Actually it was Gray Davis the disgraced ex-governor of CA who got the ball rolling first.

He took the money from the cornfield lobbyists back to CA to study contaimination of the water supply by MTBE from leaking underground gasoline storage tanks.

MTBE is not nearly as toxic as gasoline hydrocarbons, which naturally include hydrocarbons like benzene which is a significant part of crude oil to begin with. Pure MTBE has undergone therapeutic studies also in gram amounts to no ill effect, but it does have a characteristic sweet sharp ether odor which is so much easier to smell in faint amounts than the hydrocarbons.

As such MTBE had actually been detected by residents in some CA water wells where gasoline had possibly been leaking for years and nobody knew until after the Clean Air Act of 1990 required oxygenated gasoline, after which MTBE became the oil companies' choice.

MTBE had been established as an octane booster in the early 1980's but not many oil companies had a chemical unit to make it. They consumed all they made, usually in their premium gasoline. It really did bring back a certain driving pleasure that you only get as your octane approaches 100. Being an oxygenate though you did get fewer miles-per-gallon but not nearly as bad as ethanol. Either way these were cleaner-burning additives to conventional gasoline.

Anyway in 1987 CA company Atlantic Richfield (now part of BP) went commercial with their advanced engineering process, built a big unit and started making more MTBE than they needed themselves. Others followed suit, some startups. Lots of MTBE was made from refinery gases like butylene, combined with purchased methanol and there were constant shipments of MTBE as a commodity of its own. The methanol was made from natural gas as raw material so ultimately the source of all gasoline was still oil & gas wells.

Ethanol didn't have much of a seat at the table, or shall we say a position at the feeding trough. Ethanol was always an alternative EPA oxygenate when the 1990 regulations started requiring oxygenates, however it was not as cost-effective, often requiring subsidies but their lobbyists were fierce out of necessity.

API could be considered asleep at the wheel by comparison, they've always been raking in the bucks, well they have subsidies they don't even need so there is that.

MTBE plants just cranked it up for the occasion.

Eventually gasoline leaking into an aquifer becomes easier to detect than ever.

A comprehensive examination was made of the CA water supply by leading experts and MTBE was found in a number of water wells, but amounting to only a very small fraction of a percent of the water supply and then only an extreme trace amount. The final verdict from the experts was that there really was no significant threat to health from the MTBE overall in California water. This is more of an anti-pollution government than you usually see, and they really tried to find something much more damning but that was it.

Davis mandated Ethanol anyway and banned MTBE in the process. A couple other states ended up following suit, and then the whole US with the nationwide RFS. Ag lobby is like no other.

Davis was recalled for other reasons but that made the way for Schwarzenegger.

Ethanol "helpfully" makes it so people are far less likely to complain about any gasoline leaking into their local water, so less action needs to be taken there, and it supports the corn industry which was Davis' main objective anyway. Smoke & mirrors are well-practiced government tools for obscuring financial shenanigans in plain sight, the same approach can be applied to environmental discrepancy.