SEPTEMBER 16, 1998

Thank you, Chairman Chafee and members of the committee for holding today's hearing on S. 1576, introduced by Senator Dianne Feinstein. On behalf of Governor Pete Wilson and Cal/EPA Secretary Peter Rooney, I appreciate the opportunity to provide California's thoughts on the measure before you today.

The Wilson Administration supports S. 1576, which would enable California's cleaner-burning gasoline program to reduce its dependence on MTBE and other oxygenated gasoline additives.

As the only state with its own gasoline program, California is in a unique legal and institutional position to be a proving ground for what can be accomplished nationally with a performance-based environmental program.

S. 1576 represents an opportunity for the entire nation to observe the outcome of California's trailblazing program. We also believe this bill can help California respond rationally and effectively to public concern over MTBE. If we are successful, the federal government would benefit from our experience with a market-oriented and performance-based approach. For these reasons, Congress ought to quickly pass S. 1576 and Rep. Brian Bilbray's H.R. 630, rather than waiting many months or even years to try to craft controversial national changes to the federal oxygenate program.

As you probably know, California faces our nation's greatest air-quality challenges. Seven of the 10 metropolitan areas with the highest smog levels in the United States are in California. Because of these challenges, California has done more than any other state to reduce air pollution. In keeping with our tradition of leadership, California in 1996 introduced the world's cleanest gasoline.

The use of cleaner-burning gasoline in 1996 reduced peak smog levels by an average of 10 percent in Greater Los Angeles and 12 percent in Sacramento. No other single measure in California's history ever reduced air pollution so dramatically in its first year.

And yet, this unparalleled success has been overshadowed by public concern over the use of MTBE to meet federal requirements for the addition of oxygen to gasoline.

In 1990, the U.S. Congress approved an amendment to the federal Clean Air Act mandating the use of gasoline containing 2% oxygen by weight in regions classified as being in severe or extreme non-attainment for the federal ozone standard. To remain in compliance with this federal requirement, about 70 percent of the gasoline used in California during a given year must contain 2 percent oxygen by weight, year-round, with no exceptions. This includes gasoline used in the Greater Los Angeles area, Ventura County, San Diego and the greater Sacramento area.

In 1991, the year following the federal Clean Air Act Amendments, the Air Resources Board (ARB) established its own cleaner-burning gasoline specifications. We went ahead with our own specifications because we determined that Federal Reformulated Gasoline would not provide sufficient clean-air benefits to enable California to attain the federal ozone standard.

California's gasoline provides about twice the air-quality benefits of Federal Reformulated Gasoline. California gasoline reduces smog-forming emissions from motor vehicles by about 15 percent, compared to a 7 to 8 percent reduction from the current federal gasoline.

The ARB has always viewed gasoline oxygenates such as MTBE as an important option that should be available to refiners for making cleaner-burning petroleum products. At the same time, it is possible to make commercial quantities of cleaner-burning gasoline without mandated levels of oxygenated additives. We believe strongly that federal and state law should set content~ neutral performance standards for refiners to meet, rather than prescribing oxygen levels.

However, given the fact that most California gasoline was subject to the federal oxygen requirement, the ARB in 1991 felt compelled to include the federal oxygen requirement in its cleaner-burning gasoline specifications. Thus, California was committed to the use of oxygenated gasoline in order to remain consistent with the requirements of the federal Clean Air Act.

The story does not end there. In 1994, California added flexibility to its gasoline regulations by approving the use of a predictive model. This model, developed by ARB with data from emissions tests involving a large number of motor vehicles and fuels, predicts emissions from various gasoline formulations.

If a refiner wishes to produce gasoline that varies from the ARB fuel specifications, including the oxygen requirement, it can do so provided that the predictive model indicates there will be no increase in emissions.

The predictive model changed our cleaner-burning gasoline program from a command-and-control program based on rigid fuels specifications to a "performance-based program" in which refiners concentrate on meeting emissions standards.

