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 # 302  

 July 2000



Gasoline Additives Fuel High Prices and Environmental Problems

By Syd Gernstein


There has never been a worse time for the government to enact policies that raise gasoline prices. In just the past 12 months, gasoline prices have skyrocketed - rising almost 45%.1 Desperate citizens are urging the government to intervene. It has, but not in the way money-drained citizens had in mind.

It seems unimaginable that the government is actually doing something to drive gasoline prices even higher. This, however, is exactly what the Environmental Protection Agency (EPA) is doing. According to a report by the Congressional Research Service, there are five primary factors contributing to the current high gas prices. Two of them directly relate to the EPA-mandated Reformulated Gasoline (RFG), a program the EPA initiated to help the environment.

Supporters of the EPA's policies say higher prices at the pump are a small sacrifice for a program that helps the environment. But critics charge that RFG provides no benefits. And, no matter what, residents of poor and minority communities are having to dig deeper into their wallets to pay for the gasoline they need to get to work, shop for food and do other necessary things.

 

No Bang for the Buck

Few would think a costly and oppressive program meant to help the environment could completely fail to do so. Fewer still would think such a program would also put an enormous strain on the nation's resources and economy. And nobody would think the EPA would promote a program that actually hurts the environment.

Yet the EPA has done just that.

The use of RFG was mandated by the EPA under the Clean Air Act of 1990 to combat air pollution. RFG is blended to burn more completely and evaporate less than conventional gasoline, and is thus supposed to subject the air to less pollution. At its most basic level, RFG has a different chemical composition than conventional gasoline to create less ozone and fewer air toxins. A key feature of RFG is oxygenates, which are supposed to increase the combustion efficiency of gasoline and reduce carbon monoxide (CO) emissions.

Oxygenates are probably the most controversial aspect of RFG. The EPA credits oxygenates for a substantial reduction in CO levels. But some critics argue that oxygenates are just token efforts by the EPA to appease environmentalists. A 1999 report conducted by the National Academy of Sciences (NAS) for the EPA, in fact, supports such criticism.

The NAS's report concluded that the "commonly available ethanol and MTBE [an oxygenate] blends do little to reduce smog."2 The study, which was originally supposed to highlight the relative effectiveness of ethanol and MTBE, instead credited air quality improvements to factors like the improved emissions control equipment in today's cars. Furthermore, the report predicts that, as cars with continually improving emissions-control equipment continue to replace older ones, RFG's role in environmental improvement will continue to decline. Despite this unambiguous conclusion, the EPA continues to endorse oxygenates.3 The agency says the use of RFG has decreased CO levels by approximately ten percent. While this may be true, it fails to address whether or not CO levels are even high enough to be of any concern.

In a 1994 executive order, President Bill Clinton ordered the government to stop private businesses from imposing themselves on poor and minority communities. Critics contend this protection should be expanded to involve the actions of government as well. If the Clinton Administration was truly interested in promoting "environmental justice," it would do well to begin by taking the steps necessary to remove the unnecessary budgetary and environmental burden of RFG on America's poor and minorities.

 

Useless and Deadly

There is a wide range of evidence that goes beyond the NAS's findings to suggest that RFG actually imposes environmental, economic and health problems on the American people. MTBE, in particular, has drawn significant criticism during recent years.

The prevalence, persistence and noxiousness of MTBE combine to make it an extremely hazardous substance that does far more harm to the environment than good. Scientists have linked MTBE to cancer, reproductive and developmental issues, increased incidences of asthma, general adverse effects on the central nervous system, liver abnormalities, damage to the tissues of the heart and other negative effects. While air pollution has been blamed for increases in asthma cases in the inner city, the EPA is silent on the link between MTBE and this debilitating respiratory condition - proving a double-standard in the EPA's environmental justice agenda. Furthermore, the EPA has even identified MTBE as a Group C carcinogen.4

The prevalence and physical attributes of MTBE make these health problems all the more imposing. MTBE is water soluble and resistant to biodegradation; these physical characteristics result in it travelling faster and further through the ground than any other component of gasoline. There is no shortage of MTBE, either; it constitutes 11% of all RFG by volume.5 A recent study by the United States Geological Survey and the Oregon Graduate Institute found that as many as 9,000 community water wells in 31 states may already be affected by MTBE contamination due to their proximity to leaking underground storage tanks.6 It is the most widely-detected gas compound in Northeast drinking water.

