Senate Agriculture, Nutrition and Forestry Committee

Chairman Dick Lugar, U.S. Senator for Indiana

Date: 4/11/00

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Lugar Opening Statement on MTBE and Renewable Fuels

WASHINGTON - U.S. Sen. Dick Lugar delivered the following opening statement today at a Senate Agriculture, Nutrition and Forestry Committee hearing on MTBE and renewable fuels:

In July, 1999, an independent Blue Ribbon Panel on Oxygenates in Gasoline called for major reductions in the use of MTBE as an additive in gasoline. They did so because of growing evidence and public concerns regarding pollution of drinking water supplies by MTBE.

Evidence of water contamination by MTBE was highest in those areas of the country required to adopt (or which had voluntarily adopted) the Reformulated Gasoline Program established by the Daschle-Dole Amendment to the Clean Air Act. The RFG program was designed to reduce smog as well as air toxics and contained a minimum 2 % oxygen content to facilitate those reductions.

The Reformulated Gasoline Program was established by the Dole-Daschle Amendment to Clean Air Act, an amendment and an Act which I strongly supported, having participated in the meetings convened by Senator Mitchell, Senator Dole and the Bush Administration to draft clean air amendments which were strong, yet cost-effective. The Acid Rain provisions of the Clean Air Act have been a huge success, with the environmental economists at the independent and widely respected Resources for the Future estimating public benefits outweighing costs by a ratio of sixty six to one.

The Reformulated Gasoline Program (RFG) has also proven to be a success in reducing smog and has exceeded expectations in reducing dangerous and carcinogenic air toxics in gasoline. The second stage of the Reformulated Gasoline Program (RFG) will commence this summer and will have an even greater effect in reducing ozone pollution and air toxics.

A largely unanticipated effect of the Reformulated Gasoline Program was that MTBE rather than ethanol became the oxygenate of choice outside of the Midwest to meet the 2% oxygen requirement in the Reformulated Gasoline Program. The reasons why refiners have preferred to use MTBE as an oxygenate rather than ethanol are said to relate to issues of cost and transportation, but they also result from a natural preference by oil companies for a product which they themselves make (MTBE) rather than one which they purchase from others (ethanol).

Because of concerns regarding water pollution, it is clear that the existing situation regarding MTBE is not tenable. The Governor of California has called for a three year phase out of MTBE in California and the California Air Resources Board has adopted regulations to that effect. Environmental officials from eight Northeastern States have proposed a phase down and a capping of the use of MTBE in gasoline in their states.

Retaining the current oxygenate requirement for reformulated gasoline is certainly a viable solution. A USDA study has shown that it is technically and economically feasible to replace all of the MTBE currently used in reformulated gasoline with ethanol over a four year period. A study by the Governors' Ethanol Coalition has projected major benefits to rural economies, farm income and jobs if ethanol is allowed to replace MTBE as MTBE use is phased out.

Officials from California and the Northeast are requesting legislation to repeal or at least facilitate waivers of the oxygenate requirement. This alternative would sacrifice some of the energy security and economic benefits of increased ethanol use.

Senator Daschle has presented a compromise proposal which would allow for legislative authority to waive the oxygenate requirement provided that such authority was accompanied by strict anti-backsliding provisions regarding air toxics and a renewable fuels standard to ensure that markets for renewable fuels will continue to expand as a result of the MTBE crisis. He includes a biofuels credit in his draft legislation.

As concerns over energy security mount, there is growing recognition of the importance of adopting a national energy strategy which will address the development of alternative fuels. It is clear that MTBE is on its way out. The question is what kind of legislation is needed to facilitate its departure and whether that legislation will be based upon consideration of all of the environmental and energy security issues involved.

I look forward to the testimony of our well informed and expert witnesses.

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