September 16, 1998

Thank you, Mr. Chairman. I commend you and Senator Baucus for holding this hearing to review the merits of oxygenates in the Federal Reformulated Gasoline (RFG) program, with particular emphasis on the role of the fuel additive MTBE.

I also want to acknowledge Senators Boxer and Feinstein, who have been at the forefront of the campaign to eliminate the presence of gasoline and gasoline components in water supplies. I am pleased to be able to join them in urging prompt action on this issue.

There should be no question about the importance of cleaning up contaminated water supplies and solving the California problem for the future. My purpose in testifying today is to help place the RFG-with-oxygenates program in perspective and offer some thoughts on how the situation identified by Senators Boxer, Feinstein and others might most effectively be addressed.

As the Committee considers options for dealing with MTBE groundwater contamination, it is important to keep in mind Congress's objectives in authorizing the RFG-with-oxygenates program in 1990. It is also useful to note the remarkable environmental achievements of the program since its implementation in 1995. And, it is essential to understand the fundamental distinction between RFG's oxygenate requirement and the fundamental problem we seek to redress.

Inadequate gasoline storage facilities that have allowed gasoline and all its components, of which MTBE has been the most well recognized, to contaminate water supplies is the cause of this problem, not the RFG program. Simply removing MTBE from the marketplace will not stop gasoline groundwater contamination. It will, however, have major negative effects on other important national priorities.

Let me begin by emphasizing my strong conviction that the RFG-with-oxygenates program has been highly successful, not only achieving but in many cases surpassing the multiple goals set by Congress when first enacted as part of the 1990 Clean Air Amendments. Moreover, it stands as a model of how the public and private sectors can work together to advance the public welfare in a safe and cost effective manner.

As the Chairman and Ranking Minority Member both know, the Senate extensively debated the merits of the RFG-with-oxygenates provision prior to its passage by a vote of 69 to 30 on March 29, 1990. A review of the Congressional Record debate shows that Congress had several major objectives in enacting the RFG-with-oxygenates program:

1. To improve air quality by reducing mobile source emissions (VOC ozone precursors; toxics; and NOx);

2. To improve energy security by reducing oil imports;

3. To stimulate the economy, especially in rural America; and

4. To provide regulatory relief to the automotive industry by cleaning up "dirty" fuel, which was a primary cause of urban pollution.

Since 1995, nearly one-third of all gasoline sold in the U.S. has been RFG-with-oxygenates, and there is no longer any need to speculate about its effect. The facts are in.

In an April 22,1998 letter to Rep. Bilirakis voicing opposition to legislation to waive the RFG oxygenate requirement, the American Lung Association and Natural Resources Defense Council referred to RFG as "one of the most successful programs enacted in the Clean Air Act Amendments." EPA Administrator Browner has called the RFG program the "most significant pollution reduction step since the phaseout of lead." In fact, EPA has concluded that RFG-with - oxygenates has met or surpassed the reduction goals set for VOC ozone precursors, toxics, carbon monoxide, and even NOx. In an August 25,1997 letter to the Director of Alabama's Department of Environmental Management, EPA's Director of Mobile Sources, Margo Oge, cited Phase I RFG as having achieved: ". . .43% reductions in benzene and 25% reductions in mobile source related VOCs" as well as a net reduction of 24.6% in tonics," all of which exceed the requirements of the Act.

RFG has been acknowledged as an effective pollution reduction tool even by certain parts of the petroleum industry. I have attached an editorial from the Oil & Gas Journal written by an employee of Valero Refining, Cal Hodge, which makes an important distinction between the "oxygen atom" and the emissions impacts of an "oxygenate". Hodge states that, "Contrary to the assertion that the "oxygen" mandate only reduces VOC and CO emissions, the complex model shows oxygenates also provide significant reductions of toxic and NOx emissions." It is worth noting that Hodge cites ETBE as one of the top performers, with NOx emissions reductions of 5%, and toxic emissions reductions of more than 32%.

Remarkably, given all these environmental benefits, RFG's costs have been very low, averaging only 1 to 3 cents per gallon more than conventional gasoline. In some areas of the country, RFG has actually cost less than conventional gasoline. These costs are very close to the EPA estimates provided during the Senate debate and are well below the 20 to 25 cent per gallon figure provided by the oil industry at the time.

The RFG program has also appreciably improved our nation's energy security position. In June of 1996, the General Accounting Office (GAO), at my request, analyzed the petroleum displacement effect of the RFG-with-oxygenates program. GAO found that, even after adjusting for the lower energy density of oxygenates, 305,000 barrels per day of imported petroleum will be displaced by the oxygenate portion of RFG in the year 2000. This amounts to 37% of the 10% imported petroleum displacement goal established by the Congress in the 1992 Energy Policy Act. GAO further calculated that, if all gasoline were RFG with oxygenates, nearly 800,000 barrels per day of imported petroleum would be displaced.

Energy security experts like Jim Woolsey, former director of Central Intelligence, and General Lee Butler, former commander, Strategic Air Command and principal air planner for Desert Storm, have spoken out frequently on the value of this near- to mid-term import displacement. Butler and Woolsey have expressed their support for the RFG-with-oxygenates program not only as a commercial foundation to stimulate increased production of replacement fuels in the U.S., but because it is one of the few, if not only, meaningful near-term oil import reduction programs available. General Butler, speaking in his capacity as Chairman of the Clean Fuels Foundation, points out that: "It is the oxygenates in RFG that displace oil imports -- the more RFG with oxygenates, the less oil imports, and the less reliance on an increasingly dangerous region of the world."

