Alternative Transportation
Fuels and Clean Gasoline:
Background and Regulatory Issues
David Gushee
Environment and Natural Resources Policy Division
Updated January 17, 1996
IB91008
CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
-- History of
Vehicle Emission Controls
-- Implementation Issues
-- -- Oxygenated
Fuels for CO Nonattainment Areas
-- -- Reformulated
Gasoline
-- -- Foreign Refiner
Baselines
-- -- Alternative
Fuels and Clean Vehicles
-- -- Proposed
National Energy Strategy (NES)
-- -- Congressional
Debate on Alternative Fuels
-- -- Another Approach
-- -- The Conference
Agreement
LEGISLATION
CONGRESSIONAL
HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
The 101st Congress, in amending the Clean Air Act (P.L.
101-549), established new programs designed to produce both
cleaner cars and cleaner fuels as elements of an enlarged
campaign against urban air pollution. In addition to tightening
emission standards for conventional vehicles using conventional
fuels, the amendments set up a pilot clean car/clean fuel program
for both fleet and private California vehicles, starting in model
year (MY) 1996, and for fleet vehicles in the more-polluted ozone
and carbon monoxide (CO) nonattainment areas outside of
California starting in MY1998. The clean fuels envisioned include
clean gasoline, natural gas, propane, methanol, ethanol, and over
a longer time frame, hydrogen and electricity.
CO nonattainment areas are required to provide oxygenated
gasoline from November through February each year, starting in
November 1992. The amendments also require that gasoline for use
by all vehicles, not just clean fuel vehicles, in the nine worst
ozone nonattainment areas be reformulated to generate fewer
emissions of ozone-forming and toxic pollutants. This
reformulated gasoline (RFG) is to be sold in the nine areas
starting in 1995; other ozone nonattainment areas can opt in to
the program on application.
In December 1993, EPA issued its rule defining the RFG
program. One important issue, however, the role of ethanol in
refor-mulated gasoline, remained unresolved. A White House
proposal by President Bush in October 1991 that 30% of the oxygen
be derived from renewable resources was put forth by EPA for
comment in mid-December 1993. Refiners, the methanol industry,
and some environmentalists opposed the requirement. The ethanol
industry and the agricultural sector supported it. EPA issued the
rule on June 30, 1994. The American Petroleum Institute, National
Petroleum Refiners Association, and American Methanol Institute
sued to block implementation. On September 13, the U.S. Court of
Appeals for the District of Columbia issued a stay, blocking
implementation. On Apr. 29, 1995, the Court rejected the rule,
concluding that EPA lacked the authority to specify "the
manner of compliance or the precise formula."
Currently, ethanol has between 5 and 10% of the RFG oxygenate
market, mostly in the Chicago and Milwaukee areas.
The 102nd Congress, in its last days, passed the Energy Policy
Act of 1992 (P.L. 102-486), a 31-title bill containing a modest
alternative fuels mandate. The program focuses on fleet vehicles
owned and operated by Federal, State, and municipal governments,
plus those owned and operated by companies involved in
alternative fuels production, distribution, or marketing. Private
fleets must purchase AFVs, starting in 1999, with the percentages
of AFVs increasing from 20% in 1999 to 70% in 2006 and
thereafter. States are invited to develop their own programs of
economic and regulatory incentives to promote use of alternative
fuels in vehicles other than their own and to apply for Federal
financial and technical assistance to implement their programs.
The conference agreement also provides tax incentives for the
purchase of alternative fuel vehicles and for development of
retail service stations. These incentives phase out in 2004.
(For a discussion of alternative fuels as an avenue toward
reduced oil imports, see Alternative
Transportation Fuels: Oil Import, Highway Tax, and Implementation
Issues, CRS Issue Brief 93009.)
The U.S. Court of Appeals for the District of Columbia,
which in September 1994 stayed EPA's rule mandating the use of
ethanol in RFG, heard oral arguments in the case in February 1995
and ruled in April 1995 that EPA did not have the authority to
mandate ethanol use. The court refused to hear an appeal by EPA.
Counties in Pennsylvania, New York, Maine, and Wisconsin
which opted in to the RFG program before it began have opted out
for reasons of cost or alleged health and performance effects.
Interest in other ozone nonattainment areas in opting in to RFG
is currently very low. New studies of health effects and engine
performance are under way.
The Department of Energy (DoE) has issued proposed rules
defining the requirements for AFV purchases applicable to fleet
vehicles owned by providers of alternative fuels, establishing a
credit program for fleets which purchase AFVs sooner than
required or purchase more vehicles than required, and
establishing the criteria under which States can set up incentive
programs for purchasers of AFVs in their States. Neither the
House- nor the Senate-passed appropriations bills funding DOE
alternative fuels programs for FY1996 provide funds to cover the
incremental costs of acquiring alternative fuel vehicles for the
Federal fleet. The House Appropriations committee has attached a
series of riders to EPA appropriations one of which would prevent
EPA from making further efforts to mandate a market share for
ethanol in RFG. The Senate Appropriations Committee bill did not
include such a rider. In conference, all but one of the riders
were removed. The one remaining deals with foreign refiner
baselines for reformulated gasoline.
History
of Vehicle Emission Controls
The Clean Air Act first provided authority to establish
Federal emission standards for automobiles and light trucks in
1963; most other mobile sources were regulated subsequently.
These Federal standards first took effect with the 1968 model
year and preempted State auto emission standards, except for
California, which is permitted to request a waiver annually to
allow stricter standards. EPA conducts a testing and
certification program to ensure that new model vehicles --
including imports -- meet the standards.
The 1970 Act required that emissions of CO and HC be reduced
90% by 1976 and emissions of nitrogen oxides (NOX) be reduced 90%
by 1976 from the emissions allowed in 1970. In 1973 the EPA
Administrator delayed the deadlines and set interim standards.
The 1977 amendments further delayed the deadlines, to 1982 for CO
and HC, and to 1985 for NOX; also, the emission reduction goal
for NOX was reduced to 75%, with the 90% reduction set as a
research goal.
