EPAct Section 1541(c)

Boutique Fuels Report to

Congress 

EPA420-R-06-901 December 2006 
EPA420-R-06-901 

December 2006 

EPAct Section 1541(c)
 

Boutique Fuels Report to Congress
 

Office of Policy and International Affairs 

U.S. Department of Energy
 

and
 

Office of Transportation and Air Quality
 

U.S. Environmental Protection Agency
 
EPACT SECTION 1541 (C) 

BOUTIQUE FUELS 

REPORT TO CONGRESS 

SUBMITTED TO THE COMMITTEE ON ENERGY AND COMMERCE OF THE 

UNITED STATES HOUSE OF REPRESENTATIVES AND THE COMMITTEES ON

ENERGY AND NATURAL RESOURCES AND ON ENVIRONMENT AND PUBLIC 

WORKS OF THE UNITED STATES SENATE 

EXECUTIVE SUMMARY

In compliance with Section 1541(c) of the Energy Policy Act of 2005 (EPAct), the 

Environmental Protection Agency (EPA) and the Department of Energy (DOE) are submitting to 

Congress this report regarding the impact of state fuel programs (approved under the Clean Air Act 

Amendments (CAAA) Section 211(c)(4)(c)) on air quality, the number of fuel blends, fuel 

availability, and on fuel costs. This report fulfills one part of a broader EPAct requirement for EPA 

and DOE to analyze the affects of boutique fuels, in addition to other unique fuels, on the nation’s 

fuel system. Because of the potential importance of these distinct fuel requirements on the nation’s 

fuel supplies, in the spring of 2006 President Bush established the Boutique Fuels Task Force to 

gather information from numerous stakeholders including state officials, refiners, public health 

officials and automakers. The Task Force issued a report in June 2006. This Report builds upon the 

Task Force findings. It provides an overview of the status of state boutique fuel programs, 

describes important regulatory and legislative changes that have or will soon change the landscape of 

the broader transportation fuels market, summarizes other critical market factors that have had a 

significant influence on the U.S. transportation fuels sector, revisits the Task Force 

recommendations from affected parties, and provides a plan that EPA and DOE will follow for a 

more comprehensive assessment of the impacts of boutique fuels and other varying transportation 

fuels programs, as outlined in EPAct Section 1509 (the Fuel Harmonization Study). 

Significant changes have occurred in the last five years that have affected the refining industry’s 

ability to make and distribute boutique and other distinct fuels. While some legislative and 

regulatory changes were specifically directed at boutique fuels, others had important indirect effects 

on the boutique fuels. Legislative and regulatory changes have also occurred that have an effect on 

fuel supply and emissions beyond the boutique fuels authorized by CAAA Section 211 programs, 

such as the emergence of state renewable fuel requirements. These changes have occurred during a 

period in which increases in demand have outpaced increases in U.S. refining, distribution and 

storage capacity. These changes make it very difficult to rely on past experience with boutique fuels 

to predict what the impacts on fuel supply and price might be in the future from the continued use 

of boutique and other distinct fuels. 

Within the context of this changed environment, the Boutique Fuels Task Force revisited 

stakeholder concerns. The key findings of the Task Force were: 

 The U.S. gasoline production and distribution system is able to provide adequate 

quantities of boutique fuels, as long as there are no disruptions in the supply chain. 
If a disruption occurs (for example, due to unexpected refinery or distribution

problems), it becomes more difficult to move gasoline supplies around the country 

because of the limitations imposed by the boutique fuel requirements. Existing 

authorities have been used to temporarily waive boutique fuel requirements during 

times of supply disruption. 

 The Energy Policy Act of 2005 includes provisions that will limit the future growth 

of new boutique fuels allowable under CAAA Section 211(c) and provides additional

authority to EPA to waive boutique fuel requirements when necessary to help

alleviate unexpected supply disruptions. 

 State boutique fuel programs have provided significant, cost-effective air quality 

improvements. Any additional policies affecting boutique fuels should be done in a

manner that at least maintains these air quality benefits and avoids restricting state’s 

authorities. 

 Future analyses of potential changes to the number and types of fuels should utilize 

the most up-to-date data and analytical tools. The joint EPA – DOE Fuel 

Harmonization Study required under Section 1509 of EPAct should ensure that all 

aspects, including the impacts of fuel requirement modifications on air quality, 

vehicle components and performance, fuel fungibility, fuel supply and fuel cost, are 

appropriately addressed. 

 As part of the analyses of future fuel options, careful consideration should be given 

to the possibility of new legislative authority that would allow for the adoption of 

regional clean fuel programs. A mechanism to require the same boutique fuel in 

geographic areas that cross state boundaries merits further study. 

 Renewable fuels are an important part of the nation’s plan to reduce our dependence 

on foreign oil. States are undertaking a number of actions to promote the use of 

such renewable fuels and the federal government is implementing programs, notably

the Renewable Fuels Program established by EPAct, to do the same. Additional

study would be beneficial to ensure these programs are working together and will not 

create undue impacts on air quality, fuel fungibility, fuel supply and/or fuel cost. 

DOE and EPA have concluded that further evaluation is required to determine whether

additional legislative changes affecting boutique fuels beyond those already provided in EPAct are 

desirable. Accordingly, DOE and EPA propose to coordinate the EPAct Section 1541 boutique 

fuels report with the EPAct Section 1509 Fuel Harmonization Study. The Fuel Harmonization 

Study will require significant analysis and substantial resources in order to update existing models 

and fill in major data gaps. This includes, for example: a multi-year program to generate and

analyze the impacts of numerous fuel properties on emissions from engines and vehicles; and the 

collection and analysis of data from the pipeline and terminal industries regarding how different fuel

types impact fuel distribution. Additional stakeholder involvement, particularly from the states, will

also be critical. In the course of the Fuel Harmonization Study, EPA and DOE will continue to 

actively engage and seek input from state participants, industry stakeholders and others. 

2 
TABLE OF CONTENTS

EXECUTIVE SUMMARY........................................................................................................1

TABLE OF CONTENTS .........................................................................................................3

I. INTRODUCTION ............................................................................................................4

BACKGROUND................................................................................................................................................................................ 5

REPORT ORGANIZATION.............................................................................................................................................................. 9

II. PAST EPA BOUTIQUE FUEL STUDIES (OCTOBER 2001) ..................................10

III. RELEVANT FUEL CHANGES THAT HAVE OCCURRED SINCE 2001 .............13

REGULATORY CHANGES............................................................................................................................................................. 13

LEGISLATIVE CHANGES............................................................................................................................................................... 14

STATE FACTORS............................................................................................................................................................................ 15

MARKET CHANGES...................................................................................................................................................................... 16

CHANGES IN DOMESTIC PRODUCTION AND DISTRIBUTION CAPACITY IN RELATION TO 

DEMAND............................................................................................................................................................................... 16

CHANGES In Import Supply.................................................................................................................................................. 17

CHAPTER SUMMARY............................................................................................................................................................. 18

IV. BOUTIQUE FUELS TASK FORCE REPORT (JUNE 2006)....................................19

V. WORK PLANNED FOR EPACT SECTION 1509 STUDY....................................... 21

REQUIREMENTS OF THE ACT ..................................................................................................................................................... 21

Emissions and Air Quality Analysis........................................................................................................................................... 25

fUELS SUPPLY and PrICE ANALYSIS ........................................................................................................................... 26

VI. LIST OF ACRONYMS.................................................................................................29

APPENDIX A..........................................................................................................................30

FIGURE 1. U.S. GASOLINE REQUIREMENTS..................................................................................7 

FIGURE 2. STATE BOUTIQUE FUEL PROGRAMS AS OF MAY 2006 .........................................8 

FIGURE 3. SUMMER U.S. GASOLINE REQUIREMENTS IN 2001 ..............................................12 

FIGURE 4. CONCEPTUAL ANALYTICAL APPROACH TO THE FUELS 

HARMONIZATION STUDY.............................................................................................................23 

FIGURE 5. CONCEPTUAL ANALYTICAL APPROACH TO THE EMISSIONS AND AIR 

QUALITY ANALYSIS..........................................................................................................................23 

FIGURE 6. CONCEPTUAL ANALYTICAL APPROACH TO THE SUPPLY/PRICE

ANALYSIS...............................................................................................................................................24 

3 
I. INTRODUCTION 

Over the past few decades, the number of distinct petroleum fuels produced and distributed has

increased, largely due to the environmental benefits such fuels provide. This growth in both the 

number and location of different fuel specifications has caused changes to fuel production and 

distribution. To improve the understanding of the effects of these changes and provide guidance 

for future policy and legislation, Congress directed the Environmental Protection Agency (EPA) and 

the Department of Energy (DOE) to analyze the supply and environmental implications of a subset

of these distinct fuels, referred to as boutique fuels. Boutique fuels are motor fuels that are a part of 

any clean fuel program designed and enforced under state authority to reduce motor vehicle 

emissions and improve air quality; approved by the EPA under the authority of Section 211 (c)(4)(c)

of Clean Air Act Amendments (CAAA) of 1990; and included in an EPA-approved State 

Implementation Plan (SIP). 

