Testimony by Al Jessel,
Senior Fuels Specialist of Chevron Products Company before the Senate Environment & Public Works Committee S. 1576 -- California Reformulated Gasoline
September 16, 1998

I. Introduction:

Thank you Mr. Chairman. It is my pleasure to be here before the committee today to testify in support of S. 1576. My name is Al Jessel, and I am a Senior Fuels Specialist of Chevron Products Company. Chevron Products Company is a wholly-owned subsidiary of Chevron Corporation, which is an international energy and chemicals company with operations and facilities located throughout the world. Chevron is the largest producer of California cleaner burning gasoline (CBG).

Chevron supports S. 1576 introduced by Senator Feinstein in the Senate, and similar legislation, H.R. 630, introduced by Congressman Bilbray and cosponsored by 48 other California members in the House of Representatives. This legislation would apply only to California, and would remove the duplication and conflict between the requirements of the federal reformulated gasoline program and California reformulated gasoline program. I hope that after you hear the discussion today, and give this legislation its due consideration, you will move this legislation through the Senate Environment and Public Works Committee, and support its enactment into law.

II. History of California Fuels Authority Under the Clean Air Act

Congress has long recognized the serious and unique air quality concerns in the state of California and allowed the state to establish its own fuel regulations. Prior to 1970, California was free to regulate fuels on its own. In the 1970 Clean Air Act, Congress specifically included a waiver from federal preemption for California fuel regulations in section 211 (c)(4)(B) to preserve California's authority to regulate fuels. While preempting other states and localities from establishing fuel regulations except as needed and approved as part of a State Implementation Plan, Congress allowed California, alone among the states, the express authority in the 1970 Clean Air Act to establish its own statewide fuel regulations to help improve air quality.

From 1970 to 1990, California used this authority to establish numerous state fuel regulations. These included regulations such as: (1) maximum sulfur content in 1975, (2) maximum (Reid) vapor pressure in 1975, (3) reduced lead content in 1976, (4) regulation of manganese content in 1977, and (5) California Phase 1 reformulated gasoline in 1990.

California Phase 1 RFG requirements adopted in September 1990 provided new specifications for (Reid) vapor pressure, detergents, and deposit control additives, in addition to the complete phase out of lead in gasoline. These regulations became effective on January 1, 1992. At the same time California adopted Phase 1 RFG requirements, the State Air Resources Board indicated its intention to propose a more comprehensive set of specifications for a reformulated or "cleaner" burning gasoline. In November 1991 California adopted those Phase 2 RFG requirements, which became effective on March 1, 1996. California Phase 2 RFG was introduced into the marketplace beginning with the ozone season in 1996 and has been sold year-round since that time.

In 1990, however, Congress reauthorized the Clean Air Act and added provisions for federal reformulated gasoline in the nine cities with the worst summertime ozone conditions. Included on that list were two cities in California -- Los Angeles and San Diego. Also included were provisions allowing other cities to opt into the federal RFG program, as well as mandatory participation if cities were "bumped" up to "severe" or "extreme" classification. Since 1990, a third California city -- Sacramento has been added to the list of locations where federal RFG requirements must be met. Therefore, practically speaking, the vast majority of gasoline sold in California falls under both the federal rules and the more stringent state rules.

Unfortunately, the 1990 federal RFG provisions were established under a different portion of the Clean Air Act -- section 211 (k) -- than the portion containing the original California fuels waiver -- i.e., section 211 (c)(4)(B). The 1990 Amendments were silent on the relationship between the new federal RFG requirements in section 211 (k), and the previously-existing California authority to establish its own fuel regulations under section 211 (c)(4)(B). This silence has led to duplicative and overlapping state and federal requirements on the California gasoline program. S. 1576 is intended to resolve this and fill the gap left in the Clean Air Act's intent thereby making it clear that California can develop its own fuels program without a counterproductive federal overlay.

III. Comparison Between California and Federal RFG Programs

There are at least four major points of comparison between the California and federal RFG programs.

First and foremost, the California CBG program provides greater emission reductions than does the federal program. For reformulated gasoline currently in the marketplace, California CBG reduces nitrogen oxides (NOx) by 14% over conventional gasoline compared to the less than 1 % for federal (Phase I) RFG. In the year 2000 when Phase II federal reformulated gasoline with its 6.8% NOx reduction becomes available, California CBG will still have lower emissions. EPA, in reviewing California's gasoline program has stated: "EPA believes that the standards for California gasoline are as stringent or more stringent than the proposed content and performance standards for federal reformulated gasoline." (58FR11722, February 26, 1993).