The 1977 amendments also mandated equivalent reductions in
emissions from heavy duty trucks, to be effective in 1982 for HC
and CO and in 1983 for NOX and particulates. Through a series of
administrative and technical delays, the schedules for NOX and
particulates were delayed until 1994, with interim standards to
be met in intermediate years.
Faced with the forecast that vehicle emissions would not be
reduced enough by the mandated standards to compensate for the
inexorable increase in vehicle miles traveled, Congress in the
1990 Amendments tightened emission standards again (for cars, the
HC standard is reduced by 40%, the NOX standard by 60%). These
standards will be phased in over the 1994-6 model years. If a
study due in 1997 shows both that significant numbers of cities
remain out of attainment and that technology at reasonable cost
is available, another round of tightened standards will be
imposed in 2004. For heavy duty trucks, the NOX standard was
delayed until 1998 to allow more time for the necessary
technologies to be developed.
Because emissions vary so widely as vehicles age, EPA has been
concerned that these two new rounds of tighter emission standards
will probably exhaust the potential for reduced vehicle-related
emissions so long as conventional gasoline and diesel oil
remained the predominant motor vehicle fuels. Yet VMT will
continue to increase, so that by 2010 at the latest,
vehicle-related emissions will again be increasing. Alternative
fuels such as methanol, ethanol, natural gas, propane, and
perhaps hydrogen or fuel cells, show promise in both theory and
test use of being intrinsically less ozone-forming both in
themselves and through their tailpipe emission products.
Experience in Denver and other cities has demonstrated that
adding oxygen, either in alcohol or ether form, to gasoline
significantly reduces CO emissions, particularly in older cars
and in newer cars whose engines or emission control equipment are
not functioning properly.
In response to these considerations, the 1990 Amendments
require that gasoline sold in CO nonattainment cities contain at
least 2.7% oxygen, starting in 1992. The Amendments also require
that a cleaner, "reformulated" gasoline be sold,
starting in 1995, in the nine worst ozone nonattainment areas
(Los Angeles, San Diego, Houston, Baltimore, Philadelphia, New
York, Hartford, Chicago, and Milwaukee). Other ozone
nonattainment areas will be able to opt in to the reformulated
gasoline program as supplies of reformulated gasoline expand.
Alternative fuels other than gasoline will be stimulated by
two programs. California has developed a program requiring low
emission vehicles (LEVs) and ultralow emission vehicles (ULEVs)
to be introduced starting in 1996 at 150,000 vehicles per year
and rising to 300,000 vehicles per year in 1999. Second, in all
of the most seriously polluted ozone nonattainment areas and the
worst CO nonattainment areas (about two dozen metropolitan
areas), centrally fueled fleets of 10 or more vehicles become
subject to a requirement, starting in 1998, that a portion of any
new vehicles be "clean fuel vehicles." The portion is
30% in 1998, 50% in 1999, and 70% in 2000 except for heavy duty
trucks (constant at 50%). The clean fuel vehicles must be the
same as those sold in California, and the fleet program applies
to California fleets as well.
Gasoline, no matter how reformulated, was not expected to be a
contender for qualification as a "clean alternative
fuel." However, it is not closed out by definition, so it
might qualify as a result of advances in technology in either the
vehicle, the gasoline formulation, or some combination of these.
Recent advances in both vehicle technology and emission control
technology for gasoline-fueled cars have led to a growing
consensus that, except for zero emission vehicles, gasoline will
carry the day unless additional regulatory requirements beyond
those in the Clean Air Act Amendments are put in place by State
authorities. However, the potential for diesel fuel to meet the
"clean alternative fuel" standards for heavy duty
engines is more problematic.
Implementation
Issues
Although there is considerable evidence that tighter emission
standards in new cars, oxygenates in gasoline, reformulated
gasoline, and alternative fuels will all contribute to reduced
emissions from vehicle traffic, a number of very difficult
practical obstacles must be overcome before these changes can be
put into place on a large scale and make a measurable difference
in air quality. These issues will play out over a number of
years, as experience is gained and fed back into design,
engineering, and production of both vehicles and fuels.
EPA and other interested parties participated in a year-long
regulatory negotiation process (reg-neg) to streamline to the
extent possible the process of rulemaking and implementation for
the gasoline-related regulatory requirements. This process
concluded with an agreement signed in August 1991 by auto, oil,
ethanol, methanol, and environmental interests, as well as the
EPA itself.
Oxygenated
Fuels for CO Nonattainment Areas
The first deadline of significance was adding oxygenates to
gasoline in some 40 cities starting in the 1992-3 winter. The
amended Act requires no less than 2.7% oxygen no later than
November 1 each winter, continuing through the end of February
(some individual cities are subject to longer periods because of
local conditions).
The 40 cities consume some 2.8 billion gallons of gasoline per
month (29% of national demand). Most of the oxygen is being
supplied in either one of two forms -- ethanol or methyl tertiary
butyl ether (MTBE), although, since EPA promulgated a
"sub-sim" rule (56 FR 5352, Feb. 11, 1991) defining a
wide range of gasoline formulation as "substantially
similar" to gasoline, methanol, tertiary butyl alcohol
(TBA), ethyl tertiary butyl ether (ETBE), other ethers, and
mixtures of some of these are playing minor roles. Mandated
oxygen demand will be 2.7% of the 2.8 billion gallons, or 80
million gallons per month (some 330,000 bbl/day if it were all
MTBE).
Early in the 1992-3 winter, complaints began arising about
nausea, headaches, and other health effects allegedly caused by
MTBE-containing gasoline. Alaska was the source of most
complaints, although some also arose in other areas. EPA and the
MTBE industry immediately reviewed the many health studies and
initiated more. Currently it appears that the complaints cannot
be tied to the presence of MTBE, but the issue remains active,
particularly in Alaska and New Jersey and, more recently, in
Wisconsin and Texas.