The environmental damage that MTBE imposes also costs communities a great deal of money to clean up. A report issued by the Northeast States for Coordinated Air Use Management (NESCAUM) estimates that MTBE contamination adds $34 million to the cost of cleaning up gas spills in the Northeast.7

 

Alternatives Just as Bad as the Original

Criticism of the MTBE additive has sparked the search for other oxygenate alternatives. The most realistic alternative cited thus far is ethanol. However, critics charge that ethanol carries environmental and economic baggage similar to MTBE.

As ethanol receives more attention, the environmental hazards it poses become more apparent. According to NESCAUM, the use of ethanol increases emissions of acetaldehyde - a probable human carcinogen - up to 70%.8 Such levels are already in excess of health-protective thresholds. The physical properties of ethanol also make trucking the most efficient means to transport it. Therefore, the tremendous amount of truck traffic required for a shift to an ethanol oxygenate would require would have a substantial impact on air quality.9 Ethanol is almost exclusively produced in the Midwest, but 74% of its use would be required on the coasts in the case of its widespread use.

This transportation problem touches on problems with ethanol that go far beyond environmental issues. Ethanol cannot be shipped through existing pipelines. If it was, its natural affinity for water could cause it to absorb water while travelling through these pipes. The water it absorbs may separate in a vehicle's gas tank, causing fuel lines to freeze during cold weather and degrade engine performance. Besides an increased investment in trucks, ethanol would require additional investment in storage tanks and blending equipment. Consumers would undoubtedly assume the majority of this financial burden.

Similarly, consumers will have to pay more for gasoline as a result of the increased costs involved in refining ethanol-oxygenated RFG. The ethanol itself will not force gas prices to rise substantially, but the price of the gasoline base material needed for oxygenate blending - called RBOB - will. RFG volatility (the speed of evaporation) is limited by EPA regulation. Ethanol is more volatile than MTBE. Thus, in order for the ethanol-blended RFG to fall within the overall volatility limit, the volatility of the RBOB used in ethanol blending must be low. This requires blending volatile ethanol, a physical characteristic that cannot be changed, with special reduced-volatility RBOB. Such low-volatility RBOB is very hard to manufacture.10 According to reports by NESCAUM and the Congressional Research Service, refiners say they cannot produce large quantities of ethanol-oxygenated gasoline at reasonable costs under the current mandates of the RFG program. The Department of Energy's Energy Information Administration further estimates that the increased costs these mandates will impose will force consumers to pay $5 billion more for gas in 2005 than they do today.11

As with current taxes on gasoline, consumers in poor and minority communities will be the hardest hit. People in these areas earn less per household than the national average, and must pay substantially larger portions of their budgets to operate their cars and trucks. For small businessmen or people with long commutes or family obligations, gas price increases could force many to make difficult and life-altering decisions.

 

The Economic Disaster of Ethanol, Fueled by Politics

At a more macroeconomic level, the costs of a shift to ethanol will also punish the nation's economy. Ethanol currently benefits from a 5.4 cents per gallon federal tax subsidy. Many states also offer additional ethanol tax breaks. Without such subsidies, ethanol is considerably more expensive than competing gasoline compounds. However, a large-scale shift to ethanol could have a major impact on federal tax revenues. If ethanol distribution was increased to the goals supported by the EPA, the decrease in tax money used to maintain the Highway Trust Fund could fall by as much as $2 billion.12

