Federal lawmakers have challenged the Environmental Protection Agency's proposed rule requiring that 30% of the oxygen content of U.S. reformulated gasoline (RFG) come from ethanol.
More than 100 representatives and 51 senators, a majority, have gone on record against EPA's proposal (OGJ, Mar. 14, p. 36). Only corn belt senators defended the plan during a Senate energy committee hearing.
Mary Nichols, assistant EPA administrator for air and radiation, said the agency has received more than 12,000 comments on the proposed rule. When EPA announces its decision next month, it may consider postponing a planned Jan. 1, 1995, effective date for the rule or phasing it in.
Under questioning, Nichols admitted EPA believes air quality benefits are "exactly the same" for ethyl tertiary butyl ether (ETBE) from ethanol and methyl tertiary butyl ether (MTBE) from methanol.
John Riggs, a Department of Energy assistant secretary for policy, said DOE has not analyzed how the mandate would affect gasoline costs, supplies, distribution, or marketing. DOE released an Argonne National Laboratory study that showed the ethanol mandate would cost more money, result in 0.9 3.3% more crude oil use, and yield slightly more carbon dioxide emissions than additives based on methanol.
The National Petroleum Refiners Association complained the mandate violates the negotiated rulemaking process that led to the RFG rules.
"EPA is sending a strong signal that it does not respect the negotiated rulemaking process and prefers the old method of administrative rulemaking followed by litigation," NPRA said.
"NPRA believes this action will not go unchallenged, further adding to uncertainty and confusion of this landmark program. Otherwise, a precedent will have been established to write rules to further unrelated political initiatives in the name of clean air and to regulate activities never intended by Congress."
SENATORS CRITICAL
Sen. Bennett Johnston (D La.), committee chairman, agreed the mandate violates the fuel neutral RFG program that Congress dictated in the 1990 Clean Air Act (CAA) amendments.
He said ethanol already has a 54cts/gal federal tax subsidy, as well as state subsidies, and should not also be given a mandatory market share.
Sen. Malcom Wallop (R Wyo.) said, "EPA does not have statutory authority under the Clean Air Act to mandate the use of specific oxygenates, such as renewable oxygenates. Attempts to authorize an ethanol mandate were soundly rejected during congressional debate on the CAA amendments, and fuel neutrality was a condition imposed on the regulatory negotiations that followed."
He reckons the ethanol subsidy is costing taxpayers $550 million/year, and the mandate would cost the Highway Trust Fund $340465 million/year in foregone taxes.
"The beneficiaries are not American farmers who produce the corn that will be used to produce ethanol," Wallop said.
"The beneficiary will be industrial interests that process corn into ethanol and oxygenates. Producers of ethanol from corn, principally Archer Daniel Midland Co., want not only guaranteed access to the oxygenate market but also to use an additional $340 million in further tax subsidies to achieve their ends."
Sen. Bill Bradley (D N.J.) noted that no significant national environmental organization supports EPA's findings of environmental benefits.
He added, "Anytime you use a product that costs $1.10/gal to replace something available for less than half the price, you're making a bad business decision."
Sen. Ben Nighthorse Campbell (D-Colo.) asked, "If EPA can mandate market share, why can't any other agency in the federal government mandate market share for any other product?"
Sen. Pete Domenici (R N.M.) asked Nichols, "Did somebody at the White House direct EPA to proceed with this subsidy? It sounds very much like a political decision."
Sen. David Durenberger (R Minn.) defended the proposed rule.
"Because MTBE is the oil company favorite and it is sold through an infrastructure owned by that industry, ethanol and other renewable fuels would not stand a chance," he said.
Durenberger added methanol likely would fill the remaining 70% of the RFG market, "hardly making MTBE a loser."
INDUSTRY SEES PROBLEMS
Although Nichols insisted the proposed rule would not mean "any substantial, additional cost to refiners," they disagreed.
Steve Berlin, a Citgo Petroleum Corp. vice president, urged EPA to delay the ethanol mandate until the refining industry is required to produce "complex model" RFG in 1998.
He said, "What we have here is a crisis implementation by EPA when no crisis exists."
Berlin said the proposed Jan. 1 deadline has the potential for severe supply and price repercussions in the marketplace. Ethanol blended gasolines can't be shipped by pipeline, requiring separate transportation and local blending.
Many of the market areas in which ethanol will have to be blended are not presently equipped to conduct ethanol blending," Berlin said. "Terminals lack segregated storage needed to accommodate large quantities of ethanol."
Berlin said storage problems could be critical during the changeover between RFG blends in the summer and winter because separate tanks would be required.
Robert McCool, Mobil Oil Corp. refining and marketing executive vice-president, said, "Ethanol cannot be shipped by the existing pipeline distribution system and will have to be brought to market by truck, barge, or rail car.
"We are dismayed that EPA is not more sensitive to the lead time and logistical problems imposed by this proposal, given start up problems encountered last fall with the far less complex and far more certain low sulfur diesel rule. This proposal will affect one third of the gasoline produced a program that dwarfs the low sulfur diesel program in its impact and complexity.
"Given the mandate proposal, the RFG program remains incomplete. The industry still does not know what fuel we must sell on Jan. 1, 1995. Even if EPA manages to issue a final rule in June, the industry would have less than 3 months before RFG production begins."
Linda Stuntz, a Washington lawyer representing the Oxygenated Fuels Association, testified, "Any energy benefits of this proposal will be negligible and very costly. Even using EPA's estimates, the cost is $118/bbl of crude oil saved, an extraordinarily high number."
Stuntz predicted to reporters that Congress would legislate to block the rule. But even if it did not, the rule would not survive a legal challenge.
PROBLEMS "EXAGGERATED"
Eric Vaughn, Renewable Fuels Association president, said refiners are exaggerating their problems. He said ethanol would require less than 1% of terminal storage in the pollution control areas, and existing tanks could be used with minor modifications.
He said refiners would not have to meet the 30% standard in every area because they could trade credits between regions in a cost effective manner.
"Also," Vaughn said, "because the program includes year round averaging, refiners can choose the time of year most advantageous to them. Refiners could wait until September 1995 before beginning the program and still meet the renewable oxygenated standard.
"Thoughtful preparation and innovative modification to existing operations and equipment can enable companies to comply with little capital investment and very short lead times."
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