Decision Near on Replacing MTBE in Fuel

State officials are poised this week to order a controversial $1-billion reformulation of gasoline that bans a clean-fuel additive that has contaminated water supplies, yet aims to ensure that smog doesn’t worsen in return.

The proposal before the state Air Resources Board, which would increase the cost of gasoline by about 6 cents a gallon, has drawn the opposition of most oil companies.

Although all companies endorse replacing MTBE with a safer additive, most say that the air board is adding other formula requirements that are too costly and could cause potential fuel shortages in California.

The proposal, to be considered by the air board Thursday, is designed to put into effect an executive order issued by Gov. Gray Davis that requires gasoline to be free of MTBE by the end of 2002.

The octane booster MTBE has been added to California gasoline in large volumes since the mid-1990s as part of a mandate to produce cleaner-burning gasoline that substantially cleans up auto exhaust. Reformulated gasoline has done more to reduce smog than any other regulation in recent decades, air quality officials say.

MTBE, though, rapidly leaked from underground gas tanks and contaminated underground water supplies, forcing some wells to be shut down, especially in Santa Monica. MTBE has been linked to cancer in animal studies and carries a strong odor and taste.

Resolving the MTBE problem has been one of the most politically sensitive environmental issues facing the Davis administration.

Davis has said that he intends to strike a middle ground that protects air and water but ensures an adequate gasoline supply. Yet the state’s proposal has triggered intense opposition from many members of the oil industry as well as protests from environmentalists who worry that it is insufficient to protect air quality.

Today, Davis is expected to announce that one of the state’s largest oil companies has broken from the industry pack and endorses the state proposal. Other oil companies, however, are still negotiating with the air board staff, hoping to strike an agreement before the board acts Thursday.

Environmentalists accuse the Davis administration of already conceding too much to the oil industry and they worry that last-minute deals will weaken the proposal more.

“We’re strongly opposed to [the air board] changing the level of the playing field a few days before the hearing,” said Brook Coleman of the San Francisco-based environmental group Bluewater Network. “The adjustments that [the board] is making here at the last minute directly affect air quality, and the loser in this process is the California public and people who breathe.”

By all accounts, reformulation is a costly enterprise because it would involve major retrofitting of some refineries. The air board predicts that the price will be $1 billion in capital costs plus $360 million a year, in part because of the higher cost of octane boosters to replace MTBE. If the entire cost is passed on to consumers, gasoline prices would rise by 4 to 7 cents per gallon in 2003, an air board report estimates. The state Energy Commission predicts a 6 1/2-cent increase.

Oil companies have agreed to remove MTBE from all California gasoline within three years, and some have already taken steps to do so. The debate now is over what they must do to their gasoline to ensure that when MTBE is removed, air quality doesn’t suffer.

The companies plan to replace MTBE with ethanol, another octane booster. There is an insufficient supply of the chemical, which comes largely from corn.

Moreover, ethanol would raise the fuel’s vapor pressure and the temperatures at which it evaporates. That, in turn, would worsen smog by increasing hydrocarbons and nitrogen oxides in car exhaust.

As a result, the air board must set new limits on fuel pressure and temperature. The industry and air board staff are at odds over those key components.

Michael Kenny, the air board’s executive officer, said the staff’s proposal would keep all pollutants in exhaust at current levels or lower levels. He said it would cut nitrogen oxides--a key ingredient of smog--by 20 tons a day, about 2% of the amount now emitted by automobiles. He said that decrease is necessary to ensure that removing MTBE does not in any way wind up making air quality worse.

“Our imperative is get rid of MTBE but don’t lose any benefits,” Kenny said.

Oil industry officials, however, say the limits on pressure and temperature go too far in controlling emissions and will lead to higher production costs than necessary.

Doug Henderson, executive director of the Western States Petroleum Assn., said California refineries as a result will reduce their production, leading to less gasoline being manufactured in the state.

“We’re working hard to comply with the governor’s order but we’re concerned about [the air board’s] desire to go well beyond that, at the expense of our supply and our in-state refining capacity,” Henderson said.

Winston H. Hickox, secretary of the California Environmental Protection Agency, dismissed the supply concerns as posturing by lobbyists.

“There’s a sense that the sky is going to fall, and it’s nonsense,” he said.

State officials say any reduction in state production could be made up by fuel manufactured to California standards at refineries in other states.

Gasoline supply is a touchy issue in California, because motorists earlier this year experienced shortages that helped drive prices up at the pump, largely due to fires at refineries. The problems called attention to the fact that California is more vulnerable than other states to gas shortages because its fuel is different to satisfy smog rules.

California oil refineries have already spent $5 billion since the early 1990s to produce cleaner-burning gasoline. The new proposal promises more retooling of the plants.

Henderson said some refiners have already left California as a result of the reformulation costs. Only a few major companies are left, led by Chevron, Tosco and Arco.

Environmentalists say the air board’s proposal fails to meet the provisions of the governor’s MTBE order, which requires no backsliding in reducing air pollution. Coleman said that it is likely to increase carbon monoxide emissions from cars, and that hydrocarbons could also increase under some projections.

“The new gas has the potential to be significantly more dirty than current fuels,” Coleman said.

Air quality officials deny that the proposal would worsen pollution, and say they hope to win endorsements next week from environmentalists as well as industry leaders.

“We’re talking with everybody, but hopefully a lot of these dangling issues will be resolved before Thursday,” said air board spokesman Jerry Martin.

The MTBE problem has tarnished the credibility of a widely lauded smog program that since 1996 has reduced auto emissions 15%, equivalent to removing 3.5 million cars from California’s roads.

MTBE (methyl tertiary butyl ether) has been in gasoline for about 15 years, but in 1996, oil companies began increasing the amount to comply with an air board order to raise the oxygen content of gasoline.

State officials and the oil industry underestimated the threat that the additive would pose to water supplies. They were surprised at how quickly it spread to water wells in areas with high water tables; they had wrongly assumed that efforts to fix leaking underground tanks would protect water supplies.

Before considering the gasoline rule, the board Thursday will hold a hearing to hear evidence about whether ethanol poses any environmental threats.