to 
                                ensure that reductions of toxic 
                                air pollutant emissions and 
                                aromatic hydrocarbon content 
                                achieved under the reformulated 
                                gasoline program under this 
                                section before the date of 
                                enactment of this subparagraph 
                                are maintained in States for 
                                which the Governor waives the 
                                oxygenate requirement under 
                                subparagraph (B)(i); or
                                    (II) determine that the 
                                requirement described in clause 
                                (iv)--
                                            (aa) is consistent 
                                        with the bases for a 
                                        performance standard 
                                        described in clause 
                                        (ii); and
                                            (bb) shall be 
                                        deemed to be the 
                                        performance standard 
                                        under clause (ii) and 
                                        shall be applied in 
                                        accordance with clause 
                                        (iii).
                            (ii) Performance standard.--The 
                        Administrator, in regulations 
                        promulgated under clause (i)(I), shall 
                        establish an annual average performance 
                        standard based on--
                                    (I) compliance survey data;
                                    (II) the annual aggregate 
                                reductions in emissions of 
                                toxic air pollutants achieved 
                                under the reformulated gasoline 
                                program during calendar years 
                                1998 and 1999, determined on 
                                the basis of the volume of 
                                reformulated gasoline 
                                containing methyl tertiary 
                                butyl ether that is sold 
                                throughout the United States;
                                    (III) the annual average 
                                aromatic hydrocarbon content of 
                                gasoline sold under the 
                                reformulated gasoline program 
                                during the 2 of the calendar 
                                years 1998, 1999, and 2000 for 
                                which that content is the 
                                lowest, determined on the basis 
                                of the volume of reformulated 
                                gasoline containing methyl 
                                tertiary butyl ether that is 
                                sold throughout the United 
                                States;
                                    (IV) the annual average 
                                aromatic hydrocarbon content of 
                                the 10 percent of the gasoline 
                                sold under the reformulated 
                                gasoline program during the 2 
                                calendar years described in 
                                subclause (III) for which that 
                                content is the greatest, 
                                determined on the basis of the 
                                volume of reformulated gasoline 
                                containing methyl tertiary 
                                butyl ether that is sold 
                                throughout the United States; 
                                and
                                    (V) such other information 
                                as the Administrator determines 
                                to be appropriate.
                            (iii) Applicability.--
                                    (I) In general.--The 
                                performance standards under 
                                this subparagraph shall be 
                                applied on an annual average 
                                importer or refinery-by-
                                refinery basis to all 
                                reformulated gasoline that is 
                                sold or introduced into 
                                commerce in a State for which 
                                the Governor waives the 
                                oxygenate requirement under 
                                subparagraph (B)(i).
                                    (II) More stringent 
                                requirements.--The performance 
                                standards under this 
                                subparagraph shall not apply to 
                                the extent that any requirement 
                                under section 202(l) is more 
                                stringent than the performance 
                                standard.
                                    (III) State standards.--The 
                                performance standards under 
                                this subparagraph shall not 
                                apply in any State that has 
                                received a waiver under section 
                                209(b).
                                    (IV) Credit program.--The 
                                Administrator shall provide for 
                                the granting of credits for 
                                exceeding the performance 
                                standards under this 
                                subparagraph in the same manner 
                                as provided in paragraph (7).
                            (iv) Statutory performance 
                        standard.--
                                    (I) In general.--Subject to 
                                subclause (IV), if the 
                                regulations under clause (i)(I) 
                                have not been promulgated by 
                                the date that is 270 days after 
                                the date of enactment of this 
                                subparagraph, the requirement 
                                described in subclause (II) 
                                shall be deemed to be the 
                                performance standard under 
                                clause (ii) and shall be 
                                applied in accordance with 
                                clause (iii).
                                    (II) Toxic air pollutant 
                                emissions.--The aggregate 
                                emissions of toxic air 
                                pollutants from baseline 
                                vehicles when using 
                                reformulated gasoline shall be 
                                27.5 percent below the 
                                aggregate emissions of toxic 
                                air pollutants from baseline 
                                vehicles when using baseline 
                                gasoline.
                                    (III) Aromatic hydrocarbon 
                                content.--
                                            (aa) Annual 
                                        average.--The annual 
                                        average aromatic 
                                        hydrocarbon content of 
                                        reformulated gasoline 
                                        shall not exceed 26 
                                        percent by volume.
                                            (bb) Maximum per 
                                        gallon.--No gallon of 
                                        reformulated gasoline 
                                        shall have an aromatic 
                                        hydrocarbon content in 
                                        excess of 45 percent.
                                            (cc) Alternative 
                                        requirement.--The 
                                        requirements under 
                                        items (aa) and (bb) 
                                        shall be deemed to be 
                                        met if no gallon of 
                                        reformulated gasoline 
                                        has an aromatic 
                                        hydrocarbon content in 
                                        excess of 30 percent.
                                    (IV) Subsequent 
                                regulations.--The Administrator 
                                may modify the performance 
                                standard established under 
                                subclause (I) through 
                                promulgation of regulations 
                                under clause (i)(I).
            (2) General requirements.--The regulations referred 
        to in paragraph (1) shall require that reformulated 
        gasoline comply with paragraph (3) and with each of the 
        following requirements (subject to paragraph (7)):
                    (A) NOx emissions.--The 
                emissions of oxides of nitrogen 
                (NOx) from baseline vehicles when 
                using the reformulated gasoline shall be no 
                greater than the level of such emissions from 
                such vehicles when using baseline gasoline. If 
                the Administrator determines that compliance 
                with the limitation on emissions of oxides of 
                nitrogen under the preceding sentence is 
                technically infeasible, considering the other 
                requirements applicable under this subsection 
                to such gasoline, the Administrator may, as 
                appropriate to ensure compliance with this 
                subparagraph, adjust (or waive entirely), any 
                other requirements of this paragraph (including 
                the oxygen content requirement contained in 
                subparagraph (B)) or any requirements 
                applicable under paragraph (3)(A).
                    (B) Oxygen content.--The oxygen content of 
                the gasoline shall equal or exceed 2.0 percent 
                by weight (subject to a testing tolerance 
                established by the Administrator) except as 
                otherwise required by this Act. The 
                Administrator may waive, in whole or in part, 
                the application of this subparagraph for any 
                ozone nonattainment area upon a determination 
                by the Administrator that compliance with such 
                requirement would prevent or interfere with the 
                attainment by the area of a national primary 
                ambient air quality standard.
                    (C) Benzene content.--The benzene content 
                of the gasoline shall not exceed 1.0 percent by 
                volume.
                    (D) Heavy metals.--The gasoline shall have 
                no heavy metals, including lead or manganese. 
                The Administrator may waive the prohibition 
                contained in this subparagraph for a heavy 
                metal (other than lead) if the Administrator 
                determines that addition of the heavy metal to 
                the gasoline will not increase, on an aggregate 
                mass or cancer-risk basis, toxic air pollutant 
                emissions from motor vehicles.
            (3) More stringent of formula or performance 
        standards.--The regulations referred to in paragraph 
        (1) shall require compliance with the more stringent of 
        either the requirements set forth in subparagraph (A) 
        or the requirements of subparagraph (B) of this 
        paragraph. For purposes of determining the more 
        stringent provision, clause (i) and clause (ii) of 
        subparagraph (B) shall be considered independently.
                    (A) Formula.--
                            (i) Benzene.--The benzene content 
                        of the reformulated gasoline shall not 
                        exceed 1.0 percent by volume.
                            (ii) Aromatics.--The aromatic 
                        hydrocarbon content of the reformulated 
                        gasoline shall not exceed 25 percent by 
                        volume.
                            (iii) Lead.--The reformulated 
                        gasoline shall have no lead content.
                            (iv) Detergents.--The reformulated 
                        gasoline shall contain additives to 
                        prevent the accumulation of deposits in 
                        engines or vehicle fuel supply systems.
                            (v) Oxygen content.--The oxygen 
                        content of the reformulated gasoline 
                        shall equal or exceed 2.0 percent by 
                        weight (subject to a testing tolerance 
                        established by the Administrator) 
                        except as otherwise required by this 
                        Act.
                    (B) Performance standard.--
                            (i) VOC emissions.--During the high 
                        ozone season (as defined by the 
                        Administrator), the aggregate emissions 
                        of ozone forming volatile organic 
                        compounds from baseline vehicles when 
                        using the reformulated gasoline shall 
                        be 15 percent below the aggregate 
                        emissions of ozone forming volatile 
                        organic compounds from such vehicles 
                        when using baseline gasoline. Effective 
                        in calendar year 2000 and thereafter, 
                        25 percent shall be substituted for 15 
                        percent in applying this clause, except 
                        that the Administrator may adjust such 
                        25 percent requirement to provide for a 
                        lesser or greater reduction based on 
                        technological feasibility, considering 
                        the cost of achieving such reductions 
                        in VOC emissions. No such adjustment 
                        shall provide for less than a 20 
                        percent reduction below the aggregate 
                        emissions of such air pollutants from 
                        such vehicles when using baseline 
                        gasoline. The reductions required under 
                        this clause shall be on a mass basis.
                            (ii) Toxics.--During the entire 
                        year, the aggregate emissions of toxic 
                        air pollutants from baseline vehicles 
                        when using the reformulated gasoline 
                        shall be 15 percent below the aggregate 
                        emissions of toxic air pollutants from 
                        such vehicles when using baseline 
                        gasoline. Effective in calendar year 
                        2000 and thereafter, 25 percent shall 
                        be substituted for 15 percent in 
                        applying this clause, except that the 
                        Administrator may adjust such 25 
                        percent requirement to provide for a 
                        lesser or greater reduction based on 
                        technological feasibility, considering 
                        the cost of achieving such reductions 