Second, Similar to federal RFG, California allows refiners to use a "predictive model" or "test certification" to certify gasoline formulations as long as California's strict emissions performance requirements are met. California limits ranges for eight different parameters in formulating gasoline, and additionally refiners must also meet octane requirements for automobile performance. Overlaying the federal RFG program simply imposes further constraints on an already constrained system without enhancing air quality.

Third. enforcement of the California CBG program is based on periodic testing of gasoline from the various refiners to insure California CBG meets all state requirements. We have found this to be a very effective enforcement program. The federal program relies more on self-monitoring, reporting, and recordkeeping, which we believe is less effective yet adds cost and complexity with no measurable air quality benefit. While EPA has recognized CARB's ability to enforce its rules effectively and has provided partial exemption for California from federal enforcement mechanisms, the exemption sunsets at the end of 1999. Passage of S. 1576 would eliminate this unnecessary overlap.

Finally. federal reformulated gasoline requires year-round oxygen as mandated in the 1990 Amendments, but is not required by California rules in the summer, or in the winter in a significant portion of the state. California's unique air quality problems have required unique solutions, among them a more stringent reformulated gasoline. To make the more stringent California formulations, refiners need flexibility to optimize how they blend gasoline, and make it cost-effectively. The oxygen mandate reduces this flexibility without providing an air quality benefit in the summer for ozone control. It is the stringent performance specifications for California CBG. not the oxygen content, that drives the exceptional improvements in air quality resulting from use of this gasoline.

Of most recent concern to Californians is the environmental impact of MTBE use. Several drinking water supplies have become contaminated with MTBE, the most widely-used oxygenate in California gasoline. Within Chevron, we have instituted a nationwide program to look at all of our gasoline handling systems and processes, especially those handling oxygenated gasoline. We have assessed what additional safeguards beyond those required under federal and state laws we might implement to further minimize the potential for gasoline components contaminating drinking water sources. From that assessment we instituted a series of additional company control measures to further reduce the potential of release of gasoline into the environment.

The federal oxygen mandate coupled with the more stringent California CBG emission reduction requirements, led refiners to use methyl tertiary-butyl ether, or MTBE, as the only practical oxygenate in California. While MTBE has many advantages in helping to meet California gasoline specifications, it also has a disadvantage common to all gasoline oxygenates, its high water solubility which makes it both more mobile and more difficult to remove from water than other gasoline components.

The public in California_our customers_have become so concerned about MTBE that a ban was only narrowly averted in the California legislature last year. Legislature mandated studies will be complete early next year at which time the Governor is required to make decisions about the future of MTBE in California gasoline.

Interestingly, the federal oxygen content mandate, the stringency of the California CBG rules, and California's gasoline distribution system have restricted the use of some oxygenates like ethanol. Ethanol would make a good California gasoline blending component under certain circumstances. We believe the federal mandate actually limits our ability to use ethanol in California CBG and I'm sure this was an unintended consequence.

We have made a great effort in California to caution against the precipitous banning of oxygenates as this opposite extreme would inevitably bring with it its own set of unintended consequences such as disruption of a market that is already tightly constrained. The far better first step toward a solution is to remove the federal overlapping requirement as proposed in S. 1576.

IV. Reasons S. 1576 is Needed and Benefits

S. 1576 sponsored by Senator Feinstein, and H.R. 630 by Congressman Bilbray would neither ban nor mandate fuel formulations, but would allow each California fuel provider to individually choose to produce the most cost-effective and environmentally desirable formulation while meeting the state's rigid emission reduction requirements. In fact, it would allow the state's performance-based program to work as it was intended by California and as Congress allowed for two decades from 1970 to 1990.

Note the passage of S. 1576 is structured to impact only states that are allowed under the Clean Air Act to regulate their own fuels (without federal preemption) -- and California is the only such state. Yet even with the passage of S. 1576, federal oversight of the California RFG program will continue -- as it rightly should -- through the EPA's responsibility for assuring that the California State Implementation Plan for improving air quality is adequate and is carried out. Federal oversight will continue, but the state's reformulated gasoline program will benefit from more flexibility to refiners than exists today.