In particular, Section 1541(c) of the Energy Policy Act of 2005 (EPAct or Act) directs EPA and

DOE to jointly undertake a study regarding the impact of state fuel programs (approved under the

CAAA Section 211(c)(4)(c)) on air quality, the number of fuel blends, fuel availability, and on fuel

costs. Congress directed EPA and DOE to determine how to develop a Federal fuels system that 

addresses air quality requirements, maximizes motor fuel fungibility and supply, reduces motor fuel 

price volatility, including that which has resulted from the increase in boutique fuels, and to 

recommend to Congress such regulatory and legislative changes necessary to implement such a 

system. Furthermore, Section 1541(c) directs EPA and DOE to consider the impacts on overall 

energy supply, distribution and use due to any recommended legislative changes. It also directs EPA 

and DOE to coordinate the report required by this section with other studies required by the Act.

In developing the report, EPA and DOE are to use sound science and objective science practices,

consider the best available science, use data collected by accepted means, and consider and include a

description of the weight of the scientific evidence. 

As this report will highlight, the impact that the various state fuel programs have on the 

transportation fuels market is complex. EPA and DOE have completed several boutique fuels

reports in the past five years that address many of the issues identified in Section 1541(c) of the Act. 

The most recent report, published in June of this year, provides important information and insights

on the relevant issues under Section 1541(c), however, it also illustrates that boutique fuel issues are 

only a part of the broader issue of distinct fuel types, including additional renewable, diesel, and

heating oil fuels. In order to develop appropriate legislative recommendations, the impacts on air

quality, fuel fungibility, availability and supply, cost, price, and other factors have to be fully 

evaluated, taking into consideration supply and environmental issues beyond the boutique fuel 

subset. Given the conclusions of the past boutique fuel studies, a broader evaluation, as described in

Section 1509 of the Act (the Fuel Harmonization Study), is required to develop recommendations 

for a Federal fuels system or legislative changes. This Report will address the requirements of the 

narrower in scope Section 1541(c) by providing an overview of the status of state boutique fuel 

programs. Specifically, this report describes important regulatory and legislative changes that have 

or will soon change the landscape of the broader transportation fuels market and summarizes other

critical market factors that have had a significant influence on the United States (U.S.) transportation

4 
fuels sector. Furthermore, it provides a plan that EPA and DOE will follow to conduct a more

comprehensive assessment of the impacts of varying transportation fuels programs. 

BACKGROUND

Most of the increase in the variation of petroleum fuel types has been with gasoline, the major

light-duty (i.e., passenger cars and trucks) transportation fuel used in the United States. Prior to the 

CAAA of 1990, types of gasoline differed primarily by octane grade. Gasoline grades were generally 

the same nationwide and through the seasons with only gasoline volatility differing by region and by 

season. 

During the late 1980s and the 1990s, Congress, EPA, states and other stakeholders realized the 

strong impact certain motor vehicle fuel properties have on air pollution. Furthermore, controlling

various fuel properties was considered a very cost-effective way to reduce vehicle emissions that 

contribute to air pollution, while providing widespread and immediate benefits. In response to the

serious air quality problems, which were occurring across the U.S., Congress, EPA, and many states 

took a number of actions, which have both resulted in large emission reductions as well as an 

increase in the number of distinct motor fuels. 

The gradual increase in the number of unique fuel types first began in the late 1980s, with the 

emergence of both new federal and state standards. Beyond the phasing down of lead in gasoline, 

which began in the mid 1970s, quality controls on gasoline at the federal level remained constant 

until new volatility controls were first implemented beginning in 1989. In addition, some states 

began to require oxygenated gasoline in the winter months to reduce carbon monoxide (CO) 

pollution. 

Congress included new federal and state programs in the CAAA of 1990 specifically designed to 

address our nation’s serious air quality issues and the contribution from the mobile source sector.

EPA was tasked with developing and implementing new gasoline and diesel programs that would

provide significant air quality benefits and support progress in attaining the National Ambient Air 

Quality Standards (NAAQS). Over a 5-year period from 1990 to 1995, in accordance with the 

directives in the CAAA, EPA set standards for diesel fuel and gasoline including a requirement for 

states to introduce wintertime oxygenated fuel in 1992 in certain areas exceeding the CO standards.

In 1993, the nationwide low sulfur (500 parts per million) highway diesel fuel program began, which 

was designed to reduce the emissions from the on-highway sector of the heavy-duty diesel truck and 

bus fleet. In 1995, phase 1 of the federal reformulated gasoline (RFG) program went into effect, 

which was designed to reduce ozone-forming emissions and control harmful air toxics in the nine 

worst ozone non-attainment areas. 

States, with support of stakeholders including the oil industry, began to investigate and consider

controls on fuels as a way to support attainment of the NAAQS. States began to evaluate both the 

existing menu of fuels, including federal RFG, and other potential fuel options. While the CAAA 

allowed states having ozone non-attainment areas that were not required to use RFG to opt-in to 

the program, many states selected their own cleaner-burning fuels tailored to meet their emission 

reduction targets, with most selecting low Reid vapor pressure (RVP) gasoline standards, stopping

short of requiring cleaner burning Federal RFG. These are the so-called boutique fuels. 

5 
Figure 1, below, illustrates the different types of gasoline present in the marketplace today, 

including both boutique fuels as well as other available gasoline fuel types. For example, several 

RFG types are shown. California’s RFG is required to meet a more stringent standard than federal 

RFG and is therefore a unique blend. Ethanol blends are distinct and have properties that vary 

compared to non-oxygenated or MTBE-blended RFG and therefore require different distribution 

methods. 

Figure 2, below, illustrates the seven distinct fuels included in State Implementation Plans and 

defined as boutique fuels which are used in 15 different areas. 

6 
Figure 1. U.S. Gasoline Requirements 

Legend:

Texas Low Emission Diesel Fuel & 

Controls of 7.8psi

Texas Low Emission Diesel and Fe

or RVP Control

AZ Cleaner Burning Gasoline

Northern RFG NV Cleaner Burning Gasoline WinSouthern RFGCA Cleaner Burning GasolineFed/CA RFG

RVP of 7.0psi w/Sulfur ContentRVP of 7.0psiRVP of 7.2psiRVP of 7.8psi

Conventional

Oxy Fuel/Ethanol Mandate

Northern RFG w/EthanolSouthern RFG w/Ethanol Oxy Fuel/7.8 RVP

Oxy Fuel/7.0 RVP

M

NJ

DE

MD

CT 

TN

GA

OK

MN

CO

CA

AL

AZ AR

FL

ID

IL IN

IA

KS

KY

LA

MI

MS

MO

MT

NE

NV

NM

NY

NC

ND

OH

OR

PA

SC

SD

TX

UT

VT

VA

WA

WV

WI

WY

Legend:

Texas Low Emission Diesel Fuel & 

Controls of 7.8psi

Texas Low Emission Diesel and Fe

or RVP Control

AZ Cleaner Burning Gasoline

Northern RFG NV Cleaner Burning Gasoline WinSouthern RFGCA Cleaner Burning GasolineFed/CA RFG