                        in toxic air pollutants. No such 
                        adjustment shall provide for less than 
                        a 20 percent reduction below the 
                        aggregate emissions of such air 
                        pollutants from such vehicles when 
                        using baseline gasoline. The reductions 
                        required under this clause shall be on 
                        a mass basis.
        Any reduction greater than a specific percentage 
        reduction required under this subparagraph shall be 
        treated as satisfying such percentage reduction 
        requirement.
            (4) Certification procedures.--
                    (A) Regulations.--The regulations under 
                this subsection shall include procedures under 
                which the Administrator shall certify 
                reformulated gasoline as complying with the 
                requirements established pursuant to this 
                subsection. Under such regulations, the 
                Administrator shall establish procedures for 
                any person to petition the Administrator to 
                certify a fuel formulation, or slate of fuel 
                formulations. Such procedures shall further 
                require that the Administrator shall approve or 
                deny such petition within 180 days of receipt. 
                If the Administrator fails to act within such 
                180-day period, the fuel shall be deemed 
                certified until the Administrator completes 
                action on the petition.
                    (B) Certification; equivalency.--The 
                Administrator shall certify a fuel formulation 
                or slate of fuel formulations as complying with 
                this subsection if such fuel or fuels--
                            (i) comply with the requirements of 
                        paragraph (2), and
                            (ii) achieve equivalent or greater 
                        reductions in emissions of ozone 
                        forming volatile organic compounds and 
                        emissions of toxic air pollutants than 
                        are achieved by a reformulated gasoline 
                        meeting the applicable requirements of 
                        paragraph (3).
                    (C) EPA determination of emissions level.--
                Within 1 year after the enactment of the Clean 
                Air Act Amendments of 1990, the Administrator 
                shall determine the level of emissions of ozone 
                forming volatile organic compounds and 
                emissions of toxic air pollutants emitted by 
                baseline vehicles when operating on baseline 
                gasoline. For purposes of this subsection, 
                within 1 year after the enactment of the Clean 
                Air Act Amendments of 1990, the Administrator 
                shall, by rule, determine appropriate measures 
                of, and methodology for, ascertaining the 
                emissions of air pollutants (including 
                calculations, equipment, and testing 
                tolerances).
            (5) Prohibition.--Effective beginning January 1, 
        1995, each of the following shall be a violation of 
        this subsection:
                    (A) The sale or dispensing by any person of 
                conventional gasoline to ultimate consumers in 
                any covered area.
                    (B) The sale or dispensing by any refiner, 
                blender, importer, or marketer of conventional 
                gasoline for resale in any covered area, 
                without (i) segregating such gasoline from 
                reformulated gasoline, and (ii) clearly marking 
                such conventional gasoline as ``conventional 
                gasoline, not for sale to ultimate consumer in 
                a covered area''.
        Any refiner, blender, importer or marketer who 
        purchases property segregated and marked conventional 
        gasoline, and thereafter labels, represents, or 
        wholesales such gasoline as reformulated gasoline shall 
        also be in violation of this subsection. The 
        Administrator may impose sampling, testing, and 
        recordkeeping requirements upon any refiner, blender, 
        importer, or marketer to prevent violations of this 
        section.
            [(6) Opt-in areas.--(A) Upon]
            (6) Opt-in areas.--
                    (A) Classified areas.--
                            (i) In general.--Upon the 
                        application of the Governor of a State, 
                        the Administrator shall apply the 
                        prohibition set forth in paragraph (5) 
                        in any area in the State classified 
                        under subpart 2 of part D of title I as 
                        a Marginal, Moderate, Serious, or 
                        Severe Area (without regard to whether 
                        or not the 1980 population of the area 
                        exceeds 250,000). In any such case, the 
                        Administrator shall establish an 
                        effective date for such prohibition as 
                        he deems appropriate, not later than 
                        January 1, 1995, or 1 year after such 
                        application is received, whichever is 
                        later. The Administrator shall publish 
                        such application in the Federal 
                        Register upon receipt.
            [(B) If]
                            (ii) Effect of insufficient 
                        domestic capacity to produce 
                        reformulated gasoline.--If the 
                        Administrator determines, on the 
                        Administrator's own motion or on 
                        petition of any person, after 
                        consultation with the Secretary of 
                        Energy, that there is insufficient 
                        domestic capacity to produce gasoline 
                        certified under this subsection, the 
                        Administrator shall, by rule, extend 
                        the effective date of such prohibition 
                        in Marginal, Moderate, Serious, or 
                        Severe Areas referred to in 
                        [subparagraph (A)] clause (i) for one 
                        additional year, and may, by rule, 
                        renew such extension for 2 additional 
                        one-year periods. The Administrator 
                        shall act on any petition submitted 
                        under [this paragraph] this 
                        subparagraph within 6 months after 
                        receipt of the petition. The 
                        Administrator shall issue such 
                        extensions for areas with a lower ozone 
                        classification before issuing any such 
                        extension for areas with a higher 
                        classification.
                    (B) Nonclassified areas.--
                            (i) In general.--In accordance with 
                        section 110, a State may submit to the 
                        Administrator, and the Administrator 
                        may approve, a State implementation 
                        plan revision that provides for 
                        application of the prohibition 
                        specified in paragraph (5) in any 
                        portion of the State that is not a 
                        covered area or an area referred to in 
                        subparagraph (A)(i).
                            (ii) Period of effectiveness.--
                        Under clause (i), the State 
                        implementation plan shall establish a 
                        period of effectiveness for applying 
                        the prohibition specified in paragraph 
                        (5) to a portion of a State that--
                                    (I) commences not later 
                                than 1 year after the date of 
                                approval by the Administrator 
                                of the State implementation 
                                plan; and
                                    (II) ends not earlier than 
                                4 years after the date of 
                                commencement under subclause 
                                (I).
            (7) Credits.--(A) The regulations promulgated under 
        this subsection shall provide for the granting of an 
        appropriate amount of credits to a person who refines, 
        blends, or imports and certifies a gasoline or slate of 
        gasoline that--
                    (i) has an oxygen content (by weight) that 
                exceeds the minimum oxygen content specified in 
                paragraph (2);
                    (ii) has an aromatic hydrocarbon content 
                (by volume) that is less than the maximum 
                aromatic hydrocarbon content required to comply 
                with paragraph (3); or
                    (iii) has a benzene content (by volume) 
                that is less than the maximum benzene content 
                specified in paragraph (2).
            (B) The regulations described in subparagraph (A) 
        shall also provide that a person who is granted credits 
        may use such credits, or transfer all or a portion of 
        such credits to another person for use within the same 
        nonattainment area, for the purpose of complying with 
        this subsection.
            (C) The regulations promulgated under subparagraphs 
        (A) and (B) shall ensure the enforcement of the 
        requirements for the issuance, application, and 
        transfer of the credits. Such regulations shall 
        prohibit the granting or transfer of such credits for 
        use with respect to any gasoline in a nonattainment 
        area, to the extent the use of such credits would 
        result in any of the following:
                    (i) An average gasoline aromatic 
                hydrocarbon content (by volume) for the 
                nonattainment (taking into account all gasoline 
                sold for use in conventional gasoline-fueled 
                vehicles in the nonattainment area) higher than 
                the average fuel aromatic hydrocarbon content 
                (by volume) that would occur in the absence of 
                using any such credits.
                    (ii) An average gasoline oxygen content (by 
                weight) for the nonattainment area (taking into 
                account all gasoline sold for use in 
                conventional gasoline-fueled vehicles in the 
                nonattainment area) lower than the average 
                gasoline oxygen content (by weight) that would 
                occur in the absence of using any such credits.
                    (iii) An average benzene content (by 
                volume) for the nonattainment area (taking into 
                account all gasoline sold for use in 
                conventional gasoline-fueled vehicles in the 
                nonattainment area) higher than the average 
                benzene content (by volume) that would occur in 
                the absence of using any such credits.
            (8) Anti-dumping rules.--
                    (A) In general.--Within 1 year after the 
                enactment of the Clean Air Act Amendments of 
                1990, the Administrator shall promulgate 
                regulations applicable to each refiner, 
                blender, or importer of gasoline ensuring that 
                gasoline sold or introduced into commerce by 
                such refiner, blender, or importer (other than 
                reformulated gasoline subject to the 
                requirements of paragraph (1)) does not result 
                in average per gallon emissions (measured on a 
                mass basis) of (i) volatile organic compounds, 
                (ii) oxides of nitrogen, (iii) carbon monoxide, 
                and (iv) toxic air pollutants in excess of such 
                emissions of such pollutants attributable to 
                gasoline sold or introduced into commerce in 
                calendar year 1990 by that refiner, blender, or 
                importer. Such regulations shall take effect 
                beginning January 1, 1995.
                    (B) Adjustments.--In evaluating compliance 
                with the requirements of subparagraph (A), the 
                Administrator shall make appropriate 
                adjustments to insure that no credit is 
                provided for improvement in motor vehicle 
                emissions control in motor vehicles sold after 
                the calendar year 1990.
                    (C) Compliance determined for each 
                pollutant independently.--In determining 
                whether there is an increase in emissions in 
                violation of the prohibition contained in 
                subparagraph (A) the Administrator shall 
                consider an increase in each air pollutant 
                referred to in clauses (i) through (iv) as a 
                separate violation of such prohibition, except 
                that the Administrator shall promulgate 
                regulations to provide that any increase in 
                emissions of oxides of nitrogen resulting from 
                adding oxygenates to gasoline may be offset by 
                an equivalent or greater reduction (on a mass 
                basis) in emissions of volatile organic 
                compounds, carbon monoxide, or toxic air 
                pollutants, or any combination of the 
                foregoing.
                    (D) Compliance period.--The Administrator 
                shall promulgate an appropriate compliance 
                period or appropriate compliance periods to be 
                used for assessing compliance with the 
                prohibition contained in subparagraph (A).
                    (E) Baseline for determining compliance.--
                If the Administrator determines that no 
                adequate and reliable data exists regarding the 
                composition of gasoline sold or introduced into 
                commerce by a refiner, blender, or importer in 
                calendar year 1990, for such refiner, blender, 
                or importer, baseline gasoline shall be 
                substituted for such 1990 gasoline in 
                determining compliance with subparagraph (A).
            (9) Emissions from entire vehicle.--In applying the 
        requirements of this subsection, the Administrator 
        shall take into account emissions from the entire motor 
        vehicle, including evaporative, running, refueling, and 
        exhaust emissions.
            (10) Exclusion from reid vapor pressure 
        requirement.--Notwithstanding subsection (c)(4)(C), the 
        Administrator may approve a revision of a State 
        implementation plan that excludes an area from a waiver 
        provided under subsection (h)(4) if--
                    (A) the State demonstrates that the 
                increases in volatile organic compound 
                emissions resulting from the waiver 
                significantly interfere with attainment or 
                maintenance of the national ambient air quality 
                standard for ozone; and
                    (B) the Administrator determines that the 
                exclusion is reasonable and practicable.
            [(10)] (11) Definitions.--For purposes of this 
        subsection--
                    (A) Baseline vehicles.--The term ``baseline 
                vehicles'' mean representative model year 1990 
                vehicles.
                    (B) Baseline gasoline.--
                            (i) Summertime.--The term 
                        ``baseline gasoline'' means in the case 
                        of gasoline sold during the high ozone 
                        period (as defined by the 
                        Administrator) a gasoline which meets 
                        the following specifications:

                    BASELINE GASOLINE FUEL PROPERTIES
                        API Gravity...........................     57.4 
                        Sulfur, ppm...........................      339 
                        Benzene, %............................      1.53
                        RVP, psi..............................      8.7 
                        Octane, R+M/2.........................     87.3 
                        IBP, F................................       91 
                        10%, F................................      128 
                        50%, F................................      218 
                        90%, F................................      330 
                        End Point, F..........................      415 
                        Aromatics, %..........................     32.0 
                        Olefins, %............................      9.2 
                        Saturates, %..........................     58.8 

                            (ii) Wintertime.--The Administrator 
                        shall establish the specifications of 
                        ``baseline gasoline'' for gasoline sold 
                        at times other than the high ozone 
                        period (as defined by the 
                        Administrator). Such specifications 
                        shall be the specifications of 1990 
                        industry average gasoline sold during 
                        such period.
                    (C) Toxic air pollutants.--The term ``toxic 
                air pollutants'' means the aggregate emissions 
                of the following:

            Benzene
            1,3 Butadiene
            Polycyclic organic matter (POM)
            Acetaldehyde
            Formaldehyde.

                    (D) Covered area.--The 9 ozone 
                nonattainment areas having a 1980 population in 
                excess of 250,000 and having the highest ozone 
                design value during the period 1987 through 
                1989 shall be ``covered areas'' for purposes of 
                this subsection. Effective one year after the 
                reclassification of any ozone nonattainment 
                area as a Severe ozone nonattainment area under 
                section 181(b), such Severe area shall also be 
                a ``covered area'' for purposes of this 
                subsection.
                    (E) Reformulated gasoline.--The term 
                ``reformulated gasoline'' means any gasoline 
                which is certified by the Administrator under 
                this section as complying with this subsection.
                    (F) Conventional gasoline.--The term 
                ``conventional gasoline'' means any gasoline 
                which does not meet specifications set by a 
                certification under this subsection.