During the 1993-94 control period, contract oxygenate prices
for control period delivery were firm at about $1.10 per gallon
for MTBE and about $1.30 per gallon for ethanol. Spot prices
remained soft throughout the winter (60-70 cents per gallon for
MTBE, $.95-$1.05 per gallon for ethanol), led in part by low oil
prices and in part by plentiful oxygenate supplies.
Both ethanol and MTBE prices were soft in 1994 until late
summer, when escalating methanol prices, plus the forthcoming
winter oxygenate season, caused MTBE prices to rise. The cycle of
higher prices during the winter oxygenate season and lower prices
the rest of the year continued in 1995, despite the additional
oxygenate demand created by the first year of mandated RFG use.
Price pressure from increased oxygenate demand in the winter
may not be as great in the future as it has been for the past
several years. A number of carbon monoxide nonattainment areas
are coming into compliance, are being redesignated as attainment,
and are or soon will be no longer subject to the 2.7% oxygen
minimum. In most of these areas, oxygenate use will continue, but
at a somewhat lower concentration than 2.7%.
Reformulated Gasoline
(RFG)
As indicated earlier, P.L.101-549 mandates the sale of
reformulated gasoline in the nine worst ozone nonattainment
areas, beginning Jan. 1, 1995. These cities have gasoline demands
of about 1.9 billion gallons per month, representing about 19% of
national gasoline demand. Six of these areas (Los Angeles, New
York, Baltimore, San Diego, Philadelphia, and Hartford) are
also CO nonattainment areas; hence their monthly winter demand
for oxygenate is accounted for above. Chicago, Houston, and
Milwaukee, however, represent further mandated oxygenate demand.
The six ozone/CO areas will have to have 2.0% oxygen for 8
months and 2.7% for 4 months (the mandated 4 months becomes about
5 months, as some time is needed before the startup date to feed
the oxygenate into inventory and to service stations). The other
three will have to have 2.0% oxygen year-round and represent
additional mandated oxygenate demand of about 10 million gallons
of oxygen per month (2% of 500 million gallons of gasoline per
month).
Ozone nonattainment cities other than the nine specified in
the legislation for receipt of reformulated gasoline in 1995 can
opt in to the program. Connecticut, Delaware, Kentucky, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, Pennsylvania,
Rhode Island, Texas, and Virginia have opted in for their
nonattainment areas. The whole State of New York opted in. Other
States are also considering opting in. The more areas that opt
in, the greater the demand for reformulated gasoline will be.
However, as the 1995 RFG entry date approached, 28 counties in
Pennsylvania, nine in New York, and two in Maine opted out,
choosing alternative means of achieving the needed emissions
reductions. Gasoline price increases and concerns about supply
were the primary reasons. In February 1995, Wisconsin asked that
sales of RFG be temporarily suspended, citing health effects as
the stimulus. The request was denied, but the health effects
issue remains alive.
Reformulated gasoline is much more than oxygen content. The
law requires that it have, besides 2.0% oxygen, a maximum benzene
content of 1.0% and no heavy metals. It must meet three
performance specifications: from a baseline of standard vehicles
using a standard gasoline, ozone-forming VOC emissions must,
during the high ozone season, be at least 15% less; toxic air
pollutant emissions (benzene, butadiene, formaldehyde,
acetaldehyde, and polycyclic organic matter [POM]) must be at
least 15% less throughout the year; and NOX emissions cannot be
more than the baseline. By 2000, the 15% reductions are to be
replaced with 25% reductions (administratively adjustable based
on evidence available at the time).
EPA was required to issue, within one year of enactment,
regulations specifying how the reformulated gasolines'
compositions and performances are to be measured and how
qualifying fuels are to be certified. EPA was, also in the same
time frame, to define the baseline emission levels for VOCs and
air toxics. It missed the deadline (Nov. 15, 1991). EPA tried to
provide some certainty by agreeing to a "simple model"
as the basis for reformulated gasoline certification in 1995 and
1996, while developing a "complex model" for use
thereafter. The simple model relies on volatility and oxygen
content (56 FR 31176, July 9, 1991, and 57 FR 13416,
Apr. 16, 1992).
The oil industry prepared to produce reformulated gasoline for
1995 on the basis of the "simple model" in the reg-neg
agreement. However, there was a concern on the part of the
ethanol industry, that the performance requirements for
reformulated gasoline, which include sharp restrictions on fuel
volatility, would preclude the use of ethanol at gasohol
concentrations (10%) and would make it difficult, particularly in
the first 2 years, when the simple model dominates, for ethanol
at any concentration to be a component of reformulated gasoline.
The industry was concerned that both California's final rule and
EPA's proposed rule set volatility standards that seemed to
preclude ethanol use without either a volatility waiver or a
major additional change in gasoline composition. Ethanol
interests sought to include in energy legislation, the Energy
Policy Act in the 102nd Congress, some proposed remedies for this
concern. Since the Energy Policy Act as passed was silent on this
issue, the debate focussed on EPA and the White House as EPA
prepared the final rule on reformulated gasoline.
On Oct. 1, 1992, the White House, responding at least in part
to intense pressure from the National Corn Growers Association
and the Renewable Fuels Association, intervened in the
rule-making process. It decreed that in Northern ozone
nonattain-ment areas where the reg-neg agreement had accepted an
RVP of 8.1 psi for RFG, an RVP of 7.8 would be required. Up to
30% of the RFG sold would be granted a 1 psi waiver so that
ethanol could be used as the oxygen source. The idea was that the
average RVP would still meet the original 8.1 psi level. The
State could grant the waiver to more than 30% of the RFG by
requiring a commensurate reduction in base RVP. Alternatively,
the State could take credit for the emission reductions inherent
in a 7.8 RVP RFG, should less ethanol be used than would have
been allowed.
In the Southern ozone nonattainment cities, where the reg-neg
agreement had specified an RVP of 7.2, up to 20% of the gasoline
could be granted a 1 psi waiver, while the base RVP would be
reduced to 7.0.