Northern RFGSouthern RFGCA Cleaner Burning GasolineFed/CA RFG

RVP of 7.0psi w/Sulfur ContentRVP of 7.0psiRVP of 7.2psiRVP of 7.8psi

Conventional

Oxy Fuel/Ethanol Mandate

Northern RFG w/EthanolSouthern RFG w/Ethanol Oxy Fuel/7.8 RVP

Oxy Fuel/7.0 RVP

M

NJ

DE

MD

CT 

TN

GA

OK

MN

CO

CA

AL

AZ AR

FL

ID

IL IN

IA

KS

KY

LA

MI

MS

MO

MT

NE

NV

NM

NY

NC

ND

OH

OR

PA

SC

SD

TX

UT

VT

VA

WA

WV

WI

WY

7 
CT

M

CA

MN

MD NJ

TN

GA

OK

CO

AL

AZ AR

FL

ID

IL IN

IA

KS

KY

LA

MI

MS

MO

MT

NE

NV

NM

NY

NC

ND

OH

OR

PA

SC

SD

TX

UT

VT

VA

WA

WV

WI

WY

DE DE

CT 

M

CA 

MN 

MD NJ

TN 

GA 

OK 

CO 

AL 

AZ AR 

FL 

ID 

IL IN 

IA 

KS 

KY 

LA 

MI 

MS 

MO 

MT 

NE 

NV 

NM 

NY 

NC 

ND 

OH 

OR 

PA 

SC 

SD 

TX 

UT 

VT 

VA 

WA 

WV 

WI 

WY 

Legend:

RVP of 7.0psi w/ RVP of 7.0psi w/Sulfur ContentRVP of 7.0psiRVP of 7.2psiRVP of 7.8psi

Cleaner BurningGasolineWinter Gasoline

TexasLow Emission Diesel Fuel& State RVP

Controls of 7.8psi 7.8psi

Texas Low Emission Die ission Die ission Diesel and Federal RFG or 

RVP Control

Figure 2. State Boutique Fuel Programs as of May 2006 

8 
Some fuels are easier to produce and distribute than others. Consequently, boutique fuel

requirements can affect the decisions of individual companies to produce, distribute, and market 

them and affect the sources of fuel for particular areas. In some situations one fuel producer may 

choose to optimize their operations around the production of one fuel type (e.g., low-RVP gasoline),

while others optimize their operations to produce another fuel type (e.g., conventional gasoline). In

other situations, the addition of new fuel grades may require the delivery and storage system to make 

adjustments to accommodate more fuels. Most petroleum-based transportation fuels travel from

refineries through pipelines to local distribution terminals, where tanker trucks move the products to

nearby retail outlets. Pipelines ship different products sequentially in batches. For example, a

pipeline might ship gasoline, diesel fuel, kerosene, jet fuel, kerosene and heating oil. Each grade of 

each type of fuel must be shipped in separate batches. As more fuel types evolve, smaller batches 

result, which may require changes to pipeline operations. Each fuel type must also be stored in 

separate tanks. Terminal operators must either build more tanks or hold less volume of each 

product to accommodate the increasing number of fuel types. 

As Figure 1 illustrates, fuel types are distributed in geographic regions of various sizes. In some 

cases, such as portions of the Midwest and the East Coast, product must travel several weeks from 

refineries on the Gulf Coast. If a region runs short of its special fuel or there is a supply disruption 

(e.g. pipeline rupture), it cannot borrow from its surrounding areas without a special waiver. Thus, 

the speed with which new supplies can be brought into such an area can be affected by its use of a

special fuel. 

REPORT ORGANIZATION 

This report begins in Section II with a summary of the boutique fuel-related studies done in 

2001. Much has changed since then. Section III provides an overview of the relevant legislative, 

regulatory, and petroleum market changes that have occurred since the 2001 studies, setting the 

stage for a discussion of boutique fuel issues today. Section IV focuses on the current boutique fuel 

perspectives, including a summary of a recent Presidential task force report on boutique fuels. This 

chapter illustrates the complex nature of the issues, and provides the rationale for the work planned 

in the integrated fuel harmonization study required under Section 1509 of EPAct 2005. Section V 

summarizes a coordinated plan to determine how to develop a federal fuels system, provided the 

necessary resources are available, and to prepare the Fuel Harmonization Study as required by 

Section 1509 of EPAct. 

9 
II. PAST EPA BOUTIQUE FUEL STUDIES (OCTOBER 2001) 

The Environmental Protection Agency wrote two studies in 2001 that contain direct and indirect 

analyses of boutique fuels.1 The first study was performed in response to a directive of the 

President’s 2001 National Energy Policy Report. The second study EPA performed focused on 

improving the transition from the winter grade to summer grade standard for RFG volatility. These 

studies are no longer fully representative of today’s market situation given the implementation of 

new federal and state legislation and regulations over the past five years. However, many of the 

major issues highlighted in those reports are still applicable today. 

In response to the President’s directive, EPA issued a “Study of Unique Gasoline Fuel Blends 

(“Boutique Fuels”), Effects on Fuel Supply and Distribution and Potential Improvements” on

October 23, 2001.2 This study examined the motivation and causes for state boutique fuels, 

assessed the impact of these fuels on the fuel production and distribution systems, and analyzed

potential ways to mitigate the impact of disruptions (due to, for example, natural disasters or other

unforeseen circumstances) by allowing for a more fungible system. In preparing this study, the 

Agency sought input from the U.S. Departments of Energy and Agriculture, and more than 40

stakeholders.3 Figure 3, below, illustrates the U.S. gasoline requirements that were in place in the 

summer of 2001. 

The report concluded that despite the number of state and local fuel programs, the gasoline 

production and distribution system would be able to continue providing adequate quantities of 

boutique fuels, as long as there were no disruptions in the supply chain. If a disruption were to

occur, it would become difficult to move gasoline supplies around the country because of 

constraints caused by the boutique fuel requirements. In addition, at the time, fuel providers were 

concerned that recently enacted state laws to ban the use of MTBE would increase the number of 

boutique fuels and present new challenges to the country’s fuel production and distribution system. 

The underlying assumptions for the analysis done in the 2001 study (costs, legislation and 

regulations, emergence of renewable fuels, and so forth) have changed considerably, requiring a new 

assessment of the fuels situation. As discussed in Section IV of this report, EPA and DOE believe

it is appropriate that a new, comprehensive analysis be performed to fully assess today’s situation, as

part of the Fuel Harmonization Study.

1 While this section focuses on the 2001 EPA study, the Energy Information Administration provided a Service 

Report on the topic: Gasoline Type Proliferation and Price Volatility, September 2002,

http://www.eia.doe.gov/oiaf/servicerpt/fuel/gasoline.html

2 Study of Gasoline Fuel Blends (“Boutique Fuels”). Effects on Supply and Distribution and Potential Improvements, October 2001. 

3 Stakeholder comments on the 2001 study are available for review in the EPA docket (EPA-HQ-OAR-2002-0003). 

10 
In the second boutique fuels related report released by the Agency in 2001, EPA investigated 

seasonal transition concerns that arise when summer grade gasoline replaces winter grade gasoline.4 

In the 2001 fuel transition study, EPA identified a set of administrative and regulatory options as 

near term actions that could better facilitate seasonal gasoline transition and reduce the incentives 

for low inventories. Some of the options discussed in the 2001 study have since been implemented 

to address these transitional issues. 5 While these actions have not resulted in a reduction of the 

number of boutique fuels, they have served to allow for greater flexibility in the supply and 

distribution of these fuels, ultimately relieving some of the transitional issues that affected these 

localized market areas. 

4 It is important to note that industry would make this seasonal transition at some level to support vehicle performance 

and operational issues, regardless of whether any environmental regulations are in place. However, the RVP 

specifications established by industry for vehicle performance reasons are not as stringent as those established by 

regulation for environmental protection purposes. 

5 Study of Boutique Fuels and Issues Relating to Transition from Winter to Summer Gasoline, October 2001, 

http://www.epa.gov/otaq/regs/fuels/r01051.pdf. 

11 
Figure 3. Summer U.S. Gasoline Requirements i

n 2001 

12 
III. RELEVANT FUEL CHANGES THAT HAVE OCCURRED 

SINCE 2001 

Since the release of the first EPA boutique fuel study in 2001, several significant regulatory, 

legislative, and market changes have occurred that have influenced the U.S. fuels market situation. 

These factors have resulted in a significantly different fuels market today than at the time the first 

2001 study was released. These changes are important to take into consideration because they can 

influence decisions of states interested in boutique fuels as well as the relative costs and benefits of

those boutique fuels. This section summarizes the most significant regulatory and legislative 

changes that have occurred since 2001 and provides a brief overview of how these changes have 

impacted both the boutique fuels situation and more broadly, the U.S. fuels market. The legislative 

and regulatory factors coupled with the various market factors, further demonstrate the need and

rationale for conducting a more comprehensive evaluation prior to proposing any legislative or 

regulatory recommendations. 