           *       *       *       *       *       *       *

    (o) Clean Alternative Fuel Program.--
            (1) Definitions.--In this subsection:
                    (A) Bin 1 vehicle.--The term ``bin 1 
                vehicle'' means--
                            (i) a light-duty motor vehicle that 
                        does not exceed the standards for bin 
                        no. 1 specified in table S04-1 of 
                        section 86.1811-04 of title 40, Code of 
                        Federal Regulations (published at 65 
                        Fed. Reg. 6855 on February 10, 2000); 
                        and
                            (ii) a heavy-duty motor vehicle 
                        that does not exceed standards 
                        equivalent to the standards described 
                        in clause (i), as determined by the 
                        Administrator by regulation.
                    (B) Bin 2 vehicle.--The term ``bin 2 
                vehicle'' means--
                            (i) a light-duty motor vehicle that 
                        does not exceed the standards for bin 
                        no. 2 specified in table S04-1 of 
                        section 86.1811-04 of title 40, Code of 
                        Federal Regulations (published at 65 
                        Fed. Reg. 6855 on February 10, 2000); 
                        and
                            (ii) a heavy-duty motor vehicle 
                        that emits not more than 50 percent of 
                        the allowable emissions of air 
                        pollutants under the most stringent 
                        standards applicable to heavy-duty 
                        motor vehicles, as determined by the 
                        Administrator by regulation.
                    (C) Biomass ethanol.--The term ``biomass 
                ethanol'' means ethanol derived from any 
                lignocellulosic or hemicellulosic matter that 
                is available on a renewable or recurring basis, 
                including--
                            (i) dedicated energy crops and 
                        trees;
                            (ii) wood and wood residues;
                            (iii) plants;
                            (iv) grasses;
                            (v) agricultural commodities and 
                        residues;
                            (vi) fibers;
                            (vii) animal wastes and other waste 
                        materials; and
                            (viii) municipal solid waste.
                    (D) Clean alternative fuel.--The term 
                ``clean alternative fuel'' means--
                            (i) renewable fuel;
                            (ii) credit for motor vehicle fuel 
                        used to operate a bin 1 vehicle, as 
                        generated under paragraph (5)(A)(ii); 
                        and
                            (iii) credit for motor vehicle fuel 
                        used to operate a bin 2 vehicle, as 
                        generated under paragraph (5)(A)(ii).
                    (E) Renewable fuel.--
                            (i) In general.--The term 
                        ``renewable fuel'' means motor vehicle 
                        fuel that--
                                    (I)(aa) is produced from 
                                grain, starch, oilseeds, or 
                                other biomass; or
                                    (bb) is natural gas 
                                produced from a biogas source, 
                                including a landfill, sewage 
                                waste treatment plant, feedlot, 
                                or other place where decaying 
                                organic material is found; and
                                    (II) is used to replace or 
                                reduce the quantity of fossil 
                                fuel present in a fuel mixture 
                                used to operate a motor 
                                vehicle.
                            (ii) Inclusion.--The term 
                        ``renewable fuel'' includes biomass 
                        ethanol.
            (2) Clean alternative fuel program.--
                    (A) Clean alternative fuel requirements.--
                The motor vehicle fuel sold or introduced into 
                commerce in the United States in calendar year 
                2008 or any calendar year thereafter by a 
                refiner, blender, or importer shall, on a 6-
                month average basis, be comprised of a quantity 
                of clean alternative fuel, measured in 
                gasoline-equivalent gallons (as determined by 
                the Secretary of Energy), that is not less than 
                the applicable percentage by volume for the 6-
                month period.
                    (B) Applicable percentage.--For the 
                purposes of subparagraph (A), the applicable 
                percentage for a 6-month period of a calendar 
                year shall be determined in accordance with the 
                following table:

                                                   Applicable percentage
``Calendar year:                              of clean alternative fuel:
    2008......................................................      1.2 
    2009......................................................      1.3 
    2010......................................................      1.4 
    2011 and thereafter.......................................      1.5.

            (3) Transition program.--
                    (A) Renewable fuel requirements.--
                            (i) In general.--Subject to 
                        subparagraph (B), all motor vehicle 
                        fuel sold or introduced into commerce 
                        in the United States in any of calendar 
                        years 2002 through 2007 by a refiner, 
                        blender, or importer shall contain, on 
                        a 6-month average basis, a quantity of 
                        renewable fuel, measured in gasoline-
                        equivalent gallons (as determined by 
                        the Secretary of Energy), that is not 
                        less than the applicable percentage by 
                        volume for the 6-month period.
                            (ii) Applicable percentage.--For 
                        the purposes of clause (i), the 
                        applicable percentage for a 6-month 
                        period of a calendar year shall be 
                        determined in accordance with the 
                        following table:

                                                   Applicable percentage
``Calendar year:                                      of renewable fuel:
    2002......................................................      0.6 
    2003......................................................      0.7 
    2004......................................................      0.8 
    2005......................................................      0.9 
    2006......................................................      1.0 
    2007......................................................      1.1.