This intervention by the White House was viewed by a number of
participants in the reg-neg process as invalidating the reg-neg
agreement, in which the Administration was one of the
signatories. With respect to RFG, the environmentalists, the oil
industry, and the methanol industry believed that their interests
would be damaged -- the environmentalists primarily because of
their views that NOX emissions would increase in violation of the
Clean Air Act's requirement that they not do so; the oil industry
because it would be required to bear the additional costs
(estimated by the White House to be 0.3 cents per gallon but
estimated by the industry to be much higher because of, among
other factors, the distribution problems associated with
additional grades of gasoline); and the methanol and MTBE
industries, which stood to lose sales of up to 700 million and 2
billion gallons per year respectively.
The ethanol industry would benefit by a potential increased
market, after all opt-ins, of one to two billion gallons per year
-- an approximate doubling of its probable share of the national
gasoline market prior to White House intervention. This would
represent an increased corn demand of 400 to 800 million bushels
per year (5 to 10% of current production). The highway tax
revenue loss would be $540 million to $1.08 billion per year. The
impact on corn prices would probably be modest, with some studies
implying it would be negligible and others implying that it might
add 8 to 16 cents per bushel.
The final RFG rule was released on Dec. 15, 1993 and published
in the Federal Register about 2 months later (59 FR 7716,
Feb. 16, 1994). It includes the latest version of EPA's
"complex model" which all refineries must use by 1998.
Refineries can choose between the "simple model" and
the "complex model" until then.
The complex model includes a requirement for a reduction in
NOX emissions by 5-7% in Phase II RFG, starting in 2000. The oil
industry believes this requirement also violates the reg-neg
agreement, which stated there would be no NOX increase. EPA
responds that the NOX reduction is an important factor in the
agency's estimates of reduction in ozone levels to be derived
from the RFG program.
The role of ethanol. The role of ethanol was removed
and treated separately in a notice of proposed rulemaking (58 FR
68343, Dec. 27, 1993), wherein 30% of the oxygen required
must come from renewable oxygenates (which means in practice,
ethanol). The requirement would be year-round; averaging and
trading would be allowed. It was promulgated essentially as
proposed, and might increase ethanol consumption by as much as
650 million gallons per year in the early years, increasing as
additional cities opt into the RFG program.
The methanol and petroleum industries viewed the renewable
oxygenate standard (ROS) rule with distaste similar to that they
expressed when the renewable mandate was first proposed. Their
objections were based on alleged lack of statutory authority on
EPA's part, on the economic impacts of the proposal, and on
environmental impacts other than on the RFG program.
The issue of environmental impacts ballooned in the first half
of 1994 into a major debate. A DOE analysis made prior to the
proposed rule's issuance had concluded that the use of ethanol,
partly as ethanol and partly as ETBE, would decrease emissions of
greenhouse gases and decrease oil imports, both by small amounts.
A later, more comprehensive, version of this analysis came to the
opposite conclusion, again by small amounts. Analyses by the
Department of Agriculture and the Institute for Local
Self-Reliance concluded that the environmental and energy impacts
would be favorable. Analyses by Resources for the Future and
James Sweeney of Stanford University, on the other hand,
concluded the opposite. All of the analyses concluded that the
differences would be small.
EPA issued its final rule requiring 30% renewable oxygenate
(15% the first year) on June 30, 1994. It allowed annual
averaging and did not allow a volatility waiver, thus precluding
use of ethanol in the summer season, although ETBE could be used.
As expected, API, joined by the National Petroleum Refiners
Association, and the American Methanol Institute, sued to block
implementation.
Several Members of Congress sought to block EPA implementation
of the rule by amending EPA's appropriations to prevent
expenditure of appropriated funds on its implementation or
enforcement. In the House, the move died in the Appropriations
Committee. In the Senate, it also failed in committee but was
proposed as a floor amendment. After 5 hours of debate, it was
tabled 51-50, with Vice President Gore casting the deciding vote.
The issue then moved to the court system. The U.S. Court of
Appeals for the District of Columbia decided on Sept. 13, 1994,
to issue a stay against implementation of the rule pending
judicial review, which will be expedited and may be completed by
mid-1995. The Court decided further to deny the API-NPRA-AMI
request for a summary reversal of the rule. On Apr. 29, 1995, the
Court ruled that EPA did not have legal authority to mandate a
specific role for ethanol. The Court has refused to hear an
appeal from EPA. The House Appropriations Committee, in marking
up EPA appropriations for FY1996, added a provision which would
prevent EPA from making any further efforts to mandate a market
share for ethanol. This provision did not survive during
conference.
Ethanol Tax Incentives. Ethanol from biomass has
received special tax incentives since the late 1970s. The
incentive is currently 54 cents per gallon of ethanol used as or
in highway fuel. As a result of the reformulated gasoline program
and the emphasis on reduced gasoline volatility, ethanol is more
attractive as a blending agent in the form of the ether (ethyl
tertiary butyl ether, or ETBE). The Treasury Department recently
ruled (60 FR 40079, Aug. 7, 1995) that the ethanol part of ETBE
qualifies for the 54 cents per gallon incentive.
With about 1.1 billion gallons of ethanol per year qualifying
for the tax incentive, the cost to the Highway Trust Fund is
about $600 million per year. (This is partially offset by reduced
commodity price support payments for corn.) As a revenue loss to
the Government, this incentive has been under attack by some
Members (Senators Bradley and Nickles have made moves to
eliminate it). The House Ways and Means Committee originally put
in its reconciliation package a provision which would reduce the
incentive to 51 cents per gallon, make it available only as a
blender tax credit, and limit it to blenders already in operation
or under construction as of Sept. 15, 1995. This change, should
it be enacted, would sharply reduce the attractiveness of ethanol
as a blend component, not only because of the reduction from 54
cents to 51 cents but also because, as a tax credit, it requires
that the tax be paid first and be recovered (if there is
sufficient tax obligation by the company) through its subsequent
income tax filings.