REGULATORY CHANGES 

Tier 2 Vehicle and Gasoline Sulfur Standards and Toxics Reduction: The Tier 2 vehicle 

and low sulfur gasoline program (65 FR 6698, February 10, 2000), went into effect in 2004. This 

program includes more stringent emission standards for light-duty vehicles enabled by low sulfur 

gasoline. This comprehensive program reduces smog-forming emissions from motor vehicles by up 

to 95 percent. The Tier 2 program began to phase-in in 2004 and ultimately requires all gasoline to 

average 30 parts per million (ppm) sulfur (fully phased in by January 1, 2011), whereas previously

only RFG required additional sulfur control in order to meet the emission performance standards 

for RFG. 

EPA recently proposed making additional changes to national gasoline requirements in order to

reduce mobile source air toxics. The proposed Mobile Source Air Toxics (MSAT2) Rulemaking (71 

FR 15804, March 29, 2006) proposes standards to significantly lower benzene emissions. With 

respect to gasoline properties, the EPA proposal would lower the benzene content in gasoline. If 

implemented as proposed in 2011, this MSAT2 benzene content standard will replace the separate 

air toxics performance standards currently in place for RFG and conventional gasoline, resulting in 

the same gasoline air toxics standards nationwide, with the exception of California. 

To the extent the MSAT2 program is finalized as proposed, then the combination of the Tier 2 

and MSAT2 programs will have addressed two of the fuel parameters (sulfur and benzene) states 

might otherwise have been interested in controlling in their own fuel programs. 

Clean Diesel Programs: EPA’s clean diesel programs require diesel fuel to meet a per-gallon 

cap of 15 ppm sulfur (ULSD) beginning in 2006 for highway diesel fuel (66 FR 5002, January 18, 

2001), in 2010 for nonroad diesel fuel (69 FR38958, June 29, 2004) and 2012 for locomotive and

marine diesel fuel. The new emissions standards established in these programs, coupled with new 

cleaner diesel fuel, provide for significant reductions across both the on-highway and nonroad diesel

sectors. The phased introduction of these new diesel engines and fuels is intended to provide for a 

smooth market transition. Specific flexibilities were included in the regulations to support and ease 

any production and distribution issues that might arise. During the phase-in period for ULSD, some 

13 
parts of the distribution system are choosing to accommodate two grades of on-road diesel fuel; 

other parts of the distribution system are choosing to simply switch to ULSD. Ultimately, when 

these programs are fully phased in, the entire transportation sector nationwide will be using one 

diesel fuel. As with the Tier 2 and MSAT2 programs for gasoline, the federal action on diesel fuel 

sulfur addresses a fuel parameter that states might otherwise have considered for control. 

8-hour Ozone NAAQS: In 2004, EPA established a new 8-hour ozone NAAQS. These new 

standards require states with areas that are not in attainment with the standard to submit a State 

Implementation Plan to bring the ozone non-attainment areas into attainment. In some instances, 

the geographic size of the new non-attainment areas may encompass only a few counties. As in the 

past, some states may consider boutique fuels as a cost-effective solution to reduce air pollution and 

help them to quickly come into attainment with the new ozone standard. The number of unique 

fuels being used cannot increase due to the limitations on boutique fuels prescribed by EPAct 2005 

and described below under Legislative Changes. However, the existing fuel programs may increase 

in size or expand to new areas. The impact that the 8-hour ozone standard may have on states’ 

interests in boutique fuels and how this may affect the fuels market should be further explored and 

understood prior to making any recommendations. 

LEGISLATIVE CHANGES 

EPAct Boutique Fuels List: The Energy Policy Act of 2005 included several provisions, which 

specifically address boutique fuels. EPAct established a fixed limit on the number of boutique fuels 

that EPA can approve. Specifically, Section 1541(b) required EPA to publish a boutique fuels list 

based on fuels approved into SIPs as of September 1, 2004. On June 6, 2006, EPA published a 

draft listing of boutique fuels for public comment (71 FR 32532). In EPA’s proposed approach, 

seven different fuel types used in 15 areas in 12 states were identified that have been implemented in 

an EPA-approved boutique fuel program to support cost-effective attainment of the air quality 

standards. Charts indicating the fuels contained under both interpretations of the statute are 

included in the Appendices. 

By publishing this list, the number and type of fuels, and to some extent geographical application 

(by Petroleum Administration for Defense Districts (PADDs)) of these fuels in the U.S. market is 

explicitly limited. EPA is permitted to approve state requests for fuel standards (waive the 

preemption set for in CAAA Section 211(c)(4)(c)) only for fuels already on this list or by replacing 

fuels on the list. Therefore, states seeking approval of new fuel programs generally would be limited 

to fuel types already in existence within the PADD in which the state is located. The PADD 

restrictions are a powerful constraint on the expansion of state fuel programs. It is important to 

note that these restrictions apply in addition to the requirements set forth in CAAA Section 

211(c)(4)(c), under which states must request approval for a program that is otherwise preempted 

under the CAAA. 

Removal Of The RFG Oxygen Content Standard: The CAAA required that RFG contain a 

minimum content of oxygen. Refiners initially met this requirement primarily through the addition 

of MTBE, a clean-burning fuel component. Until recently, MTBE was also used to increase octane, 

and to reduce air toxic emissions. MTBE made up a significant amount of volume of the RFG 

gasoline pool. In the late 1990s, concerns over the use of MTBE began to increase because of its 

14 
6 Because California is treated differently under the Clean Air Act, EPA removed the oxygen content requirement for

California RFG through a separate action in April. 

potential for contaminating drinking water. Beginning in 2003, state MTBE bans resulted in a 

substantial reduction in the use of MTBE and a subsequent increase in ethanol use to replace this

product. 

In 2005, the enactment of EPAct subsequently removed the oxygen requirement for RFG. To 

implement this change, EPA completed a rulemaking that took effect on May 5, 2006.6

 This change

allows refiners and importers to produce or import RFG with or without oxygenate as long as the 

gasoline meets all other RFG requirements. While removal of the oxygen standard provides 

additional flexibility, enabling refiners and importers to produce and distribute RFG in the most 

cost-effective manner, the industry’s near-universal response has been to remove MTBE from the 

market and replace its presence in RFG with ethanol. The result has been a movement toward one 

type of RFG (ethanol blended) nationwide. However, the future economics of producing gasoline, 

including the blending of ethanol, may be influenced by factors such as compliance with the federal

renewable fuels standard (RFS) program, the application of additional state renewable fuel program

requirements and incentives, and other such factors. The removal of the oxygen requirement in

Federal RFG enables refiners to produce either an oxygenated or un oxygenated RFG, however, as

in the past with MTBE-blended RFG, these two fuels are generally not fungible when ethanol is the 

oxygenate of choice. The potential impact these factors have on the market should be further 

explored and understood prior to making any recommendations. 

Renewable Fuels Program: EPAct also set forth a new national renewable fuels program that 

established renewable fuel volume requirements beginning in 2006. On September 6, 2006, EPA

proposed a regulation to implement the comprehensive program for 2007 and later. This important

new program is designed to help the U.S. reduce our reliance on foreign sources of energy. Ethanol

is expected to be the primary renewable fuel used to meet the requirement for the near future. 

However, because ethanol must be transported and distributed separately due to its affinity to water

and the presence of water in the petroleum distribution system, the need to handle ethanol

separately will need to be taken into consideration. For example, the distribution system may need

to handle reformulated blendstock for oxygenate blending (RBOB) for ethanol, conventional 

blendstock for oxygenate blending (CBOB), ethanol, and potentially non-oxygenated RFG

(discussed above). As with the other Federal and state legislation and regulations mentioned in this 

section, closer evaluation of the current and future market dynamics, as well as how the RFS affects 

air quality, will be necessary to support any recommendations. 

STATE FACTORS 

State Renewable Fuel Programs: Since 2000, several states have implemented renewable fuels

programs, and with the increases in petroleum prices in the past few years, more states are pursuing 

renewable fuel requirements (Appendix A). While these state renewable programs are not boutique 

15 
7 Boutique fuels are motor fuels that are a part of any clean fuel program designed and enforced under state authority 

to reduce motor vehicle emissions and improve air quality; approved by the EPA under the authority of Section 211 

(c)(4)(c) of CAAA of 1990; and included in an EPA-approved SIP. 

fuels, they may play an increasingly important role in the nation’s fuel system in the future.7

 As with

the federal renewable fuels program, ethanol is likely to be the main renewable fuel used, at least for 

a number of years, as other renewable fuels are less widely available and less economically aligned 

with that of petroleum based fuels. While the federal renewable fuels standard includes a

requirement to establish a credit trading program to allow suppliers to use renewable fuels in the 

most economic and efficient manner nationwide, state renewable fuel mandates could have an effect 

of limiting some of this flexibility. Additional analysis is necessary to determine to what extent these 

programs will affect the overall fuels markets. 