The benefits of S. 1576 include:

1. Optimizing product formulation -- Because California RFG has stricter emission reduction requirements, refiners need more flexibility in how they make their fuels. The Air Resources Board has recognized this need and has provided much of the needed flexibility. Unfortunately, refiners are unable to take full advantage because of constraints imposed by overlapping federal RFG rules. S. 1576 would allow individual refiners to further optimize their gasoline product formulation for California as long as they meet the emission performance targets. In the highly competitive gasoline marketing business, this benefits not only the refiners, but ultimately gasoline consumers.

2. Reducing use of oxygenates -- The passage of S. 1576 will neither mandate nor ban the use of oxygenates such as MTBE. By removing the current oxygen mandate, S. 1576 will allow California refiners to optimize the use of oxygenates, potentially reducing those currently in use such as MTBE, and increasing others such as ethanol that are of less public concern. Chevron and other companies would welcome the flexibility to manufacture California CBG based on performance standards--not a mandated formula. Given this greater flexibility, some refiners may very well choose other oxygenates, oxygenate in lesser amounts, or no oxygenate at all. The passage of S. 1576 is a critical first step in that direction.

The refining industry in California has made a very significant financial commitment to produce California CBG. We take very seriously our role in helping improve air quality in the state, and have invested billions of dollars in California alone to make California CBG. The benefits of the California CBG program are very significant -- it is the equivalent of taking 3.5 million cars off the road, solely by reducing air emissions from the California fleet. Passage of S. 1576 will allow refiners more flexibility to address the environmental concerns that have arisen since the introduction of California RFG while maintaining the air quality benefits to the public that have occurred by reducing emissions from vehicles.

V. Efforts to Work With Interests in California on Regulatory Chances

In addition to supporting S. 1576, we are also working closely with the state of California on a package of regulatory changes, which will hopefully provide some additional flexibility in the eight parameters regulated in gasoline while maintaining emissions performance. State regulatory changes are equally important to provide the formulation flexibility needed to reduce or eliminate the use of oxygenates in gasoline -- without compromising the air emission reductions performance of California cleaner burning gasoline. Note, however that even with the passage of S. 1576 and the added regulatory flexibility, oxygenates will still be needed to address the wintertime CO non-attainment problem in Los Angeles, Fresno, and Lake Tahoe areas. Oxygenates are effective in reducing CO, particularly in the older automobile fleet.

VI. Chevron's Use of MTBE in California Cleaner Burning Gasoline

Last December Chevron appealed to Congress and California regulators to allow cleaner~ burning gasoline to be made without requiring oxygenates such as MTBE. We had concluded it may be possible to make a cleaner burning gasoline without oxygenates, and still reduce emissions to the same extent achieved with current standards. We urged industry to work cooperatively with Congress and California regulators to explore options for reducing or eliminating MTBE altogether.

We have been actively working to help achieve this goal as described in the above testimony. We have produced significant quantities of gasoline in California without MTBE, while still meeting California's stringent performance standard for gasoline. During the past two summers our Richmond refinery in California has manufactured about half of its gasoline without any oxygenate -- this represents about 10% of the total gasoline supplied by the oil industry to northern California. The California Air Resources Board recently eliminated the winter oxygen requirement for much of the same area so, once the state and federal approval processes are complete, our Richmond refinery will be able to make non-oxygenate gasoline year around. However, full production of non-oxygenated gasoline is not possible now at Richmond due to the federal oxygenate requirement in Sacramento, and lack of high octane components that can satisfy California's Cleaner Burning formulation constraints.

Supplying the entire California gasoline market without MTBE will require further refinery modifications, and additional changes to both federal and state requirements as discussed in our testimony. We believe it is possible to replace gasoline which currently contains MTBE with a combination of ethanol-blended gasoline and non-oxygenated gasolines, while maintaining the clean air benefits that the California Cleaner Burning Gasoline program has provided. We urge Congress to enact S. 1576 into law. We also pledge to continue to constructively work with the California Air Resources Board as they look how to modify their regulations to allow refiners to use less MTBE to meet California's strict performance standards.

Thank you Mr. Chairman for the opportunity to testify before your committee today in support of S. 1576. I would be happy to answer any questions you or other members of the committee might have.