Ethanol advocates claim that currently the loss of revenues to
the Highway Trust Fund is more than compensated for by a
reduction in price support payments through the Department of
Agriculture to corn farmers, resulting from the higher corn
prices generated by the increased corn demand. The General
Accounting Office (GAO) issued a report in September 1995 which
supports this contention.
GAO assumes no change in the corn price support program and
assumes that corn production would decline less than corn demand
would decline, leading to a significant reduction in corn price.
Given these assumptions, its analysis concludes that the increase
in price support payments caused by the lower corn prices would
be larger than the increase in Highway Trust Fund revenues caused
by the lower incentive and the reduced ethanol volumes which
would follow, resulting in a net loss of $2.5 to $6.3 billion
from 1996 to 2000 compared to the current situation. Where in the
range the answer falls depends on a number of other judgments,
including how much corn acreage would be planted and how much
ethanol would continue to flow into gasoline.
According to the American Corn Growers Association, the
Clinton Administration has indicated that it would consider
vetoing any bill containing a proposal to eliminate tax
incentives for ethanol. This threat, plus widespread resistance
to the proposal in both House and Senate, led to removal of the
provision from later versions of the reconciliation package.
Foreign Refiner
Baselines
Another late-blooming issue was EPA's decision to grant
individual baselines to foreign refiners able to document the
properties of their 1990 gasolines. This decision upset a number
of domestic refiners because foreign refiners are not subject to
several provisions of the Clean Air Act that increase domestic
refiners' costs. Congress decided to block implementation of the
EPA's rule through EPA appropriations bill.
As the RFG startup period of Jan. 1, 1995, approached, concern
was expressed that the combination of the RFG rule's complexity
and the reduction of gasoline imports expected to result from
congressional intervention in the foreign refiner baseline issue
would create spot shortages and price spikes. Testimony before
the Energy and Power Subcommittee on September 29 included one
projection of price increases up to 31 cents per gallon. Price
increases have instead been between 5 and 10 cents per gallon,
and there have been no shortages. The opt-outs in Pennsylvania,
New York, and Maine have reduced demand for RFG by about 7%.
Venezuela has taken its concern over the foreign refiner
baseline to the World Trade Organization, where an arbitration
process has begun. Meanwhile, the only appropriations bill rider
which has survived prohibits EPA from implementing individual
baselines for foreign refiners.
Alternative
Fuels and Clean Vehicles
EPA has promulgated standards for clean fuel fleet vehicles
that for HC and NOX are half the emissions allowed for 1994
conventional vehicles, effective with the 1996 model year. A
second phase is mandated for MY2001 cars, with even lower
standards. Although the amendments lay out specific emission
standards for tailpipe exhausts for cars and light duty trucks,
they also provide that any alternative more-stringent set of
standards issued by California would preempt those in the
amendments.
All ozone nonattainment areas designated Serious, Severe, or
Extreme and CO nonattainment areas with CO levels of 16 ppm or
higher must revise their SIPs to require that fleets of 10 or
more vehicles under the control of a single person must include
clean fueled vehicles as part of any new vehicle purchase,
starting in 1998. The percentages are 30% in MY1998, 50% in
MY1999, and 70% in MY2000 for cars and light duty trucks (LDTs),
and 50% for heavy duty trucks. The requirement does not apply to
leased and rented cars or law enforcement and emergency vehicles.
California has established a pilot program, starting in MY1996
at 150,000 vehicles per year and expanding in MY1999 to 300,000
per year. Fleet purchases are to be counted towards these target
numbers, with other sales to the public at large.
In essence, these amendments were designed to let California
lead the way in promoting alternative-fueled vehicles. California
has been moving in this direction for more than a decade, has
accumulated a great deal of experience and momentum, and has the
country's worst air pollution problems as its incentive to keep
on moving forward. There are many debates within California, such
as how fast, which alternative fuel, how to provide the
appropriate incentives and disincentives, and whether to provide
for a role for reformulated gasoline as an alternative
("clean") fuel.
California has adopted clean car standards for 1995 and
beyond. These new standards call for four new levels of
"cleanliness," labeled transitional low emission
vehicles (TLEV), low emission vehicles (LEV), ultra low emission
vehicles (ULEV), and zero emission vehicles (ZEV). Each level is
cleaner than the level before it, with ZEVs envisioned as
achievable only with fully electric vehicles. Each year, the rule
requires that the new car composite fleet emission level be lower
than the year before, thus requiring that an ever larger
proportion of ever-cleaner vehicles be sold. ZEV sales must be at
least 2% by 1998, increasing each year thereafter, according to
the plan. California has also written a new rule for its own
reformulated gasoline, approved in late November 1991 to take
effect in 1996.
As the deadline (Model Year 1998) for ZEV entry into the new
car fleet approaches, and as the problems of battery cost and
performance appear to remain formidable, resistance to the ZEV
part of the mandate is growing stronger. The California Air
Resources Board (CARB) and Governor Wilson continue to affirm
their support of the role of ZEVs. As 1996 began, CARB staff
proposed that the 2% mandate for 1998 be suspended and that
automakers negotiate agreement with CARB on how many ZEVs each
would produce. The later year requirements are not yet affected.
Beyond California is the issue of opt-in by other States.
Other States can opt in to create a clean car/clean fuel program
using the same cars and fuels as are used in California. Other
States are authorized to institute incentives for clean cars such
as exemption from HOV lane requirements, preferences in parking
place assignments, and preferential registration fees. New York
and Massachusetts have adopted California's programs.
The auto industry sued, primarily on the basis that not using
California gasoline would mean that auto industry would in
essence be required to produce a "third car" (U.S.,
California, and now a New York version) in contravention of
Section 177 of the CAAA. The U.S. District Court in the northern
district of New York ruled in favor of the auto industry. In July
1993, the New York judge vacated his decision on the basis of new
evidence, so New York can now proceed to implement. The auto
industry appealed; in February 1994, the Second Circuit Court of
Appeals upheld New York's adoption of the LEV program.