MARKET CHANGES 

In addition to new legislation and regulations, petroleum market changes have occurred that

could affect the supply system’s ability to manage multiple, distinct fuel types, including boutique 

fuels, in the future. These issues are discussed in more detail below. 

CHANGES IN DOMESTIC PRODUCTION AND DISTRIBUTION CAPACITY IN 

RELATION TO DEMAND 

In recent years, petroleum demand growth has outpaced the growth in both refinery and

distribution capacity, reducing excess production and distribution capacity, which in turn, has 

reduced supply flexibility to handle unexpected supply disruptions. Producing and distributing 

boutique fuels and other fuel types is easier in an environment that has excess capacity than in one 

where both production and distribution capacity are tight. At the same time, today’s tight supply 

environment is also resulting in plans for new investments to expand capacity. Increased

investments in capacity may work to relieve some of the supply and distribution pressures associated

with handling multiple fuel types in the future. 

During the first half of the 1990s, refinery capacity in the U.S. changed very little. In the early 

1990s, a recession held down demand growth, but capacity utilization still increased from 87 percent 

in 1990 to 92.6 percent in 1994. By the second half of the 1990s, the U.S. was running its refineries 

near capacity during the peak summer months. Demand continued to grow, but U.S. refining 

capacity was growing as well. U.S. capacity growth seemed to keep up with demand increases, and 

utilization remained around 93 percent. Since 2000, the refinery capacity/demand balance again 

shifted. Demand growth continued, with demand for products from refineries increasing over one 

million bpd from 2000 to 2005, but capacity increases slowed to grow only 0.6 million barrels per 

day (bpd), with increasing imports making up most of the balance. 

Another significant change has been that financial incentives for investments have improved 

since 2000, and the industry is announcing plans for substantial capacity increases over the next five

years. Capacity expansion plans and estimates for capacity creep indicate U.S. refineries could

16 
expand 1.7 million bpd from 2005 to 2010, which is grater than the Energy Information 

Administrations’s projected demand increase for refinery products. 

The growth in demand has also affected the distribution infrastructure. Several significant 

pipeline changes have occurred. The Centennial Pipeline opened in 2002, which helped to ease a

critical transportation bottleneck in moving product from the Gulf Coast to the Midwest. This

pipeline had been a natural gas pipeline. Converting from a natural gas pipeline to a petroleum 

product pipeline reduced many of the issues that arise when trying to construct a grass-roots 

pipeline. At about the same time, the Explorer pipeline, which also moves product from the Gulf

Coast to the Midwest, expanded. Another major addition was the Longhorn pipeline, which began 

operations in 2005. Initially a crude oil pipeline, it was extended and converted to handle light 

petroleum products. The Longhorn pipeline moves products from refineries on the Gulf Coast to 

West Texas. From there, shippers may use other pipelines to move product to New Mexico and 

Arizona. Thus, this pipeline served to connect many Gulf Coast refineries to rapidly growing 

markets in Arizona and Nevada. While we have not seen widespread public announcements in the 

past year as with the refining industry, recently, Colonial Pipeline announced a planned expansion 

from the Gulf Coast to the Southeast. 

CHANGES IN IMPORT SUPPLY

Motor gasoline imports are a critical component of U.S East Cost supply, accounting for 

approximately 25 percent of the East Coast market. Since 2000, U.S. gasoline imports have

increased 71 percent or about 500,000 bpd, to average almost 1.1 million bpd in 2005. In 2005, 41 

percent of those volumes came from Western Europe, 26 percent came from Canada and the Virgin

Islands, and 12 percent from Eastern Europe. These regions were also the areas supplying the 

largest growth volumes. Western Europe accounted for 62 percent of the growth, Eastern Europe 

22 percent, and Canada and the Virgin Islands 13 percent. 

As U.S. fuel quality specifications have become more stringent, some sources of imported 

product have chosen not to invest to comply. Gasoline volumes from Brazil, for example, have 

declined significantly in recent years, though this situation could reverse in the future. At the same

time, other sources of imported product that could meet U.S. specifications have shifted more 

products to the U.S. In total, there has been a net increase in gasoline imports. Western Europe is 

an area that has been able to supply a growing volume of high quality fuels, since the European

Union fuel specifications are similar to U.S. specifications, and since European demand for gasoline 

is declining, freeing up more volume for export. The U.S. now depends on fewer import suppliers, 

which may reduce flexibility to respond to unexpected changes in supply or demand. 

Multiple fuel types also can have an impact on how importers respond to changes in the market.

Importers must determine which fuel types are needed before they can begin assembling cargoes. 

Traders have adapted to these issues in various ways. Some are storing blending components that 

can be used to produce RBOB or conventional gasoline as needed, to be able to respond to market 

changes more quickly. While this can help traders meet specific fuel needs through more flexibly, it 

can require the use of more tanks for the different blending components than if storing simply 

RBOB and finished conventional gasoline, and total inventory volumes stored may be less. 

17 
CHAPTER SUMMARY 

In summary, since 2001, significant legislative, regulatory, and market changes have occurred 

that affect boutique fuel incentives and industry’s ability to handle these products. While some 

legislative and regulatory changes were specifically directed at boutique fuel issues, many affected

boutique fuel incentives indirectly. Furthermore, some of the changes that have occurred may

increase the incentive for states to use boutique fuels, while others may decrease the incentive.

Legislative and regulatory changes have also taken place that could have an effect on fuel supply and

emissions beyond state boutique fuels, such as the emergence of state renewable fuel requirements

and the beginning of the ULSD program. Meanwhile, the petroleum market has experienced

shrinking excess capacity in the areas of refining, distribution and storage, and diminished sources of 

product imports. At the same time, changing financial incentives are encouraging capacity 

expansion. Additional analysis is needed to assess these many different and competing impacts on

the fuels markets. 

18 
8 Report to the President – Boutique Fuels Task Force, June 2006, 

http://www.epa.gov/otaq/boutique/resources/bftf62306finalreport.pdf. 

IV. BOUTIQUE FUELS TASK FORCE REPORT (JUNE 2006) 

On April 25, 2006, President Bush directed the EPA Administrator to convene a Task Force of

States to review the variety of regulatory requirements related to fuels. The Task Force on Boutique 

Fuels (Task Force), which included states, EPA, DOE, and the United States Department of

Agriculture (USDA), concluded with EPA issuing its most recent report on June 23, 2006. 

The Task Force was charged with identifying opportunities to increase cooperation among the 

federal government and states on gasoline supply decisions and to reduce the number of boutique 

fuels. In addition, critical stakeholders, including those in the refining, marketing and fuel 

distribution sectors, were provided with an opportunity to present their views and opinions to the 

Task Force for evaluation and consideration. 

The Task Force was specifically charged with reviewing the current boutique fuels situation in

the U.S., any actions taken since EPA last investigated and reported on the boutique fuels situation, 

and the relevant provisions in EPAct. The process provided for stakeholder input prior to reporting 

on any options, recommendations or further informational needs necessary to effectively address the 

impact boutique fuels have on the U.S. fuels market. 

Boutique fuels, as defined in the Task Force report (as in the 2001 study) are: 

 Fuels that are a part of any clean fuel program designed and enforced under state 

authority to reduce motor vehicle emissions and improve air quality; and, 

 Approved by the EPA under the authority of Section 211 (c)(4)(c) of the CAAA of

1990; and, 

 Included in an EPA-approved SIP. 

The Task Force gathered relevant information related to boutique fuels from participants

and stakeholders. Based on the information collected from the participants and stakeholders, EPA

prepared a Report8

 to the President on potential actions and next steps to simplify the U.S. fuel 

system, increase fuel supply, improve fuel fungibility, and encourage cooperation among the states 

on fuel supply decisions. Specifically, the Report to the President noted the following conclusions

and recommendations: 

 The U.S. gasoline production and distribution system is able to provide adequate 

quantities of boutique fuels, as long as there are no disruptions in the supply chain.

If a disruption occurs (for example, due to a natural disaster), it becomes more 

difficult to move gasoline supplies around the country because of the limitations

19 
imposed by the boutique fuel requirements. EPA has used existing authorities to 

waive boutique fuel requirements temporarily during such times of supply disruption. 