                    (B) Credit for motor vehicle fuel used to 
                operate bin 1 vehicles or bin 2 vehicles.--
                Credit for motor vehicle fuel used to operate 
                bin 1 vehicles or bin 2 vehicles, as generated 
                under paragraph (5)(A)(ii), may be used to meet 
                not more than 10 percent of the renewable fuel 
                requirement under subparagraph (A).
            (4) Biomass ethanol.--For the purposes of 
        paragraphs (2) and (3), 1 gallon of biomass ethanol 
        shall be considered to be the equivalent of 1.5 gallons 
        of renewable fuel.
            (5) Credit program.--
                    (A) In general.--The regulations 
                promulgated to carry out this subsection shall 
                provide for the generation of an appropriate 
                amount of credits by--
                            (i) a person that refines, blends, 
                        or imports motor vehicle fuel that 
                        contains, on a 6-month average basis, a 
                        quantity of clean alternative fuel or 
                        renewable fuel that is greater than the 
                        quantity required for that 6-month 
                        period under paragraph (2) or (3), 
                        respectively; and
                            (ii) a person that manufactures bin 
                        1 vehicles or bin 2 vehicles.
                    (B) Calculation of credits.--In determining 
                the appropriate amount of credits generated by 
                a vehicle manufacturer under subparagraph 
                (A)(ii), the Administrator, in consultation 
                with the Secretary of Energy, shall give 
                priority to the extent to which bin 1 vehicles 
                or bin 2 vehicles, as compared to vehicles that 
                are not bin 1 vehicles or bin 2 vehicles but 
                are similar in size, weight, and other 
                appropriate factors--
                            (i) use innovative or advanced 
                        technology;
                            (ii) result in less petroleum 
                        consumption; and
                            (iii) are efficient in their use of 
                        petroleum or other form of energy.
                    (C) Use of credits.--
                            (i) In general.--A person that 
                        generates credits under subparagraph 
                        (A) may use the credits, or transfer 
                        all or a portion of the credits to 
                        another person, for the purpose of 
                        complying with paragraph (2) or (3).
                            (ii) Use of vehicle manufacturer 
                        credits to provide non-federal 
                        contributions under other law.--Credits 
                        generated under subparagraph (A)(ii) 
                        and transferred to a person, nonprofit 
                        entity, or local government may be used 
                        to provide any portion of--
                                    (I) the non-Federal share 
                                required for an alternative 
                                fuel project under section 
                                149(e)(4) of title 23, United 
                                States Code; or
                                    (II) a voluntary supply 
                                commitment under section 505 of 
                                the Energy Policy Act of 1992 
                                (42 U.S.C. 13255).
                    (D) Expiration of credits.--A credit 
                generated under this paragraph shall expire 1 
                year after the date on which the credit was 
                generated.
            (6) Waivers.--
                    (A) In general.--The Administrator, in 
                consultation with the Secretary of Agriculture 
                and the Secretary of Energy, may waive the 
                requirements of paragraph (2) or (3) in whole 
                or in part on petition by a State or States by 
                reducing the national quantity of clean 
                alternative fuel required under this 
                subsection--
                            (i) based on a determination by the 
                        Administrator, after public notice and 
                        opportunity for comment, that 
                        implementation of the requirements 
                        would severely harm the economy or 
                        environment of a State, a region, or 
                        the United States; or
                            (ii) based on a determination by 
                        the Administrator, after public notice 
                        and opportunity for comment, that there 
                        is an inadequate domestic supply or 
                        distribution capacity to meet the 
                        requirements.
                    (B) Petitions for waivers.--The 
                Administrator, in consultation with the 
                Secretary of Agriculture and the Secretary of 
                Energy--
                            (i) shall approve or deny a State 
                        petition for a waiver of the 
                        requirements of paragraph (2) or (3) 
                        within 180 days after the date on which 
                        the petition is received; but
                            (ii) may extend that period for up 
                        to 60 additional days to provide for 
                        public notice and opportunity for 
                        comment and for consideration of the 
                        comments submitted.
                    (C) Termination of waivers.--A waiver 
                granted under subparagraph (A) shall terminate 
                after 1 year, but may be renewed by the 
                Administrator after consultation with the 
                Secretary of Agriculture and the Secretary of 
                Energy.
                    (D) Oxygen content waivers.--The grant or 
                denial of a waiver under subsection (k)(2)(B) 
                shall not affect the requirements of this 
                subsection.
            (7) Small refiners.--The Administrator may provide 
        an exemption from the requirements of paragraph (2) or 
        (3), in whole or in part, for small refiners (as 
        defined by the Administrator).
            (8) Regulations.--Not later than 270 days after the 
        date of enactment of this paragraph, the Administrator 
        shall promulgate regulations to carry out this 
        subsection.
    (p) Analyses of Motor Vehicle Fuel Changes and Additional 
Performance Requirements.--
            (1) Anti-backsliding analysis and regulations.--
                    (A) Analysis.--
                            (i) Draft analysis.--Not later than 
                        4 years after the date of enactment of 
                        this subsection, the Administrator 
                        shall publish for public comment a 
                        draft analysis of the changes in 
                        emissions of air pollutants and air 
                        quality due to the use of motor vehicle 
                        fuel and fuel additives resulting from 
                        implementation of the amendments made 
                        by the Federal Reformulated Fuels Act 
                        of 2000.
                            (ii) Final analysis.--After 
                        providing a reasonable opportunity for 
                        comment but not later than 5 years 
                        after the date of enactment of this 
                        subsection, the Administrator shall 
                        publish the analysis in final form.
                    (B) Additional performance requirements.--
                            (i) Proposed regulations.--Not 
                        later than 6 years after the date of 
                        enactment of this subsection, the 
                        Administrator shall publish proposed 
                        regulations establishing performance 
                        requirements that are adequate, at a 
                        minimum, to ensure that, as compared 
                        with emissions due to the use of motor 
                        vehicle fuel and fuel additives during 
                        the period of 1998 through 2000, 
                        emissions due to the use of motor 
                        vehicle fuel and fuel additives will 
                        not--
                                    (I) be significantly 
                                greater on a per-gallon average 
                                basis in any region; or
                                    (II) cause air quality to 
                                be significantly worse in any 
                                region.
                            (ii) Final regulations.--After 
                        providing a reasonable opportunity for 
                        comment but not later than 7 years 
                        after the date of enactment of this 
                        subsection, the Administrator shall 
                        promulgate the regulations in final 
                        form.
                            (iii) Deadline for compliance.--The 
                        regulations shall require compliance as 
                        expeditiously as practicable, taking 
                        into account costs and lead time 
                        necessary to ensure the availability of 
                        a reliable and adequate motor vehicle 
                        fuel supply.
            (2) Mobile source title analysis and regulations.--
                    (A) Analysis.--
                            (i) Draft analysis.--Not later than 
                        7 years after the date of enactment of 
                        this subsection, the Administrator 
                        shall publish for public comment a 
                        draft analysis of the effects of motor 
                        vehicle fuel and fuel additives on 
                        public health and the environment, 
                        including the changes in fuel and fuel 
                        additives resulting from implementation 
                        of the Federal Reformulated Fuels Act 
                        of 2000.
                            (ii) Final analysis.--After 
                        providing a reasonable opportunity for 
                        comment but not later than 8 years 
                        after the date of enactment of this 
                        subsection, the Administrator shall 
                        publish the analysis in final form.
                    (B) Additional performance requirements.--
                            (i) Proposed regulations.--Not 
                        later than 9 years after the date of 
                        enactment of this subsection, the 
                        Administrator shall publish proposed 
                        regulations establishing performance 
                        requirements for motor vehicle fuel and 
                        fuel additives, the use of motor 
                        vehicle fuel and fuel additives, and 
                        motor vehicles that are necessary--
                                    (I) to ensure adequate 
                                protection of public health and 
                                the environment; and
                                    (II) to achieve specific 
                                reductions in the use of 
                                compounds or associated 
                                emission products that pose the 
                                greatest risk to human health.
                            (ii) Final regulations.--After 
                        providing a reasonable opportunity for 
                        comment but not later than 10 years 
                        after the date of enactment of this 
                        subsection, the Administrator shall 
                        promulgate the regulations in final 
                        form.
                            (iii) Deadline for compliance.--The 
                        regulations shall require compliance as 
                        expeditiously as practicable, taking 
                        into account costs and lead time 
                        necessary to ensure the availability of 
                        a reliable and adequate motor vehicle 
                        fuel supply.
            (3) Life cycle analysis.--In conducting the 
        analyses under paragraphs (1) and (2), the 
        Administrator shall take into account the effects of 
        motor vehicle fuel and fuel additives on public health 
        and the environment over the entire life cycle of the 
        production, distribution, and use of motor vehicle fuel 
        and fuel additives evaluated in the analyses.
            (4) Emissions model.--For the purposes of this 
        subsection, as soon as the necessary data are 
        available, the Administrator shall develop and finalize 
        an emissions model that reasonably reflects the effects 
        of fuel characteristics or components on emissions from 
        vehicles in the motor vehicle fleet during calendar 
        year 2005.
    [(o)] (q) Fuel and Fuel Additive Importers and 
Importation.--For the purposes of this section, the term 
``manufacturer'' includes an importer and the term 
``manufacture'' includes importation.

[42 U.S.C. 7545]

           *       *       *       *       *       *       *


                    SOLID WASTE DISPOSAL ACT 1

        [As Amended Through P.L. 106-55, August 17, 1999]
---------------------------------------------------------------------------

    1 The Solid Waste Disposal Act (42 U.S.C. 6901-6992k) 
consists of title II of Public Law 89-272 and the amendments made by 
subsequent enactments. This Act is popularly referred to as the 
Resource Conservation and Recovery Act, after the short title of the 
law that amended the Solid Waste Disposal Act in its entirety in 1976 
(P.L. 94-580).
---------------------------------------------------------------------------
      Sec. 1001. This title (hereinafter in this title referred 
to as ``this Act''), together with the following table of 
contents, may be cited as the ``Solid Waste Disposal Act'':

                     Subtitle A--General Provisions

Sec. 1001.  * * *
      * * * * * * *
[Sec. 9010. Authorization of appropriations.]
Sec. 9010. Release prevention and compliance.
Sec. 9011. Authorization of appropriations.