Following New York's lead, the Ozone Transport Commission
(OTC), which includes the 12 Northeast States and the District of
Columbia, voted on Feb. 1, 1994, to petition EPA to impose a
commission-wide LEV program. The vote was 9-4. EPA has responded
in favor of the OTC petition, allowing each State to decide for
itself on the role of ZEVs. New York, Massachusetts, Vermont and
Connecticut have included ZEVs in their plans. Negotiations
continue, however, among EPA, the auto industry, and other
stakeholders for an alternative program under which the auto
industry would produce nationally (other than California) cars
meeting emission standards more stringent than the current ones
-- an alternative which would, the auto industry claims, reduce
emissions more than the California option at less cost.
Proposed
National Energy Strategy (NES)
In the 102nd Congress, the Bush Administration's National
Energy Strategy proposed an intensified alternative fuels program
which would displace some 1.35 million barrels of gasoline per
day (350,000 from fleets) from use in the transportation sectors
by 2010. This is the fuel that would be used by some 65 million
cars averaging 30 miles per gallon and driving 10,000 miles per
year, or 130 million using alternative fuels half the time.
The alternative fuels provisions of the Clean Air Act are
expected to affect 5-10 million cars and perhaps 100,000 barrels
of gasoline per day over the same period, unless major market
areas other than California opt in to the California program and
unless the California requirements are met with cleaner
reformulated gasoline and improved vehicle emission control
systems. Clearly, the NES proposed a very ambitious program,
particularly given that operating experience on alternative fuel
cars subject to current and upcoming regulatory requirements is
very limited, current U.S. production of alternative-fueled
vehicles other than LPG-fueled vehicles produced by retrofit is
less than 10,000 per year, there is almost no alternative fuel
delivery infrastructure, the fuels and vehicles tend to cost more
than gasoline and diesel-fueled systems, and fuel production
capacity of this scale would (except for natural gas and LPG)
have to be built.
The NES fuel program mandating alternative fuels for fleets
would phase in sooner than the Clean Air Act clean car program,
would affect small fleets (10 vehicles or more) in nonattainment
cities subject to Clean Air Act requirements, and would extend to
all cities of over 250,000 regardless of air quality status. In
the cities to which the fleet mandate would be extended, fleets
of 20 or more would be affected. The NES proposal would omit
reformulated gasoline and diesel fuel from the definitions of
alternative fuels. This wording change would settle the issue of
whether or not the Clean Air Act mandates for fleets would lead
to alternative fuel use.
Most of the alternative fuel vehicles claimed by NES to be
coming onto the roads by 2010 would get there as a result of (1)
development of alternative fuel vehicle (AFV) technologies and
economics from the mandated fleet program, (2) a projected
approximate doubling in gasoline price over the two decades, and
(3) new AFV and fuel production technologies developed under an
expanded R&D program in the Department of Energy.
Congressional
Debate on Alternative Fuels
The Senate Committee on Energy and Natural Resources in markup
on S. 341 (reported as S. 1220), its comprehensive energy policy
bill, added an accelerated Federal AFV fleet program to serve as
spearhead for its State and private fleet programs (similar to
but slightly less restrictive than those proposed in the NES) to
follow several years later. This program was approved by the full
Senate with minor amendments as part of S. 2166 (successor bill
to S. 1220) on Feb. 19, 1992. The House Energy and Power
Subcommittee proposed a similar program (somewhat less
prescriptive for State and local fleets and focusing on fuel
providers' fleets in the private sector) in a bill marked up and
approved in subcommittee in October 1991 (H.R. 776). H.R. 776 was
reported out to the House from the Energy and Commerce Committee
in mid-March 1992. The House Government Operations and Public
Works and Transportation Committees, in their markups of H.R.
776, added some detailed provisions related to Federal fleet
operations and relationships to transportation programs. These
remained in the House-passed version.
Sentiment also had been building in favor of using the tax
code to address the unfavorable economics of alternative fuels.
S. 1178 (Rockefeller), H.R. 1497 (Andrews), and H.R. 2960 (Synar)
took the approach of tax credits for investments in alternative
fuel infrastructure and vehicles. The House Ways and Means
Committee, in marking up H.R. 776, adopted provisions similar to
H.R. 1497, permitting accelerated depreciation of the full cost
of the qualifying engine, exhaust, and fuel systems of dedicated
AFVs and of refueling installations, subject to some constraints
on total amounts allowed and phasing out after 2001. Two major
issues appeared: (1) whether the depreciation benefit for
dual-fueled vehicles should be based on the incremental cost of
the qualifying systems, as in the Ways and Means amendment, or on
total cost of these systems as intended by Representative Levin (CR,
May 27, 1992: H3801) and Senator Rockefeller (S. 1178) and
(2) whether electricity should qualify under refueling property.
The Senate Finance Committee marked up H.R. 776 on June 16,
specifying (1) that the incremental cost of a dual-fuel light
duty vehicle should be defined as no less than $1200 or if
actually greater, no more than $2000, (2) that electrical
recharging equipment should qualify as refueling property, but
batteries would not, and (3) that electric vehicles (EVs) would
be eligible for a 15% income tax credit. The net effect of the EV
provision would be to bring EVs much closer to economic
equivalence to other vehicles, while the greater incentive for
dual-fueled vehicles would tend to make methanol, ethanol, and
LPG dual-fueled vehicles economically attractive enough to appeal
to some potential buyers not under mandate. The maximum for
refueling property would be $75,000 compared to the House's
$100,000. Otherwise, the provisions of the two chambers were the
same.
Another Approach
Another new thrust affecting motor fuels came from Senator
Jeffords (S. 716). This bill would mandate that a specified
minimum percentage of motor fuels be produced from domestic
nonpetroleum resources. In the early years of such a mandate,
most would probably come from additives to gasoline such as
ethanol and MTBE -- already going into gasoline in response to
Clean Air Act requirements. S. 716 would affect the sources of
methanol, butylenes, and ethers. In later years, alternative
fuels (and perhaps synthetic fuels) would probably generate large
portions of the domestic nonpetroleum content.