Because of the predictive model, refiners have incentives to develop innovative fuel formulations that offer advantages over conventional formulations.

Refiners also have the ability to evolve with changes in technology and market conditions, rather than remain rooted in the mindset that prevailed when the original specifications were adopted.

Refiners in Northern California routinely use the predictive model to reduce the oxygen content of their gasoline. One refiner is now producing and selling non- oxygenated gasoline. This is possible because the federal oxygen requirement does not apply to most Northern California gasoline.

Incredibly, the federal oxygen rule prevents those refiners from selling the Northern California gasoline with reduced or no oxygenates in Southern California, even though the Northern California gasoline provides twice the clean air benefits required by the federal government.

The federal oxygen rule severely limits the flexibility that the ARB has given refiners of California gasoline. As I just pointed out, our predictive model still requires California gasoline to meet our state standards, which provide twice the clean-air benefits required by the federal government. The federal oxygen rule may serve a purpose in the other 49 states, which do not have their own fuel specifications. But in California, which is the only state with its own comprehensive fuel standards, the federal oxygen rule serves no useful purpose. It does not take pollutants out of the air; it only limits refiners' ability to develop the best ways to meet or improve upon our standards.

The growing public concern over MTBE provides California and the Congress with an important reason to support this bill. No federal or state law mandates MTBE. But refiners have chosen to use MTBE in virtually all California gasoline, because it represents the most practical way by far to meet the oxygen requirement. Unfortunately, MTBE releases have severely impacted drinking-water supplies in the City of Santa Monica and the South Lake Tahoe area. MTBE also has been found at lower concentrations in other areas of the state, which has sparked widespread concern.

This concern is driven, in part, because the federal oxygen rule gives refiners no viable alternative to the widespread use of MTBE in California. This had led many Californians to wrongly perceive that cleaner-burning gasoline represents a tradeoff between clean air and clean water. S. 1576 will correct that.

I am NOT suggesting that S. 1576 will prevent MTBE releases into water -- California's underground tank upgrade program is the primary measure for protecting water from contamination by all fuel components.

I am NOT suggesting that S. 1576 represents a ban or restriction on the use of MTBE; here again, let me emphasize that the bill is content-neutral. MTBE should remain an option for all refiners.

But the key word here is "option". There is no inherent reason why cleaner burning gasoline must have 2 percent MTBE or any other oxygenate by weight. California refiners have shown that it is possible to make cleaner-burning gasoline with 1 percent oxygen, and even no oxygen at all.

By exempting California from the federal oxygen rule, S. 1576 would give refiners the option of reducing the MTBE content of their gas throughout California. The bill would give refiners more options for using other oxygenates, such as ethanol. I also believe S. 1576 would ease some of the public concern over MTBE, because the public would see MTBE use evolve to a level that balances its benefits as a clean-fuels additive with the need to manage it as a potential water contaminant.

The bill still requires California gasoline to meet the world's cleanest standards. California needs all the air-quality benefits it is receiving currently from cleaner-burning gasoline, and we will not support any action that reduces those benefits. S. 1576 simply allows refiners to take full advantage of the flexible fuel standards that have reduced air pollution and increased protection of the public health in my state.

In closing, I must emphasize again that S. 1576 represents an opportunity for California and the nation. As the only state with its own fuels program, California is a proving ground for what can be accomplished nationally. California refineries are the most modernized in the country. California's air quality infrastructure -- including the nation's most sophisticated and extensive air monitoring network -- enables us to verify the success of our gasoline program.

S. 1576 will allow our flexible gasoline program to provide its best response to public concern over MTBE. If our program deals successfully with that concern, the federal government at least would have the option of using California's experience as it addresses MTBE concerns nationally.

As long as California is subject to the federal oxygen rule, our ability to respond to MTBE concerns will be extremely limited. The burden of addressing the growing unease over MTBE in California and other states will come full-force to the nation's capital, and it will remain here in the nation's capital.

I urge the committee to act favorably on S. 1576 as swiftly as possible. Thank you.