 State boutique fuel programs have provided significant, cost-effective air quality 

improvements. Any actions to modify the slate of existing boutique fuels or limit a

state’s ability to adopt fuel specifications should be done in a manner that at least 

maintains the air quality benefits and avoids unnecessarily restricting state authority. 

 Any future analysis of potential changes to the number and types of fuels must 

utilize the most up-to-date data and analytical tools. In particular, the 2008 

EPA/DOE Fuel Harmonization Study should ensure that the impacts of fuel 

requirement modifications on air quality, vehicle components and performance, fuel 

fungibility, fuel supply and fuel cost, are appropriately addressed.

 As part of the analyses of future fuel options, careful consideration should be given 

to the possibility of new legislative authority that would allow for the adoption of 

regional clean fuel programs. Cleaner burning fuels used in geographic areas broader 

than states merit further study as an additional option for addressing fuel supply and 

fungibility concerns. 

 Renewable fuels are an important part of the Administration’s plan to reduce U.S. 

dependence on foreign oil. States are undertaking a number of actions to promote 

the use of such renewable fuels and the federal government is implementing 

programs, notably the Renewable Fuels Program established by EPAct, to do the 

same. Additional study is necessary to ensure these programs are working together 

and will not create undue adverse impacts on air quality, fuel fungibility, fuel supply 

and/or fuel cost. 

The Task Force Report is the first step of a comprehensive effort to reassess issues related to the 

nation’s fuel supply. It is a key part of the broader process in which EPA and DOE, in response to 

EPAct requirements, will be analyzing the affects of boutique fuels, in addition to other unique 

fuels, on the nation’s fuel system. 

The observations and recommendations resulting from the Task Force Report have provided 

useful input into developing the plan described in Section V of this report, regarding the future Fuel 

Harmonization Study. The report also serves as a foundation for developing this report. Additional 

stakeholder involvement, particularly from the states, on this plan will also be critical. In the course 

of the Fuel Harmonization Study, EPA and DOE will continue to actively engage and seek input 

from interested state participants from the Task Force as well as other interested stakeholders. 

20 
V. WORK PLANNED FOR EPACT SECTION 1509 STUDY 

REQUIREMENTS OF THE ACT 

In addition to the Boutique Fuels study required under section 1541 of EPAct, section 1509 of 

EPAct further requires EPA and DOE to submit a joint report to Congress on the results of a Fuel 

System Requirements Harmonization Study by June 1, 2008. When completed, the Fuel

Harmonization report may contain recommendations for legislative and administrative actions that

reflect the following principles: improve air quality, reduce fuel costs to consumers and producers, 

and increase fuel supply liquidity. The recommendations shall take into account the need to provide 

advance notice of required modifications to refinery and fuel distribution systems in order to ensure 

an adequate supply of motor vehicle fuel in all states. In developing the report, EPA and DOE shall 

consult with the Governors of the States, automobile manufacturers, state and local air pollution

control regulators, public health experts, motor vehicle fuel producers and distributors, and the 

public. 

The Fuel Harmonization Study is required to cover standards relating to RFG, volatility 

(measured in RVP), oxygenated fuel, diesel fuel, and any other requirements that vary from state to 

state, region to region, or locality to locality. The study must assess the effect the variety of these 

fuel standards have on the following: 

 Supply, quality, and price of motor vehicle fuels available to the consumer; 

 Achievement of national, regional, and local air quality standards and goals and

related environmental and public health protection standards and goals (including 

the protection of children, pregnant women, minority or low-income communities, 

and other sensitive populations); 

 Domestic refiners, the fuel distribution system; and industry investment in new 

capacity; 

 Emissions from vehicles, refiners, and fuel handling facilities; 

 The feasibility of developing national or regional motor vehicle fuel slates for the 48 

contiguous states that, while protecting and improving air quality at the national,

regional, and local levels, could enhance flexibility in the fuel distribution 

infrastructure and improve fuel fungibility; reduce price volatility and costs to

consumers and producers; provide increased liquidity to the gasoline market; and 

enhance fuel quality, consistency, and supply; 

 The feasibility of providing incentives, and the need for the development of national

standards necessary, to promote cleaner burning motor vehicle fuel; and 

21 
 The extent to which improvements in air quality and any increases or decreases in

the price of motor fuel can be projected to result from the following programs, rules, 

and requirements: 

o EPA’s Tier 2/Gasoline Sulfur requirements for conventional 

gasoline and vehicle emission systems, 

o EPA’s on-road and off-road diesel rules, 

o The RFG program, 

o The renewable fuels program established under section 1501 of 

EPAct, 

o State programs regarding gasoline volatility, and 

o Any other requirements imposed by the federal government, states

or localities affecting the composition of motor fuel. 

OVERVIEW OF PLANNED APPROACH TO THE 1509 STUDY 

The Fuel Harmonization Study is much broader in scope than the 1541 study, including 

analysis of more distinct fuel programs and requirements. It also requires a comprehensive 

evaluation of fuel supply, cost, and emission impacts associated with these distinct fuel programs 

and, in particular, how these impacts might change under possible legislative or administrative 

changes. 

Figure 4 illustrates the conceptual analytical approach, which will be used for the Fuel 

Harmonization Study and some of the key interrelationships in the fuel system. As illustrated, 

two major areas for analysis are interrelated: (1) Emissions and Air Quality and (2) Supply and

Price. Potential scenarios to be evaluated generally would be directed towards affecting either 

fuel characteristics or supply, with accompanying impacts on both emissions and price. For 

example, a scenario could be evaluated that requires a single very clean fuel, which might have 

the largest improvement on air quality and the lowest price volatility, but might have the highest 

increase in costs for the consumer. Scenarios will be developed to explore the implications of a 

range of potential options and other factors. However, as Figure 5 (Emissions and Air Quality 

Analysis) and Figure 6 (Supply and Price Analysis) begin to illustrate, these scenarios are 

complex. 

22 
Emission/Air Quality Analysis Supply/Price Anal Price Analysis

Vehicle & Engine

Emission Factors

Fuel Types/Volumes

Supply/Price 

Vehicle & Engine Analysis

Emission Factors

Fuel Types/Volumes

Supply/Price 

Vehicle & Engine Analysis

Emission Factors

Fuel Types/Volumes

Supply/Price 

Analysis

Scenario Definitions

Fuel Characteristics Supply

Impacts on: 

Emissions

Air Quality

Health/Welfare

Impact on Price: 

Level & Volatility

Figure 4. Conceptual Analytical Approach to the Fuel Harmonization Study 

Fuel Characteristics

Figure 5. Conceptual Analytical Approach to the Emissions and Air Quality Analysis 

Scenario Definitions

Fuel Characteristics

Scenario Definitions

Supply

Impacts on: 

Emissions

Air Quality

Health/Welfare

Impact on Price: 

Level & Volatility

Fuel Characteristics Supply

Impacts on: 

Emissions

Air Quality

Health/Welfare

Impact on Price: 

Level & Volatility

Fuel Specifications

Number of Fuel Types

Size & Location of

Geographic Fuel Islands

State Initiatives

Impacts on: 

Emissions 

Air Quality

Health/Welfare

Fuel Characteristics

Fuel Specifications

Number of Fuel Types

Size & Location of

Geographic Fuel Islands

State Initiatives

Impacts on: 

Emissions 

Air Quality

Health/Welfare

Fuel Characteristics

Fuel Specifications

Number of Fuel Types

Size & Location of

Geographic Fuel Islands

State Initiatives

Impacts on: 

Emissions 

Air Quality

Health/Welfare

23 
Refinery capacity/production cost

Distribution capacity/cost

Import availability

Refining/distribution constraints 

Reliability: (Number of supply sources,

distance of islands from supply)

Refinery capacity/production cost

Distribution capacity/cost

Import availability

Refining/distribution constraints 

Reliability: (Number of supply sources,

distance of islands from supply)

Refinery capacity/production cost

Distribution capacity/cost

Import availability

Refining/distribution constraints 

Reliability: (Number of supply sources,

distance of islands from supply)

Figure 5, while still a simplified diagram, expands further the Emissions and Air Quality 

Impacts Analysis, which will estimate the air quality impacts and the impacts on health and 

welfare. Some of the information generated for each individual scenario analysis will also be 

needed as an input for the Supply and Price Analysis. As described in more detail below, in 

order to generate the emission outcomes, significant testing and analysis must be done to 

develop the relevant vehicle and engine emission information. Work must also be done to 

develop various fuel types and volume for future situations in enough detail to capture the 

potential fuel specifications and geographic use of those fuels. The Emissions and Air Quality 

work will also require estimates regarding what will occur in the area of state fuel initiatives, 

whether they are boutique driven, renewable or other. 

