From: jeffrey.keeler@enron.com
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Date: 2000-04-24 09:46:00+00:00
Subject: News clip

BNA Environment Reporter

Oil, Ethanol Industries Far From Deal
On Pending Senate Bill to Limit MTBE


Oil and ethanol interests remain at odds as the Senate seeks to limit use of 
the fuel additive methyl tertiary butyl ether (MTBE), making it uncertain 
whether the Senate Environment and Public Works Committee will be able to 
craft an acceptable national
solution to the problem of MTBE in water, lobbyists told BNA April 17-19.

Despite fundamental differences, however, all sources interviewed for this 
story--including two oil industry officials, three ethanol advocates, and 
several other sources active in the legislative process on this issue--said 
that it still appeared possible that national MTBE legislation satisfying 
multiple interests could be developed.

"I don't think we're at an impasse," one oil industry official said, echoing 
comments by others in the debate. "I just think it's going to take time." 
Whether this means that a compromise can be worked out during this 
legislative session remains to be seen, this official and others said.

The committee chairman, Sen. Bob Smith (R-N.H.), has made MTBE a priority, 
saying that Congress must eliminate the threat of water contamination posed 
by the fuel oxygenate while being careful to preserve the air quality 
benefits associated with MTBE-mixed gasoline.

The chairman's view of the issue, however, is contrary to the view held by 
the Clinton administration, by ranking minority member Sen. Max Baucus 
(D-Mont.), and by Democratic and Republican agricultural interests in the 
Senate. These forces hold that corn-derived ethanol and possibly other 
"renewable" fuels should gain a wider market under any legislation addressing 
the threat of MTBE water contamination.

The oil industry and Smith disagree with that view.

Smith Rejects 'Renewables' Linkage

When the Clinton administration announced on March 20 its support for a 
national renewable fuels mandate, Smith said "the issue of renewable fuels 
has absolutely nothing to do with eliminating MTBE from our drinking water." 
He repeated this point in a newspaper opinion piece April 10.

In addition to gasoline and ethanol advocates, several other interest groups 
maintain an active role in the ongoing debate, and Senate committee staff ar 
continuing behind-the-scenes meetings with all sides, sources said.

Generally, comprehensive MTBE legislation is expected to slash use of the 
additive without necessarily eliminating it entirely. A committee bill also 
is expected to provide states with the option of waiving the Clean Air Act 
mandate currently driving the use of
MTBE and ethanol, another fuel oxygenate. At the same time, such a bill is 
expected to include "no backsliding" language to ensure that air toxics 
reductions achieved in the eastern United States over the last several years 
are maintained even if states
waive out of the air act mandate.

Sources said the committee also is weighing possible cleanup liability relief 
for MTBE producers and enhancements to fuel storage tank clean up programs.

Heavy Reliance on MTBE

MTBE is a high-oxygen, high-octane gasoline additive that is one of the most 
heavily produced chemicals in the United States. With roughly 12 million 
gallons of MTBE mixed with gasoline each day in the United States, the 
chemical makes up more than 3 percent of gasoline by volume, according to the 
oil industry.

MTBE use is driven mainly by the Clean Air Act requirement that all 
"reformulated gasoline" contain at least 2 percent oxygen by weight. 
Reformulated gasoline is sold in areas of the country with poor air quality. 
According to the Environmental Protection Agency, more than 80 percent of 
reformulated gasoline production relies on MTBE to meet the oxygen 
requirement.

However, MTBE smells somewhat like turpentine and has been detected in public 
water supplies, rendering at least a few of those supplies undrinkable. The 
health effects of drinking MTBE in water are little known, but the chemical 
does taste and smell bad, according to a February report by the Congressional 
Research Service.

RFG programs in Chicago and Milwaukee rely on ethanol for oxygen content in 
their reformulated gasoline. Among other concerns in the legislative debate, 
the ethanol industry fears losing this market if Congress eliminates the 2 
percent oxygen requirement in the Clean Air Act to address MTBE concerns, one 
industry representative said.

There were 1.5 billion gallons of ethanol mixed into gasoline in 1999, 
according to the U.S. Department of Agriculture. USDA chief economist Keith 
Collins said before the Senate Agricultural Committee April 11 that there are 
55 ethanol plants in operation in
"nearly 20 states."

Bill Would Ease 2 Percent Oxygen Rule

To address water quality concerns, Smith has signed on to legislation (S. 
1886) that would allow states to lift the 2 percent mandate driving MTBE use.

Introduced by Inhofe and Sen. Dianne Feinstein (D-Calif.), S. 1886 would not 
ban or phase down MTBE outright. However, this is expected to change when and 
if the Environment and Public Works committee marks up more comprehensive 
legislation, oil, ethanol, and other sources said.

"I think there's a growing set of opinion ... that MTBE either needs to be 
phased down to historic levels or phased out entirely over a period of some 
years," an oil industry source said.

Chemical companies that make MTBE disagree and continue to urge an overhaul 
of underground storage tank programs in order to mitigate water contamination.

According to one source familiar with the issue, Senate committee staff 
members are considering several legislative ideas that might address concerns 
of MTBE interests. Prospective liability relief from contamination cleanup 
costs is under consideration, as is the idea that MTBE makers should get 
expedited review of required permits when switching to alternate chemical 
products.

In addition, the committee may be considering more rigorous regulation of 
underground storage tanks as part of comprehensive MTBE legislation, this 
source said.