The Senate Committee on Energy and Natural Resources
considered the S. 716 concept in its markup sessions on S. 341 in
May 1991. It decided to charge DOE to develop a program to
promote domestic nonpetroleum replacement and alternative fuels,
to study the feasibility of setting a percentage goal, to follow
the number of AFVs and FFVs likely to be sold, and to seek
commitments from fuel producers to produce enough such fuels to
supply the AFVs and FFVs in use.
As passed by the House, H.R. 776 included a provision setting
a national goal of 10% replacement of gasolines and diesel fuel
by 2000 and 30% by 2010, at least half of the replacement fuels
being domestic, with the Department of Energy responsible for
evaluating the practicability of achieving and developing
appropriate programs to achieve these goals.
In floor debate on H.R. 776, Representative Jontz offered an
amendment which would have specified the method to reach 10%
replacement, by requiring that two octane numbers in gasoline be
provided by domestic renewable components. Such a requirement
equates to 10% ethanol. The amendment was defeated, 211-198.
The Conference Agreement
The Federal fleet purchase requirements common to both
predecessor bills were retained. However, fuel use requirements
were delayed somewhat (33% in 1997 to 75% in 1999 and later) to
permit infrastructure development. The House version for State
fleets prevailed.
For private fleets, alternative fuel vehicles would be
required initially of fuel providers only (30% in 1996, rising to
90% in 1999), applicable only to the business units of the
companies engaged in sale of alternative fuels. For other private
companies and local governments, fleet purchase percentage goals
phase in at 20% in 1999, rising to 70% in 2006 and later.
The Department of Energy (DOE) would be empowered to
implement, modify, or waive these requirements under a 3-year
rule-making process (1993-1996). Should DOE choose, as a result
of this process, not to carry out a private fleet program, it
would be required to undertake a second rule-making (1998-2000),
this time to phase in fleet purchase goals starting at 20% in
2002, rising to 70% in 2005.
This agreement provides a leadership role in alternative fuel
use to Federal and State governments and to fuel providers, to be
followed, after time has provided an opportunity for lessons to
be learned and technologies to be improved, by diffusion into
general private fleets taking into consideration the lessons
learned in the early years.
On the tax side, the House provisions (incremental costs only,
for dual-fueled vehicles, plus the higher allowances for
refueling property) prevailed, except that a tax credit for
electric vehicles was retained from the Senate version (at 10%
rather than the Senate's 15%).
For information on implementation of the alternative
fuels provisions of the Energy Policy Act, see CRS Issue Brief
93009, Alternative Fuels: Oil Import,
Highway Tax, and Implementation Issues.
P.L. 104-6, H.R. 889
Emergency Supplemental Appropriations and Rescissions Act of
1995. Does not change FY1995 appropriations for Department of
Defense programs for development and demonstration of electric
and natural gas vehicles. Signed into law April 10, 1995.
P.L 104-19, H.R. 1944
(Successor to H.R. 1158). Emergency Supplemental Appropriations
for Additional Disaster Assistance for Anti-Terrorism
Initiatives, for Assistance Recovery for the Tragedy that
Occurred at Oklahoma City and Rescissions Act of 1995. Rescinds
$10 million appropriated for FY1995 for DOE's Alternative Fuels
Utilization Program intended for use to cover incremental costs
of acquiring alternative fuel vehicles for the Federal fleet.
Passed House June 29, 1995. Passed Senate July 21, 1995.
H.R. 409 (Zimmer)
Would repeal the highway tax increase of 4.3 cents per gallon
imposed by the Omnibus Budget and Reconciliation Act of 1993
(OBRA 93, P.L. 103-66). Introduced Jan. 4, 1995. Referred to
Committee on Ways and Means.
H.R. 450 (Delay)
Regulatory Transition Act of 1995. Would prohibit issuance of new
final rules issued between Nov. 20, 1994, and Dec. 31, 1995,
until Dec. 31, 1995, or date of enactment of comprehensive
regulatory reform legislation, whichever is sooner. DoE's
proposed rules on alternative fuel vehicle requirements for
fleets of alternative fuel providers and on State and local
incentive programs, as well as the Federal Trade Commission's
rule on labeling requirements for AFVs, would be affected.
Introduced Jan. 9, 1995; referred to Committees on Governmental
Reform and Oversight and on Judiciary. Reported Feb. 16, 1995
(H.Rept. 104-39). Passed House on Feb. 24, 1995. Currently in
conference with S. 219.
H.R.479 (DeLay)
Would repeal the Clean Air Act Amendments of 1990, including
provisions relating to oxygenated and reformulated gasolines and
clean fuel fleets. Introduced Jan. 11, 1995; referred to
Committee on Commerce.
H.R.1015 (Klecska)
Would suspend the reformulated gasoline requirement temporarily,
pending results of a study on effects of RFG on human health.
Introduced Feb. 22, 1995; referred to Committee on Commerce.
H.R.1062 (Neumann)
Would repeal the Clean Air Act provision requiring reformulated
gasoline in certain ozone nonattainment areas. Introduced Feb.
24, 1995. Referred to Committee on Commerce.
H.R. 1158 (Livingston)
Emergency Supplemental Appropriations and Disaster Relief Act of
1995. Would rescind $10 million appropriated for FY1995 for DoE's
Alternative Fuels Utilization Program, from which, among other
purposes, the incremental costs of purchases of alternative fuel
vehicles for the Federal fleet is funded. Passed House May 18,
1995. Passed Senate May 25, 1995. Vetoed by the President June 7,
1995. Succeeded by H.R. 1944 (P.L. 104-19).
H.R. l977 (Livingston)
Appropriations for Interior and Related Agencies for FY1996.