Supply

Impact on Price:

Level & Volatility

Fuel specifications

Number of fuel types

Size & location of 

geographic islands

Other factors such as

demand, crude price, 

State initiatives.

Figure 6. Conceptual Analytical Approach to the Supply/Price Analysis 

Figure 6 expands the Supply and Price Analysis in a similar fashion, illustrating the input 

information required in order to ultimately evaluate the supply and price implications. The 

focus of this area (in red) is to generate refinery and distribution capacity and cost impacts for 

various scenarios, and determine the corresponding changes in factors that would ultimately

impact availability or reliability of supply. The diagram shows that, dependent upon the scenario 

being analyzed, state initiatives may be an input into the analysis along with other supply 

assumptions such as demand growth, and crude and product prices. It also shows the 

information needed for and generated from the Emission and Air Quality Analysis supporting

the Supply and Price Analysis. 

The number of scenarios to be analyzed for the Fuel Harmonization Study must be limited

due to the complexity of the analysis. EPA and DOE will attempt to identify the most 

Supply

Impact on Price:

Level & Volatility

Fuel specifications

Number of fuel types

Size & location of 

geographic islands

Other factors such as

demand, crude price, 

State initiatives.

Supply

Impact on Price:

Level & Volatility

Fuel specifications

Number of fuel types

Size & location of 

geographic islands

Other factors such as

demand, crude price, 

State initiatives.

24 
important variables for consideration, and structure a set of scenarios to capture a range of 

policy options and potential impacts in order to provide meaningful policy recommendations. 

Before performing these analyses, we must better understand the current situation, which 

will require significant work to collect and update data in a number of areas, such as vehicle and 

engine emissions and performance data. We also will need to evaluate past market behavior as

fuel types increased, such as in the area of supply distribution, in order to help understand

potential future market responses. 

In overview, to analyze how policy options may affect air quality and consumer prices, the 

Fuel Harmonization Study will explore: 

• Changes in the nature, size, number, and location of distinct fuel-type areas

• The potential changes to refining and distribution system capacity resulting from such

modifications to the fuel system 

• The potential local and nationwide impacts on the costs of producing and distributing fuel 

resulting from such modifications to the fuel system 

• The impact such fuel system modifications may have on the reliability of production and

distribution capability during times of disruption 

• The local and nationwide impacts on emissions and air quality resulting from such

modifications to the fuel system 

• The sensitivity of these impacts to various critical assumptions, including future expansion 

of the fuel production and distribution infrastructure, changes in future fuel demand, and

changes in future crude oil costs. 

• The tradeoffs among the impacts for different scenarios 

The subsections that follow describe in detail those things that EPA and DOE believe are the 

most important to analyze as part of the Fuel Harmonization Study. They also describe the nature 

of the data and information that will need to be collected in order to carry out these analyses. 

EMISSIONS AND AIR QUALITY ANALYSIS

To ultimately assess the air quality and associated fuel supply and price impacts of future 

strategies, new vehicle and engine emission factors that represent the current fleet must first be 

established. Today’s vehicle fleet is much different from the fleet used to establish current estimated

relationships between fuel specifications/properties and emissions. 

Following the 1990 CAAA, fuel effects were well characterized for passenger vehicles utilizing 

model year 1990 technology. Under Section 211(k) of the CAAA, RFG was required to result in 

reduced emissions relative to emissions from baseline or representative model year 1990 vehicles. In 

support of the RFG rulemaking, EPA developed the “Complex Model” to predict emissions based 

25 
on fuel properties (such as sulfur, benzene, aromatics, olefins and RVP) that are readily measurable

and technologically feasible to control. The data gathering effort necessary to develop this model

was enormous, involving both the auto and oil industries and costing approximately $35 million.

Since the development of the Complex Model, with the exception of studies on the effects of 

gasoline and diesel fuel sulfur (in which EPA, DOE, and industry collectively spent roughly $10 

million), only very limited data collection or analysis efforts have been undertaken to examine the 

effects of fuel properties on vehicle emissions. 

Looking back to the 1990 model year, vehicle technology has changed dramatically. Auto and

engine manufacturers have used a combination of higher catalyst precious metal loading, improved 

catalyst durability, close-coupled catalysts for faster catalyst light off, and electronic controls to

greatly improve air-to-fuel ratio control (for achieving hydrocarbon (HC), CO, and oxides of 

Nitrogen (NOx) exhaust emission reductions). Evaporative emissions have also been reduced since 

1990 by the use of electronic controls versus earlier vacuum-controlled designs. Additionally,

evaporative emissions have been reduced by better canister designs, the use of less permeable 

materials in vapor control lines, and the addition of a system to collect refueling emissions. Another 

significant change between 1990 and today’s vehicles has been the implementation of an electronic 

onboard diagnostic control system to monitor the performance of critical emission control 

components. This system detects failures in individual components and, above prescribed

thresholds, indicates an increase in emissions and the need for service to repair components. 

As the Complex Model only covered light-duty gasoline, Tier 0 (model year 1990 technology) 

vehicles under summertime conditions, a significant amount of additional data will be needed on 

light-duty as well as heavy-duty vehicles and nonroad applications for current engine technology 

(both gasoline and diesel). Furthermore, a significant amount of data will be needed under summer

and winter conditions to form a sound data foundation on which analysis can be performed and 

conclusions drawn. A comprehensive test program, likely of similar magnitude to that which went

into developing the Complex Model (e.g., $35 million), is necessary to fill these data gaps. Such a 

comprehensive test program will require substantial resources as requested in the President’s 2007 

Budget. The test program must assess the impacts of fuel parameters directly affected by the 

current distinct fuel types (e.g., RVP, sulfur, ethanol content, and biodiesel content), as well as fuel 

parameters which are impacted indirectly (e.g., benzene, aromatics, olefins, and distillation) in order 

to allow for an assessment of the cause and effect relationships on emissions. 

Once these cause and effect relationships are established, then models can be developed to allow 

assessments to be performed of a range of possible changes to the current slate of distinct fuel types 

across the country. Using these emission impacts, air quality modeling can then be performed to

evaluate their impact on future ozone and PM (particulate matter) air quality. Outputs from air 

quality models can also be used to consider the impact of various fuel scenarios on human health 

and welfare. 

FUELS SUPPLY AND PRICE ANALYSIS 

The fuel Supply and Price Analysis requires work in several areas: refining, distribution, and 

import supply. As shown in Figure 6 in red, for each scenario, the work will be focused on 

projecting distribution system and refinery costs and capacity impacts, import supply availability and

basic changes to supply reliability, which will be the basis for estimating price and price volatility 

26 
impacts. Basic scenario inputs for this part of the analysis will include information from the 

Emission and Air Quality Analysis, such as the fuel specifications, number of fuel types, and the 

location and size of various fuel type geographic areas. The underlying petroleum market conditions

such as demand and crude price will also be needed. It will be critical to separate the external 

market factor impacts on cost, reliability, and price from the impacts of the distinct fuel types being 

evaluated. For example, product prices are a function of a number of factors, including worldwide 

supply and demand for crude oil and the local, national, and even worldwide supply and demand

balance for refined products. 

Cost, Capacity and Import Availability 

Similar to the Emission and Air Quality Analysis, the first step in the Supply/Price Analysis will 

be to analyze current conditions and the relationships among the various elements of the petroleum

supply system as they relates to boutique and other distinct fuels. 

The impacts of multiple fuel types on transportation, distribution, and storage must be studied 

thoroughly. This is true not only in the case of individual distinct fuel specifications, but also in the 

case of how a unique fuel specification might affect the distribution of other products. Before any 

recommendations can be made on changes to the slate of fuels, a much better understanding is

required of how changes in the number of fuels and in the number and size of fuel-type geographic 

regions may affect the cost and ability to move and store product, and thus affect overall

distribution costs and capacity. 

Quantifying delivery and storage system issues will require working with pipeline and terminal 

operators and marketers on a local and regional basis to assess their experience with how a changing 

slate of fuels has historically and in the future would likely affect their capacity, flexibility, and costs. 