           *       *       *       *       *       *       *


       release detection, prevention, and correction regulations

      Sec. 9003. (a) Regulations.--The Administrator, after 
notice and opportunity for public comment, and at least three 
months before the effective dates specified in subsection (f), 
shall promulgate release detection, prevention, and correction 
regulations applicable to all owners and operators of 
underground storage tanks, as may be necessary to protect human 
health and the environment.
      (b) Distinctions in Regulations.--In promulgating 
regulations under this section, the Administrator may 
distinguish between types, classes, and ages of underground 
storage tanks. In making such distinctions, the Administrator 
may take into consideration factors, including, but not limited 
to: location of the tanks, soil and climate conditions, uses of 
the tanks, history of maintenance, age of the tanks, current 
industry recommended practices, national consensus codes, 
hydrogeology, water table, size of the tanks, quantity of 
regulated substances periodically deposited in or dispensed 
from the tank, the technical capability of the owners and 
operators, and the compatibility of the regulated substance and 
the materials of which the tank is fabricated.
      (c) Requirements.--The regulations promulgated pursuant 
to this section shall include, but need not be limited to, the 
following requirements respecting all underground storage 
tanks--
            (1) requirements for maintaining a leak detection 
        system, an inventory control system together with tank 
        testing, or a comparable system or method designed to 
        identify releases in a manner consistent with the 
        protection of human health and the environment;
            (2) requirements for maintaining records of any 
        monitoring or leak detection system or inventory 
        control system or tank testing or comparable system;
            (3) requirements for reporting of releases and 
        corrective action taken in response to a release from 
        an underground storage tank;
            (4) requirements for taking corrective action in 
        response to a release from an underground storage tank;
            (5) requirements for the closure of tanks to 
        prevent future releases of regulated substances into 
        the environment; and
            (6) requirements for maintaining evidence for 
        financial responsibility for taking corrective action 
        and compensating third parties for bodily injury and 
        property damage caused by sudden and nonsudden 
        accidental releases arising from operating an 
        underground storage tank.
      (d) Financial Responsibility.--(1) Financial 
responsibility required by this subsection may be established 
in accordance with regulations promulgated by the Administrator 
by any one, or any combination, of the following: insurance, 
guarantee, surety bond, letter of credit, qualification as a 
self-insurer. In promulgating requirements under this 
subsection, the Administrator is authorized to specify policy 
or other contractual terms, conditions, or defenses which are 
necessary or are unacceptable in establishing such evidence of 
financial responsibility in order to effectuate the purposes of 
this subtitle or any other method satisfactory to the 
Administrator.
      (2) In any case where the owner or operator is in 
bankruptcy, reorganization, or arrangement pursuant to the 
Federal Bankruptcy Code or where with reasonable diligence 
jurisdiction in any State court of the Federal Courts cannot be 
obtained over an owner or operator likely to be solvent at the 
time of judgment, any claim arising from conduct for which 
evidence of financial responsibility must be provided under 
this subsection may be asserted directly against the guarantor 
providing such evidence of financial responsibility. In the 
case of any action pursuant to this paragraph such guarantor 
shall be entitled to invoke all rights and defenses which would 
have been available to the owner or operator if any action had 
been brought against the owner or operator by the claimant and 
which would have been available to the guarantor if an action 
had been brought against the guarantor by the owner or 
operator.
      (3) The total liability of any guarantor shall be limited 
to the aggregate amount which the guarantor has provided as 
evidence of financial responsibility to the owner or operator 
under this section. Nothing in this subsection shall be 
construed to limit any other State or Federal statutory, 
contractual or common law liability of a guarantor to its owner 
or operator including, but not limited to, the liability of 
such guarantor for bad faith either in negotiating or in 
failing to negotiate the settlement of any claim. Nothing in 
this subsection shall be construed to diminish the liability of 
any person under section 107 or 111 of the Comprehensive 
Environmental Response, Compensation and Liability Act of 1980 
or other applicable law.
      (4) For the purpose of this subsection, the term 
``guarantor'' means any person, other than the owner or 
operator, who provides evidence of financial responsibility for 
an owner or operator under this subsection.
      (5)(A) The Administrator, in promulgating financial 
responsibility regulations under this section, may establish an 
amount of coverage for particular classes or categories of 
underground storage tanks containing petroleum which shall 
satisfy such regulations and which shall not be less than 
$1,000,000 for each occurrence with an appropriate aggregate 
requirement.
      (B) The Administrator may set amounts lower than the 
amounts required by subparagraph (A) of this paragraph for 
underground storage tanks containing petroleum which are at 
facilities not engaged in petroleum production, refining, or 
marketing and which are not used to handle substantial 
quantities of petroleum.
      (C) In establishing classes and categories for purposes 
of this paragraph, the Administrator may consider the following 
factors:
            (i) The size, type, location, storage, and handling 
        capacity of underground storage tanks in the class or 
        category and the volume of petroleum handled by such 
        tanks.
            (ii) The likelihood of release and the potential 
        extent of damage from any release from underground 
        storage tanks in the class or category.
            (iii) The economic impact of the limits on the 
        owners and operators of each such class or category, 
        particularly relating to the small business segment of 
        the petroleum marketing industry.
            (iv) The availability of methods of financial 
        responsibility in amounts greater than the amount 
        established by this paragraph.
            (v) Such other factors as the Administrator deems 
        pertinent.
      (D) The Administrator may suspend enforcement of the 
financial responsibility requirements for a particular class or 
category of underground storage tanks or in a particular State, 
if the Administrator makes a determination that methods of 
financial responsibility satisfying the requirements of this 
subsection are not generally available for underground storage 
tanks in that class or category; and--
            (i) steps are being taken to form a risk retention 
        group for such class of tanks; or
            (ii) such State is taking steps to establish a fund 
        pursuant to section 9004(c)(1) of this Act to be 
        submitted as evidence of financial responsibility.
A suspension by the Administrator pursuant to this paragraph 
shall extend for a period not to exceed 180 days. A 
determination to suspend may be made with respect to the same 
class or category or for the same State at the end of such 
period, but only if substantial progress has been made in 
establishing a risk retention group, or the owners or operators 
in the class or category demonstrate, and the Administrator 
finds, that the formation of such a group is not possible and 
that the State is unable or unwilling to establish such a fund 
pursuant to clause (ii).
      (e) New Tank Performance Standards.--The Administrator 
shall, not later than three months prior to the effective date 
specified in subsection (f), issue performance standards for 
underground storage tanks brought into use on or after the 
effective date of such standards. The performance standards for 
new underground storage tanks shall include, but need not be 
limited to, design, construction, installation, release 
detection, and compatibility standards.
      (f) Effective Dates.--(1) Regulations issued pursuant to 
subsection \1\ (c) and (d) of this section, and standards 
issued pursuant to subsection (e) of this section, for 
underground storage tanks containing regulated substances 
defined in section 9001(2)(B) (petroleum, including crude oil 
or any fraction thereof which is liquid at standard conditions 
of temperature and pressure) shall be effective not later than 
thirty months after the date of enactment of the Hazardous and 
Solid Waste Amendments of 1984.
---------------------------------------------------------------------------
    \1\ So in law. Probably should be ``subsections''.
---------------------------------------------------------------------------
      (2) Standards issued pursuant to subsection (e) of this 
section (entitled ``New Tank Performance Standards'') for 
underground storage tanks containing regulated substances 
defined in section 9001(2)(A) shall be effective not later than 
thirty-six months after the date of enactment of the Hazardous 
and Solid Waste Amendments of 1984.
      (3) Regulations issued pursuant to subsection (c) of this 
section (entitled ``Requirements'') and standards issued 
pursuant to subsection (d) of this section (entitled 
``Financial Responsibility'') for underground storage tanks 
containing regulated substances defined in section 9001(2)(A) 
shall be effective not later than forty-eight months after the 
date of enactment of the Hazardous and Solid Waste Amendments 
of 1984.
      (g) Interim Prohibition.--(1) Until the effective date of 
the standards promulgated by the Administrator under subsection 
(e) and after one hundred and eighty days after the date of the 