Appropriates $177 million for transportation research programs in
DOE, slightly less than appropriated in FY1995. Funds the
Advanced Battery Consortium at $28 million and provides $40
million for hybrid electric propulsion development. Does not
provide funding to cover the incremental cost of acquiring
alternative fuel vehicles for the Federal fleet. Passed House
(H.Rept. 104-173) July 18, 1995. The Senate Committee
recommendations are similar. Passed Senate (S.Rept.104-125) Aug.
9, 1995. Conference report (H.Rept.104-259) recommitted to
conference by House Sept. 29, 1995. Subsequent conference report
(H.Rept. 104-300) filed Oct. 31, 1995, recommitted to conference
by House Nov. 15, 1995. Reported from conference Dec. 12, 1995;
passed House Dec. 13 and the Senate Dec. 14, 1995. Vetoed by
President Clinton Dec. 18, 1995. House failed to override Jan. 4,
1996.
H.R. 2099 (Livingston)
Appropriations for VA, HUD, and independent agencies (including
EPA). Reduces funding for enforcement, including RFG provisions.
Passed House (H.Rept. 104-201) July 31, 1995; passed Senate
(S.Rept. 104-140) Sept. 27, 1995. Conference report (H.Rept.
104-353) filed Nov. 17, 1995.
S. 219 (Nickles)
Regulatory Transition Act of 1995. Would require that Federal
rulemaking agencies submit proposed regulations, along with a
cost benefit analysis and other relevant information to Congress
for review. Congress may disapprove a rule by acting within 45
days by passage of a joint resolution. Introduced Jan. 12, 1995;
referred to Committee on Governmental Affairs. Approved by the
Senate Mar. 29, 1995. Currently in conference with H.R. 450.
S. 462 (Feingold)
Would suspend the reformulated gasoline requirement temporarily,
pending results of a study on effects of RFG on human health.
Introduced Feb. 22, 1995; referred to Committee on Environment
and Public Works.
S. 477 (Kohl)
Suspends the reformulated gasoline requirement temporarily,
pending results of a study on effects of RFG on human health.
Introduced Feb. 27, 1995; referred to Committee on Environment
and Public Works.
S. 665 (Simon)
Would increase the highway tax by 8 cents per gallon. Introduced
Apr. 4, 1995; referred to Committee on Finance.
S. 1066 (Bradley)
Phases out tax subsidies for ethanol used as highway fuel.
Introduced July 24, 1995; referred to Committee on Finance.
U.S. Congress. House. Committee on Energy and Commerce.
Subcommittee on Energy and Power. Hearing on Alternative
Fuels. 103rd Congress, 1st session. Oct. 7, 1993. Serial no.
103-78
----- Hearing on Implementation of the Reformulated
Gasoline Regulations of the Clean Air Act Amendments of 1990, 103rd
Congress, 2nd session. Sept. 29, 1994.
---- Hearings on Alternative Fuels and Reformulated
Gasoline, 104th Congress, 1st session. June 6-7, 1995.
U.S. Congress. House. Committee on Science, Space, and
Technology. Subcommittee on Energy. Hearing on Status of
Natural Gas Vehicle Research Development, and Demonstration. 103rd
Congress, 2nd session. Mar. 22, 1994.
U.S. Congress. Senate. Committee on Energy and Natural
Resources. Alternative Fuel Fleets. Hearing, 102nd
Congress. 1st session. Mar. 20, 1991.
S. Hrng. 102-30
---- The Renewable Oxygenate Requirement for Reformulated
Gasoline. Hearing,103rd Congress, 2nd session.
----- The Administration's Alternative Fuel Vehicle
Program. Hearing, 103rd Congress, 2nd session. June 17, 1994.
Anderson, Earl V. "Health Studies Indicate MTBE Is Safe
Gasoline Additive." Chemical and Engineering News, Sept.
20, 1993: 9-18.
Dewton, Doris J. "Did Federal Regulators Double-Cross
Industry on RFG?" Fuel Reformulation, March-April
1993, pp. 14-18.
Piel, William J. MTBE and Other Ethers: World-wide
Development. Presented at 1992 Latin American Methanol
Conference, Port of Spain, Trinidad. May 1992.
Potter, Frederick L. "Defining the Politics and Changing
Markets of Fuel Reformulation: A perspective from
Washington." Presented at the 1994 Annual Meeting of the
National Petroleum Refinery Association, San Antonio, TX. Mar.
20-22, 1994.
Singh, Margaret. "Estimates of Alternative Fuel Vehicle
Use from Federal, State and Local Programs." Argonne
National Laboratory. Draft. Jan. 13, 1995.
U.S. Department of Energy. Energy Information Administration. Alternatives
to Traditional Transportation Fuels: An Overview. DOE/EIA-0585/0.
June 1994.
----- Alternatives to Traditional Transportation Fuels:
1993. DOE/EIA-0586/(93). January 1995.
----- Office of Policy. Estimating the Costs and Effects of
Reformulated Gasolines. DOE/P0-0030. December 1994.
U.S. Environmental Protection Agency. Assessment of
Potential Health Risks of Gasoline Oxygenated with MTBE. EPA
Office of Research and Development. November 1993.
U.S. Library of Congress. Congressional Research Service. Alternative
Fuels for Automobiles: Are They Cleaner than Gasoline?, by
David E. Gushee. Feb. 27, 1992.
CRS Report 92-235 S
---- Energy Policy Act of 1992: Summary and Implications, multiple
authors. Feb. 1, 1993.
CRS Report 93-134 ENR
---- Ethanol and Reformulated Gasoline: The Renewable
Oxygenate Standard, by Susan L. Mayer. July 29, 1994.
CRS Report 94-613 ENR
---- Venezuela Gasoline Ban: A Fact Sheet, by Lawrence
Kumins, Sept. 23, 1994.
CRS Report 94-743 ENR
U.S. General Accounting Office. Letter to Senator Grassley on "...Possible
Effects of Eliminating the Current Tax Exemption for
Ethanol." Item B-265842. Sept. 14, 1995.
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