The RFG program has provided a significant shot-in-the-arm to our rural economy. As we all had hoped in 1990, the RFG-with-oxygenates program has stimulated new investments in ethanol and ether facilities in the U.S. Jobs have been created, and abundant supplies of grain and butane, which has been forced out of gasoline due to its evaporative contributions to ground level ozone, have been value-added to ethanol and ethers. The oxygenated fuels industry has responded in good faith to the 1990 law by investing billions of dollars in new plants all across the country.

I have attached a September 9, 1998 letter from Indiana Gov. Frank O'Bannon, Chairman of the Governors' Ethanol Coalition (GEC), to Missouri Governor Mel Carnahan, commending him on his recent decision to opt-in the St. Louis area to the RFG program. Governor O'Bannon, in citing the GEC's "strong support" of the RFG program, noted that it also "helps us build a strong market for ethanol." In addition to dominant market shares in RFG areas like Chicago and Milwaukee, ethanol has benefited from the state of Minnesota's implementation of a very successful year-round 2.7 wt. % oxygen standard, modeled on the Federal law (the Senate amendment initially established a 2.7 wt. % standard, before it was modified in conference). Other Midwestern states are considering following Minnesota's lead.

Despite these successes, many of us are disappointed that the RFG program has not resulted in more use of ethanol, and especially ETBE. I do believe, however, that expanded RFG use will result in more ethanol and ETBE use in the future. The St. Louis "opt-in" decision is a good example of how states can design their programs to encourage diversity of oxygenate use, and benefit motorists and refiners with price and product competition. Recently, Senator Lugar and I offered an amendment to the Agriculture Appropriations bill that directs the USDA to report to the Congress on ways to expand the use of ethanol and ETBE as we enter the post-2000 cleaner gasoline era. A choice among oxygenates -- especially domestic oxygenates -- is clearly best for motorists, workers, the economy and farmers.

I am told that a number of new areas are seriously considering RFG, including eastern Texas, Kansas City, Birmingham and others. The EPA has recently issued rulings opening the door for former non-attainment areas, and even those areas that have never been out of attainment, to "opt-in" to Federal RFG as a means of preventing non-compliance in the future. That is why the Committee's deliberations today are so important; the precedents that could arise from precipitous action could severely damage the growth prospects of all oxygenates, not just MTBE.

Finally, RFG has helped the automotive industry meet tightening environmental standards. The 1990 Senate debate had an additional recurrent theme: while automobiles had gotten substantially cleaner in the years since lead phaseout, gasoline had gotten substantially dirtier. Thus, the RFG provision stemmed in part from the recognition that it was time for petroleum refiners to pick up their fair share of the burden for cleaner air.

I believe that the refining industry has responded well to the imposition of RFG. As we have seen, costs have been far less than what the oil industry predicted, and supplies have been readily available.

Nonetheless, the job is far from finished. Sulfur levels should be cut. In addition, aromatics levels should be reduced further, which would reduce combustion chamber deposits and driveability problems, as well as provide additional toxics emission reductions.

In an August 24, 1998 letter to the Texas Natural Resource Conservation Commission, the American Automobile Manufacturers Association (AAMA) wrote: ". . . AAMA encourages you to adopt the Federal Phase 2 Reformulated Gasoline Program (RFG). . . Federal Phase 2 RFG will provide approximately the same sulfur levels as proposed in the low sulfur option, and will also provide additional benefits. Among these additional benefits, properly blended reformulated gasoline will:

_ Lower emissions from all vehicles in the fleet, immediately upon implementation;

_ Reduce air toxic emissions;

_ Reduce the potential for cold start driveability problems that can increase emissions;

_ Provide more consistent fuel quality...year-round;

_ Provide a federally administered audit and compliance program."

Our goals as articulated in the 1990 Clean Air Act debate have been realized. The RFG-with~ oxygenates program has resulted in cleaner air, reduced oil imports and improved energy security, lower regulatory burdens on the automobile industry, and domestic economic growth, all at a low cost to the consumer. I am not aware of any other program available to us that can make such a multiplicity of claims, or that can be expanded so readily to provide even greater public benefits.

In my opinion, it would do serious harm if we were to tamper with the one part of the RFG program that ties all of these benefits together -- i.e. the oxygenate standard. That being said, it is undeniable that, despite all of its benefits and advantages, the RFG program has exposed a glaring weakness In the nation's petroleum distribution system. The MTBE detected in drinking water supplies in California has drawn attention to a serious ancillary problem that demands immediate solution -- namely, leaking underground storage tanks and distribution systems.

The problem faced by California is leaking gasoline, of which MTBE is only one of hundreds of components, not the RFG program. Clearly, this situation is unacceptable. We need to do whatever we can to prevent gasoline and all its constituent parts from contaminating our surface water and our groundwater. Gasoline simply does not belong in our water supplies.

The fact is, however, that simply removing MTBE, or any other oxygenate, from RFG will not solve the problem of leaking tanks and pipelines. There are many components of gasoline, and diesel and jet fuel for that matter, that are dangerous.

It is the leaks we must eliminate, not the oxygenates.

I have asked my staff to work with this Committee, and with Senators Boxer and Feinstein, to identify near-term actions that can be taken yet this year, prior to adjournment, to address the problem of groundwater contamination in California. The Federal government must assist California in its water remediation efforts and help ensure that leaking underground storage tanks are fixed as soon as possible. It is my hope that this problem can be solved immediately without imperiling the many important, and expanding, benefits of the RFG-with-oxygenates program.

Thank you.