enactment of the Hazardous and Solid Waste Amendments of 1984, 
no person may install an underground storage tank for the 
purpose of storing regulated substances unless such tank 
(whether of single or double wall construction)--
            (A) will prevent releases due to corrosion or 
        structural failure for the operational life of the 
        tank;
            (B) is cathodically protected against corrosion, 
        constructed of noncorrosive material, steel clad with a 
        noncorrosive material, or designed in a manner to 
        prevent the release or threatened release of any stored 
        substance; and
            (C) the material used in the construction or lining 
        of the tank is compatible with the substance to be 
        stored.
      (2) Notwithstanding paragraph (1), if soil tests 
conducted in accordance with ASTM Standard G57-78, or another 
standard approved by the Administrator, show that soil 
resistivity in an installation location is 12,000 ohm/cm or 
more (unless a more stringent standard is prescribed by the 
Administrator by rule), a storage tank without corrosion 
protection may be installed in that location during the period 
referred to in paragraph (1).
      (h) EPA Response Program for Petroleum.--
            (1) Before regulations.--Before the effective date 
        of regulations under subsection (c), the Administrator 
        (or a State pursuant to paragraph (7)) is authorized 
        to--
                    (A) require the owner or operator of an 
                underground storage tank to undertake 
                corrective action with respect to any release 
                of petroleum when the Administrator (or the 
                State) determines that such corrective action 
                will be done properly and promptly by the owner 
                or operator of the underground storage tank 
                from which the release occurs; or
                    (B) undertake corrective action with 
                respect to any release of petroleum into the 
                environment from an underground storage tank if 
                such action is necessary, in the judgment of 
                the Administrator (or the State), to protect 
                human health and the environment.
        The corrective action undertaken or required by this 
        paragraph shall be such as may be necessary to protect 
        human health and the environment. The Administrator 
        shall use funds in the Leaking Underground Storage Tank 
        Trust Fund for payment of costs incurred for corrective 
        action under subparagraph (B), enforcement action under 
        subparagraph (A), and cost recovery under paragraph (6) 
        of this subsection. Subject to the priority 
        requirements of paragraph (3), the Administrator (or 
        the State) shall give priority in undertaking such 
        actions under subparagraph (B) to cases where the 
        Administrator (or the State) cannot identify a solvent 
        owner or operator of the tank who will undertake action 
        properly.
            (2) After regulations.--Following the effective 
        date of regulations under subsection (c), all actions 
        or orders of the Administrator (or a State pursuant to 
        paragraph (7)) described in paragraph (1) of this 
        subsection shall be in conformity with such 
        regulations. Following such effective date, the 
        Administrator (or the State) may undertake corrective 
        action with respect to any release of petroleum into 
        the environment from an underground storage tank only 
        if such action is necessary, in the judgment of the 
        Administrator (or the State), to protect human health 
        and the environment and one or more of the following 
        situations exists:
                    (A) No person can be found, within 90 days 
                or such shorter period as may be necessary to 
                protect human health and the environment, who 
                is--
                            (i) an owner or operator of the 
                        tank concerned,
                            (ii) subject to such corrective 
                        action regulations, and
                            (iii) capable of carrying out such 
                        corrective action properly.
                    (B) A situation exists which requires 
                prompt action by the Administrator (or the 
                State) under this paragraph to protect human 
                health and the environment.
                    (C) Corrective action costs at a facility 
                exceed the amount of coverage required by the 
                Administrator pursuant to the provisions of 
                subsections (c) and (d)(5) of this section and, 
                considering the class or category of 
                underground storage tank from which the release 
                occurred, expenditures from the Leaking 
                Underground Storage Tank Trust Fund are 
                necessary to assure an effective corrective 
                action.
                    (D) The owner or operator of the tank has 
                failed or refused to comply with an order of 
                the Administrator under this subsection or 
                section 9006 or with the order of a State under 
                this subsection to comply with the corrective 
                action regulations.
            (3) Priority of corrective actions.--The 
        Administrator (or a State pursuant to paragraph (7)) 
        shall give priority in undertaking corrective actions 
        under this subsection, and in issuing orders requiring 
        owners or operators to undertake such actions, to 
        releases of petroleum from underground storage tanks 
        which pose the greatest threat to human health and the 
        environment.
            (4) Corrective action orders.--The Administrator is 
        authorized to issue orders to the owner or operator of 
        an underground storage tank to carry out subparagraph 
        (A) of paragraph (1) or to carry out regulations issued 
        under subsection (c)(4). A State acting pursuant to 
        paragraph (7) of this subsection is authorized to carry 
        out subparagraph (A) of paragraph (1) only until the 
        State's program is approved by the Administrator under 
        section 9004 of this subtitle. Such orders shall be 
        issued and enforced in the same manner and subject to 
        the same requirements as orders under section 9006.
            (5) Allowable corrective actions.--The corrective 
        actions undertaken by the Administrator (or a State 
        pursuant to paragraph (7)) under paragraph (1) or (2) 
        may include temporary or permanent relocation of 
        residents and alternative household water supplies. In 
        connection with the performance of any corrective 
        action under paragraph (1) or (2), the Administrator 
        may undertake an exposure assessment as defined in 
        paragraph (10) of this subsection or provide for such 
        an assessment in a cooperative agreement with a State 
        pursuant to paragraph (7) of this subsection. The costs 
        of any such assessment may be treated as corrective 
        action for purposes of paragraph (6), relating to cost 
        recovery.
            (6) Recovery of costs.--
                    (A) In general.--Whenever costs have been 
                incurred by the Administrator, or by a State 
                pursuant to paragraph (7), for undertaking 
                corrective action or enforcement action with 
                respect to the release of petroleum from an 
                underground storage tank, the owner or operator 
                of such tank shall be liable to the 
                Administrator or the State for such costs. The 
                liability under this paragraph shall be 
                construed to be the standard of liability which 
                obtains under section 311 of the Federal Water 
                Pollution Control Act.
                    (B) Recovery.--In determining the equities 
                for seeking the recovery of costs under 
                subparagraph (A), the Administrator (or a State 
                pursuant to paragraph (7) of this subsection) 
                may consider the amount of financial 
                responsibility required to be maintained under 
                subsections (c) and (d)(5) of this section and 
                the factors considered in establishing such 
                amount under subsection (d)(5).
                    (C) Effect on liability.--
                            (i) No transfers of liability.--No 
                        indemnification, hold harmless, or 
                        similar agreement or conveyance shall 
                        be effective to transfer from the owner 
                        or operator of any underground storage 
                        tank or from any person who may be 
                        liable for a release or threat of 
                        release under this subsection, to any 
                        other person the liability imposed 
                        under this subsection. Nothing in this 
                        subsection shall bar any agreement to 
                        insure, hold harmless, or indemnify a 
                        party to such agreement for any 
                        liability under this section.
                            (ii) No bar to cause of action.--
                        Nothing in this subsection, including 
                        the provisions of clause (i) of this 
                        subparagraph, shall bar a cause of 
                        action that an owner or operator or any 
                        other person subject to liability under 
                        this section, or a guarantor, has or 
                        would have, by reason of subrogation or 
                        otherwise against any person.
                    (D) Facility.--For purposes of this 
                paragraph, the term ``facility'' means, with 
                respect to any owner or operator, all 
                underground storage tanks used for the storage 
