The 1990 amendments to the Clean Air Act require the use of reformulated gasoline (RFG) in nine areas of the United States with severe ozone pollution. The act set up a two-phase program. Under phase I, beginning in January 1, 1995, volatile organic emissions and toxic air pollutants are to be reduced by 15 percent. During phase II of the RFG program, to start in the year 2000, EPA’s rules require reductions of 5.5 percent of nitrogen oxides along with further reductions in volatile organic and toxic emissions. As an emission control measure, areas that have less severe ozone problems but that still exceed the standards may also use RFG to reduce pollution problems. Oxygenates are compounds that deliver oxygen to gasoline in various concentrations. As part of the required reformulation process, oxygenates must be added to gasoline to make up 2 percent of the finished product’s weight. A minimum of 2.7 percent oxygen is also required to be added to gasoline sold in 39 areas of the country to reduce carbon monoxide levels during the winter. In the form of ethanol, oxygenate is also blended with conventional gasoline to make gasohol—a gasoline extender and an octane enhancer. Biofuels are alcohols, such as ethanol or other chemicals, derived from biomass or living matter. Current research is focused on developing biofuels from the starch in corn kernels or from the fibrous cellulosic materials in the rest of the corn plant; it also focuses on cellulosic plants, such as fast-growing trees or grasses, and waste products, such as agricultural and forestry residues and municipal and industrial wastes. A glossary of terms appears at the end of this report. The following sections summarize the results of studies on the cost-effectiveness of RFG compared to other control options and the estimates for the price of RFG used in the various studies that we reviewed compared with the actual prices experienced. Studies done by EPA, the American Petroleum Institute, Radian Corporation, and Sierra Research, Inc., in conjunction with Charles River Associates, suggest that RFG may be cost-effective when compared with some pollution control measures but less cost-effective than other measures. However, significant differences in the studies’ objectives, methodologies, time frames covered, costs considered, types and extent of pollutants considered, and other factors produced widely varying estimates of costs per ton of pollutant removed, a common cost-effectiveness measure. Also, each of the studies evaluated somewhat different control measures and made different assumptions about the extent of the pollution and control measures already in use. These differences make comparisons of results between the studies very difficult. (App. II identifies the four studies that we reviewed and contains tables showing the cost-effectiveness estimates that were made by the various organizations.) For example, EPA estimates that removing volatile organic compounds using available control measures would cost from about $600 to $6,000 per ton of compounds removed. Specifically, EPA estimates that it would cost about $600 per ton for phase II of the RFG program; $1,300 per ton for enhanced automobile inspection and maintenance programs; $2,000 per ton for on-board diagnostic requirements for automobiles; $5,400 per ton for the basic automobile emission inspection and maintenance program; $5,550 per ton for phase I of the RFG program; and $6,000 per ton for Tier I requirements, which is an EPA emission standard for light-duty vehicles. Officials in EPA’s Office of Mobile Sources consider these cost-effectiveness estimates to be inexact, but they consider the estimates to be the best figures that they could develop with the data available to them at that time. Some regions of the country that are not required to use RFG, but which still need to lower ozone levels, are considering whether to require RFG or gasoline with low vapor pressure. Generally, in the studies that we reviewed, low vapor pressure gasoline was not included as an alternative control measure, but according to refining industry officials, it has the potential to reduce volatile organic compounds (VOC) at a lower cost than RFG. In a February 17, 1994, memorandum to an official in one area considering this option, EPA stated that RFG offers a number of benefits, besides VOC reductions that are due in part to the low vapor pressure of RFG, that low vapor pressure gasoline does not, including the reduction of air toxics and nitrogen oxides (when RFG phase II becomes effective) as well as federal enforcement of the RFG program. EPA also stated that the lower cost of reduced volatility gasoline may be offset in whole or in part by lower competition in the reduced volatility gasoline market. We obtained the estimates used for the price of RFG from the four cost-effectiveness studies that we reviewed along with other organizations’ price estimates. The estimates varied but were all close to the range of the actual prices experienced during the first 14 months of the RFG program, which began in January 1995. The estimates varied from a low of 3.3 cents to 4.0 cents per gallon