As changes to their marketing agreements and practices are also a viable response to a change in fuel 

slates, it will be important to review past industry responses as a means of projecting into the future. 

For example, the response of the distribution system may result in “over-compliance” on the part of 

the fuel producers. Over-compliance can occur when distribution and storage infrastructure do not 

accommodate a full fuel spectrum. In such a case, suppliers may provide all customers with the 

cleanest fuel required because of the lack of storage space for multiple fuels. 

To assess refinery production cost impacts, refining models and cost databases will be updated 

to include the current number, type, and volume of motor vehicle fuels produced, the current and 

planned production capacity and other assumptions concerning feedstocks supply. This will require

incorporation of cost information associated with the newest technologies and equipment changes

to meet the latest processing requirements, as well as updated information on refinery operational 

changes, such as changes in purchasing materials from outside of the refinery to meet product 

specifications, including renewable fuel components. Unlike many historical refinery production 

analyses, the Fuel Harmonization study will require looking at impacts on different types of 

refineries rather than an aggregate production analysis, in order to consider both the policy 

implications and marginal cost changes that affect price. Again, data and models will need to be 

adjusted to deal with different refinery types. 

An increasingly important factor in assessing impacts on fuel supply in the U.S. is having a 

proper understanding of the import and export market. As U.S. demand has continued to grow 

27 
beyond domestic refining capacity, the ability of imports of finished gasoline and diesel fuel to

supply the U.S. market has become more critical. The result is that changes in gasoline and diesel 

fuel demand around the world have a much more direct impact on overall U.S. supply. A

consequence is that changes in fuel specifications in the U.S. and abroad can cause significant 

changes in the import and export market; creating new markets for some and closing down markets

for others. Incorporating these changes into our analysis will allow a better understanding of what 

might happen to import availability in the future under different fuel scenarios and whether further 

legislative changes would affect our sources of supply. 

Reliability of Supply 

Reliability of the U.S. supply system can be evaluated with probabilistic techniques which can 

incorporate variables associated with events or changes at the refinery, in the distribution system,

and even from the availability of imports. 

At the refinery, a better understanding is required of how producing one high quality fuel versus 

an array of gasoline types affects production reliability. For example, if one refinery process unit 

goes down, what is the projected impact on production. 

Reliability of the distribution system involves a variety of dimensions that must be explored to

assess how reliability changes among different fuel scenarios. For example, pipelines move product 

in batches. The evolution of increasing the number of distinct fuels serving smaller demand areas

means many pipelines now carry more products. Smaller volumes of each product are potentially

stored in the different demand regions. Under these conditions, to maintain reasonable inventory 

levels and prevent inventory outages, tank turnovers may occur more often, which means the time

intervals between product shipment arrivals may be smaller. Scheduling becomes more complex, 

and even without major disruptions, there is the potential for increasing probability of outages. In 

the past, this may not have reached critical constraints. In some cases, suppliers working with 

pipelines and terminal operators found various means to solve critical pinch points in the system

with operating changes such as using product exchanges to allow one terminal to carry one product, 

while another terminal carries the second product. In-line blending was added to allow terminals to

drop mid-grade gasoline and blend it as needed from conventional and premium gasoline at the 

retail pump. As we look ahead, understanding the distribution capacity, efficiency, constraints, and 

ultimately probability of outage will help us determine how fuel harmonization issues may affect 

distribution system reliability. 

28 
LIST OF ACRONYMS 

bpd barrels per day 

CAA Clean Air Act 

CAAA Clean Air Act Amendments 

CBOB conventional blendstocks for oxygenate blending 

CO carbon monoxide 

DOE Department of Energy 

EPA Environmental Protection Agency 

EPAct Energy Policy Act of 2005 

HC hydrocarbons 

MSAT mobile source air toxics 

MTBE methyl tertiary-butyl ether 

NAAQS National Ambient Air Quality Standards 

NOx oxides of nitrogen 

PADD Petroleum Administration for Defense District 

PM particulate matter 

ppm parts per million 

RBOB reformulated blendstocks for oxygenate blending 

RFG reformulated gasoline 

RFS renewable fuels standard 

RVP Reid Vapor Pressure 

SIP State Implementation Plan 

ULSD ultra-low sulfur diesel 

USDA U.S. Department of Agriculture 

VOC volatile organic compounds 

29 
APPENDIX A 

Table 1. State Biofuel Standards Enacted 

State Legislation Status Enabling Statute(s) Biofuels Included Content Requirement & 

Hawaii Legislation Enacted mid1990s; Administrative

Rule Signed 9/14/04 

Title 15, Chapter 35, Para. 15.35.3

Ethanol 85% of all gasoline must co

10Vol% ethanol by 4/2/06(a) competitively-price ethaavailable or (b) undue hards

Governor's Press Release

Iowa Enacted 5/31/06 HF2754 Ethanol; 

Biodiesel 

All motor fuel (gasoline + d10Vol% biofuel (ethanol + 1/1/09, increasing acording schedule to 25Vol% by 1/1

Louisiana Enacted 6/13/06 HB685 Ethanol; 

Biodiesel;Alternative Renewable Fuel 

2Vol% total gasoline contairate of 50 MMGY ethanol pstate; 2Vol% total diesel conafter rate of 10 MMGY bioproduction in state; 2Vol% to be alternate renewable afMMGY production in stateeffect 6 months after produreached. 

Minnesota Enacted in 1997; 

revision 5/12/05 

SF4 Ethanol; 

Biodiesel 

All gasoline contain ethanol 9.2Vol% and not more than gasoline by 12/31/10 is less subject to Federal approval gasoline must contain ethan18.4Vol% and 20Vol% by 8

30 
State Legislation Status Enabling Statute(s) Biofuels Included Content Requirement & 

Missouri Enacted 7/10/06 HB1270 Ethanol All gasoline contain 10Vol% 

1/1/08. Exemption (a) for gasoline and (b) if ethanol mthan oil-based gasoline. 

Governor's Press Release

Montana Enacted SB293 Ethanol All gasoline contain ethanol 

after state’s ethanol productrate of 40 MMGY level. (Summary only) 

Washington Enacted 3/30/06 SB6508 Ethanol; 

Biodiesel 

All gasoline contain 2Vol% 12/1/08 ramping up to 10VAll diesel contain 2Vol% by ramping up to 5Vol% by 20

Table 2. Standards Pending Final Approval 

State Legislation Status Enabling Statute(s) Biofuels Included Content Requirement & 

California Executive Order 

(Target vs. Standard) 

Ethanol; Biodiesel 

Targets to produce and all gbiofuels at minimum of 20V40Vol% by 2020, and 75Vo

Colorado Passed Legislature; 

vetoed by Governor 

Ethanol 75Vol% of all gasoline cont

10Vol% by 1/1/07. 

Idaho Passed by Senate; 

pending in House 

Ethanol All gasoline contain ethanol 

60 days after state ethanol preaches rate of 30 MMGY. 

Illinois Passed by Senate; 

pending in House 

Ethanol; Biodiesel 

All gasoline contain 10% etvolume by 1/1/08 increasin1/1/12 

31 
State Legislation Status Enabling Statute(s) Biofuels Included Content Requirement & 

Indiana Enacted (Study 

vs Standard) 

Renewable Fuels 

Study committee created to effective way to implement EPACT 2005 

Kansas Not passed Ethanol; 

Biodiesel 

All gasoline contain 10Vol% all diesel fuel contain 2Vol% 1/1/10. 

New Mexico Not passed Ethanol; 

Biodiesel 

All gasoline contain 10Vol% all diesel fuel contain 2Vol% 1/1/09. 

Pennsylvania Proposed by Governor; 

to be taken up by Legislature 

Ethanol; Biodiesel 

All gasoline contains ethanopercentage’ and all diesel coat a ‘certain percentage’ by utarget date. 

Virginia Proposed by Governor; 

rejected by Legislature 

Ethanol All gasoline contain ethanol 

months after state’s ethanol reaches rate of 300 MMGY least 3 months. 

Wisconsin Passed by House; 

amendment pending inSenate 

AB15 Ethanol All gasoline contain ethanol 

10/1/07. Standard would bE10 mandate "contributes tcontribute to a violation of air quality or visibility stand

Last update: 7/13/06. Source: Special Report: United States – State Renewable Content Standards, International FuelQuality Center, Hart, June 6, 2006; STATUS: 2006, State by State Ethanol HandbookAmerican Coalition for Ethanol, 1/06; Renewable Fuel News and World Refining & News Today, Hart. 

32