                of petroleum which are owned or operated by 
                such owner or operator and located on a single 
                parcel of property (or on any contiguous or 
                adjacent property).
            (7) State authorities.--
                    (A) General.--A State may exercise the 
                authorities in [paragraphs (1) and (2) of this 
                subsection] paragraphs (1), (2), and (12), 
                subject to the terms and conditions of 
                paragraphs (3), (5), (9), (10), and (11), and 
                including the authorities of paragraphs (4), 
                (6), and (8) of this subsection and subsection 
                9010(a) if--
                            (i) the Administrator determines 
                        that the State has the capabilities to 
                        carry out effective corrective actions 
                        and enforcement activities; and
                            (ii) the Administrator enters into 
                        a cooperative agreement with the State 
                        setting out the actions to be 
                        undertaken by the State.
                The Administrator may provide funds from the 
                Leaking Underground Storage Tank Trust Fund for 
                the reasonable costs of the State's actions 
                under the cooperative agreement.
                    (B) Cost share.--Following the effective 
                date of the regulations under subsection (c) of 
                this section, the State shall pay 10 per centum 
                of the cost of corrective actions undertaken 
                either by the Administrator or by the State 
                under a cooperative agreement, except that the 
                Administrator may take corrective action at a 
                facility where immediate action is necessary to 
                respond to an imminent and substantial 
                endangerment to human health or the environment 
                if the State fails to pay the cost share.
            (8) Emergency procurement powers.--Notwithstanding 
        any other provision of law, the Administrator may 
        authorize the use of such emergency procurement powers 
        as he deems necessary.
            (9) Definition of owner or operator.--
                    (A) In general.--As used in this subtitle, 
                the terms ``owner'' and ``operator'' do not 
                include a person that, without participating in 
                the management of an underground storage tank 
                and otherwise not engaged in petroleum 
                production, refining, or marketing, holds 
                indicia of ownership primarily to protect the 
                person's security interest.
                    (B) Security interest holders.--The 
                provisions regarding holders of security 
                interests in subparagraphs (E) through (G) of 
                section 101(20) and the provisions regarding 
                fiduciaries at section 107(n) of the 
                Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980 shall 
                apply in determining a person's liability as an 
                owner or operator of an underground storage 
                tank for the purposes of this subtitle.
                    (C) Effect on rule.--Nothing in 
                subparagraph (B) shall be construed as 
                modifying or affecting the final rule issued by 
                the Administrator on September 7, 1995 (60 Fed. 
                Reg. 46,692), or as limiting the authority of 
                the Administrator to amend the final rule, in 
                accordance with applicable law. The final rule 
                in effect on the date of enactment of this 
                subparagraph shall prevail over any 
                inconsistent provision regarding holders of 
                security interests in subparagraphs (E) through 
                (G) of section 101(20) or any inconsistent 
                provision regarding fiduciaries in section 
                107(n) of the Comprehensive Environmental 
                Response, Compensation, and Liability Act of 
                1980. Any amendment to the final rule shall be 
                consistent with the provisions regarding 
                holders of security interests in subparagraphs 
                (E) through (G) of section 101(20) and the 
                provisions regarding fiduciaries in section 
                107(n) of the Comprehensive Environmental 
                Response, Compensation, and Liability Act of 
                1980. This subparagraph does not preclude 
                judicial review of any amendment of the final 
                rule made after the date of enactment of this 
                subparagraph.
            (10) Definition of exposure assessment.--As used in 
        this subsection, the term ``exposure assessment'' means 
        an assessment to determine the extent of exposure of, 
        or potential for exposure of, individuals to petroleum 
        from a release from an underground storage tank based 
        on such factors as the nature and extent of 
        contamination and the existence of or potential for 
        pathways of human exposure (including ground or surface 
        water contamination, air emissions, and food chain 
        contamination), the size of the community within the 
        likely pathways of exposure, and the comparison of 
        expected human exposure levels to the short-term and 
        long-term health effects associated with identified 
        contaminants and any available recommended exposure or 
        tolerance limits for such contaminants. Such assessment 
        shall not delay corrective action to abate immediate 
        hazards or reduce exposure.
            (11) Facilities without financial responsibility.--
        At any facility where the owner or operator has failed 
        to maintain evidence of financial responsibility in 
        amounts at least equal to the amounts established by 
        subsection (d)(5)(A) of this section (or a lesser 
        amount if such amount is applicable to such facility as 
        a result of subsection (d)(5)(B) of this section) for 
        whatever reason the Administrator shall expend no 
        monies from the Leaking Underground Storage Tank Trust 
        Fund to clean up releases at such facility pursuant to 
        the provisions of paragraph (1) or (2) of this 
        subsection. At such facilities the Administrator shall 
        use the authorities provided in subparagraph (A) of 
        paragraph (1) and paragraph (4) of this subsection and 
        section 9006 of this subtitle to order corrective 
        action to clean up such releases. States acting 
        pursuant to paragraph (7) of this subsection shall use 
        the authorities provided in subparagraph (A) of 
        paragraph (1) and paragraph (4) of this subsection to 
        order corrective action to clean up such releases. 
        Notwithstanding the provisions of this paragraph, the 
        Administrator may use monies from the fund to take the 
        corrective actions authorized by paragraph (5) of this 
        subsection to protect human health at such facilities 
        and shall seek full recovery of the costs of all such 
        actions pursuant to the provisions of paragraph (6)(A) 
        of this subsection and without consideration of the 
        factors in paragraph (6)(B) of this subsection. Nothing 
        in this paragraph shall prevent the Administrator (or a 
        State pursuant to paragraph (7) of this subsection) 
        from taking corrective action at a facility where there 
        is no solvent owner or operator or where immediate 
        action is necessary to respond to an imminent and 
        substantial endangerment of human health or the 
        environment.
            (12) Remediation of mtbe contamination.--
                    (A) In general.--The Administrator and the 
                States may use funds made available under 
                section 9011(1) to carry out corrective actions 
                with respect to a release of methyl tertiary 
                butyl ether that presents a threat to human 
                health, welfare, or the environment.
                    (B) Applicable authority.--Subparagraph (A) 
                shall be carried out--
                            (i) in accordance with paragraph 
                        (2); and
                            (ii) in the case of a State, in 
                        accordance with a cooperative agreement 
                        entered into by the Administrator and 
                        the State under paragraph (7).

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                    authorization of appropriations

      [Sec. 9010. For authorization of appropriations to carry 
out this subtitle, see section 2007(g).]

SEC. 9010. RELEASE PREVENTION AND COMPLIANCE.

    Funds made available under section 9011(2) from the Leaking 
Underground Storage Tank Trust Fund may be used for conducting 
inspections, or for issuing orders or bringing actions under 
this subtitle--
            (1) by a State (pursuant to section 9003(h)(7)) 
        acting under--
                    (A) a program approved under section 9004; 
                or
                    (B) State requirements regulating 
                underground storage tanks that are similar or 
                identical to this subtitle; and
            (2) by the Administrator, acting under this 
        subtitle or a State program approved under section 
        9004.

SEC. 9011. AUTHORIZATION OF APPROPRIATIONS.

    In addition to amounts made available under section 
2007(f), there are authorized to be appropriated from the 
Leaking Underground Storage Tank Trust Fund--
            (1) to carry out section 9003(h)(12), $200,000,000 
        for fiscal year 2001, to remain available until 
        expended; and
            (2) to carry out section 9010--
                    (A) $50,000,000 for fiscal year 2001; and
                    (B) $30,000,000 for each of fiscal years 
                2002 through 2006.

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