more for phase I RFG than the price of conventional gasoline (cited by DOE’s Office of Energy Efficiency and Alternative Fuels Policy) to a high of 8.1 cents to 13.7 cents more per gallon (cited by the American Petroleum Institute). EPA estimated that the price of RFG would be from 3.0 cents to 4.9 cents per gallon more than the price of conventional gasoline for phase I of the program. DOE’s Energy Information Administration (EIA) has monitored prices for both conventional gasoline and RFG since the program began in January 1995. In the early weeks of the program, retail prices for RFG were as much as 12 cents a gallon more than those for conventional gasoline. However, March 1996 data indicate that the average gap between RFG and conventional prices had narrowed to about 5 cents per gallon. Furthermore, according to EIA, the price difference may now be closer to 3 cents. (See app. III for additional information on the estimated RFG prices compared with the actual prices experienced.) EIA’s Annual Energy Outlook for 1996 and supporting documents contain the most current and comprehensive estimate we could find of the potential for using oxygenates to displace the petroleum used to produce gasoline. EIA data indicate that for all uses of oxygenates in gasoline, including the RFG program, about 384,000 barrels per day of oxygenates will be blended with gasoline in the year 2000 and about 394,000 barrels per day in 2010. These projections compare with about 309,000 barrels per day of oxygenates that EIA reports were used in 1995. Adjusting for the lower energy density of oxygenates, the projected level of oxygenate use will potentially displace about 305,000 barrels per day of petroleum used to produce gasoline in 2000 and about 311,000 barrels per day in 2010. (See app. IV for additional information on EIA’s projections, along with the energy densities and volume blending ratios of the various oxygenates.) It is important to note that the above petroleum displacement estimates do not account for differing amounts of petroleum that may be used in the production process for ethanol and the other types of oxygenates. The extent to which petroleum will be used to produce oxygenates depends on several variables and, therefore, is difficult to predict. The greater the amount of petroleum that is used to produce oxygenates, the less petroleum will be displaced. As such, our estimates are likely to be somewhat higher than the displacement that will be actually experienced. Furthermore, the displacement estimates do not include any possible increases or decreases in refinery outputs made possible by using oxygenates in the refining process. The use of oxygenates could allow some refineries to operate their reformers at lower temperatures, thus increasing the amount of gasoline produced. Doing so, however, may result in reductions in the other petroleum-based products produced, making the total petroleum displacement potential difficult to assess. According to DOE, EIA, and petroleum industry officials, any increase in the finished products related to lower reformer operating temperatures would vary on the basis of the different refinery configurations but, in total, would likely be relatively small. One EIA analysis concludes that, not counting the volume displacement discussed above, the amount of petroleum used in the refining process may actually increase when using oxygenates, but that the increase is not statistically significant. The 1992 Energy Policy Act requires the Secretary of Energy to determine the technical and economic feasibility of replacing 10 percent of projected motor fuel consumption with nonpetroleum alternative fuels by the year 2000 and 30 percent by 2010. Using the EIA’s projected oxygenate use discussed earlier and adjusting for energy density differences, oxygenates would displace about 3.7 percent of the 8.21 million barrels per day of the projected gasoline consumption in 2000 and about 3.6 percent of the 8.64 million barrels per day by 2010. In terms of meeting the act’s 10- percent and 30-percent petroleum replacement goals, this amount of displacement will account for about 37 percent of the motor fuel replacement goal for the year 2000 and about 12 percent of the 2010 goal. Your office also asked us to estimate the level of petroleum displacement if all gasoline sold was reformulated. EIA’s projections assume that about 35 percent of all gasoline will be reformulated and another 5 percent will contain some level of oxygenates for other purposes. Assuming the same percentage share for the different types of oxygenates, and other assumptions that EIA used in projecting future oxygenate consumption, we estimate that about 762,000 barrels per day of petroleum would be displaced in the year 2000 and 777,000 barrels per day in 2010, if all gasoline were reformulated. This would amount to about 9.3 percent of projected gasoline consumption in the year 2000 and about 9 percent in 2010. We did not assess the added costs or other implications of reformulating all gasoline. The transportation sector is currently about 97 percent dependent on petroleum-based fuels such as gasoline.