Daschle, Harkin Drafts

At least 14 bills have been introduced in the 106th Congress to address the 
problem of MTBE in water, according to the Congressional Research Service 
report. The report said most bills would either eliminate the Clean Air Act 
requirement driving oxygenate use or would explicitly ban MTBE.

Some of the bills would bolster the Environmental Protection Agency's 
underground storage tank program since leaking USTs are considered the main 
cause of water contamination. This approach is supported by certain MTBE 
makers, who told BNA that water contamination is caused by leaking tanks and 
not by the high-quality fuel additive.

Additional draft bills are pending introduction, including comprehensive 
legislation by Sen. Tom Daschle (D-S.D.), the Senate minority leader, that 
would significantly curtail MTBE use by 2004 while letting states take action 
before then.

Daschle's bill--said by Baucus's staff to be supported by the ranking EPW 
committee member--also would bolster ethanol production through a national 
renewable fuels mandate, expanding national average ethanol use to 2 percent 
or more over the next 10 years.

In addition, the draft legislation would amend the Solid Waste Disposal Act 
to get states the money they need to implement UST cleanup programs.

Ethanol supporter Sen. Tom Harkin (D-Iowa) also is drafting MTBE legislation 
that he hopes to introduce soon after the Senate's Easter recess, a 
spokeswoman said. Harkin is ranking minority member of the Senate Agriculture 
Committee and supports a renewable fuels standard. "If crafted in the right 
way,'' Harkin has said, such a standard "could result in far more ethanol use 
than current law."

Iowa ranks second after Illinois in total ethanol production capacity, 
according to the U.S. Department of Agriculture. Nebraska ranks third and 
Minnesota ranks fourth.

RFG Market

Despite calls for eliminating the 2 percent oxygenate requirement in the 
reformulated gasoline program, ethanol interests said they still support 
maintenance of the requirement combined with an MTBE ban.

Such a scenario would leave ethanol to fill the RFG market void, doubling 
ethanol use over three to five years, sources said. If Congress were to 
eliminate the 2 percent mandate but institute a national renewable fuels 
requirement, ethanol use also is expected to at least double from current 
levels. However, it would do so over a longer period of about 10 years, one 
ethanol source said.

Oil industry officials, as well as Northeast states and some environmental 
advocates, oppose this simple MTBE ban because it would create a "de facto 
ethanol mandate." The oil industry also continues to oppose a national 
renewable fuels standard, officials said.

A representative of Northeast states told a Senate panel April 11 that Smith 
appeared to be exploring a compromise with ethanol interests, considering a 
national average "alternative fuel" requirement that would benefit ethanol as 
well as natural gas, electricity, and other transportation fuels.

The Northeast representative, Jason Grumet of Northeast States for 
Coordinated Air Use Management, supports the national average, alternative 
fuel approach, since it would offer the ethanol industry market share without 
requiring the Northeast to use large quantities of Midwest-derived ethanol.

However, oil company interests reaffirmed April 17 their long-held opposition 
to any new fuel mandates, saying concerns over MTBE in water should be 
addressed by eliminating current statutory mandates and not by instituting 
any new mandates.

Oil companies are particularly firm in their position given that agricultural 
states are expected to play a key role in upcoming presidential elections, a 
second oil industry official said. It is not simply that the industry opposes 
new mandates--though that is
the case--but also that an ethanol-mandate "bidding war" might erupt in a 
year when  Republicans and Democrats are vying for Midwestern votes, the 
official said.

Ethanol Supporters Want Expansion

Meanwhile, ethanol interests said they will continue to fight for expansion 
of their product in the RFG market, and do not necessarily see a national 
renewable fuels mandate as a legislative compromise.

The Clinton administration's renewable standard would require ethanol use 
initially at current levels of about 1.2 percent of gasoline. The mandate 
would then expand over 10 years, administration officials have said.

Ethanol is more volatile than MTBE, making it more difficult for oil refiners 
to produce summertime gasoline that meets low emissions requirements for 
volatile organic compounds. This is one reason the "de facto mandate" is 
opposed by Northeast states and environmental interests. Some of the 
renewables mandates under consideration in Congress would allow refiners to 
meet requirements over an annual average, enabling them to avoid or reduce 
their ethanol use in summer.

No Markup Scheduled

Smith staff confirmed only that discussions with oil, ethanol, environmental, 
MTBE, and state interests continue. A spokesman said comprehensive MTBE 
legislation "is something we're trying to get done quickly," but that a bill 
markup has not been scheduled.

Discussions leading to a full EPW committee markup of more comprehensive MTBE 
legislation are important to the legislative process, sources said, because a 
bill is not expected to weather floor debate without early support from 
Democrats and Republicans on the committee, as well as from members of the 
Senate Agricultural Committee.

"I just can't see this getting duked out on the floor," said one ethanol 
lobbyist. "I think that we, the MTBE folks, the oil company folks, and the 
environmentalists all recognize that there is mutually assured destruction on 
the floor."

According to one source, a new version of the bill is expected to push MTBE 
use down to pre-1990 levels over about four years. Before the 1990 air act 
amendments required the sale of reformulated gasoline, MTBE was used mainly 
to enhance octane.

It is unclear whether the bill will somehow prove acceptable to both 
Democrats and Republicans, ethanol and oil interests, as well as to Northeast 
states, the Midwest, and California.

"Things change day to day," an oil industry official said. "I think the issue 
could be resolved without the ethanol piece, but the ethanol piece is just so 
difficult," he added.

"I think right now the chairman is poking around in the mud to find somewhere 
with solid footing," an ethanol industry source said.