In order to maintain the EPA-mandated octane levels in ethanol-oxygenated gasoline, refiners would also have to use additional amounts of alkylates, which are existing gasoline components. But alkylate production is already near capacity today.13 A widespread demand for ethanol RFG would put a tremendous strain on the existing supply. According to NESCAUM, the current supply of ethanol would not be enough to support a major shift to ethanol in both the Northeast and California.14

Thus, the idea for the EPA to mandate the use of ethanol in RFG carries with it a great deal of difficulties, leading many to wonder why the EPA and many politicians continue to protect ethanol. Part of the reason may be purely political. An examination of the 1998 election cycle reveals just how important ethanol interests are in Washington. During that cycle, Archer Daniels Midland (ADM) Corporation, the nation's largest producer of ethanol, was the highest non-tobacco agribusiness donor to congressional campaigns - totaling $764,225 in donations. That money was almost perfectly split between Democrats and Republicans, giving corn growers access on both sides of the aisle.15 Since 1988, ADM and its subsidiaries have given over $3 million in soft money contributions to both major national political parties. Despite the fact that ADM pled guilty to price-fixing and paid the largest fine ever in a federal anti-trust case in 1996, candidates continue to accept money from the company, and continue to support ethanol subsidies once they are in office. In a 1997 report, the General Accounting Office concluded that this ethanol subsidy has cost the federal treasury more than $7 billion since 1979 - and more than $600 million in 1995 alone. Yet, ethanol clearly has returned little in the way of environmental benefits or reduced reliance on foreign oil.16

 

Conclusion

Beyond ethanol and MTBE, things look no better for other oxygenates. Scientists have not found any good alternatives to ethanol or MTBE. The oxygenates ETBE and TAME are considered too similar to MTBE, and TBA is too difficult to produce in large quantities and is carcinogenic.17

There are other, more general problems with the EPA's RFG program. Cost is evident - it is one of the key reasons that today's gas prices are soaring so dramatically. The Congressional Research Service estimates that the environmental regulations imposed by the RFG program have driven the price of gasoline up 25 cents a gallon in the Midwest. To a similar end, a federal appeals court decision in March found that the Unocal Corporation owns a patent on the most efficient method of making RFG. This forces refiners to either use a less efficient method to make RFG or to pay royalties to Unocal.18 Either way, consumers will suffer.

The EPA has gone far beyond its proper boundaries in the mandates it has imposed through the RFG program. Even if the RFG program was viable, the EPA should only mandate the environmental goals that it wants gasoline to meet. It should not mandate the specific methods and tools that refiners must use in order to meet these goals. By giving oil refiners more freedom, they are more likely to seek out more efficient means to refine oil - thus leading to lower prices.

What's more, consumers are the ones most penalized by the EPA's RFG mandates. Increased costs, health risks and economic devastation are not the products of a logical policy. Nor is the fact that these mandates prey particularly hard on poor and minority citizens who can least afford the price and live in areas most likely to feel the negative environmental effects of implementing RFG policies.

The EPA's RFG program is extremely flawed. Not only does no convincing evidence exist to support the program, but a great deal of evidence actually attests to the environmental and economic damage it imposes. When observed from afar, the RFG program appears just to be a trophy program to appease environmentalists, with no real benefits to it.


Footnotes:

1 Neil Irwin, "Record Numbers on the Road Despite Gas Prices," The Washington Post, July 4, 2000.

2 "Commonly Available Ethanol and MTBE Blends Do Little to Reduce Smog," National Academy of Sciences, downloaded from http://www4.nationalacademies.org/news.nsf/(ByDocID)/OFBB783B5C8951AD852567740063557D?OpenDocument on June 30, 2000.

3 H. Josef Hebert, "Limited Smog Reduction Found in Reformulated Gasoline," Associated Press, May 12, 1999.

4 "The Health Effects of Gasoline Constituents," Northeast States for Coordinated Air Use Management, downloaded from http://www.nescaum.org/pdf/MTBE/mtbe_health.pdf on June 28, 2000.

5 "The Health Effects of Gasoline Constituents."

6 "To What Extent Will Past MTBE Releases Contaminate the Nation's Community Water Supply Wells?," United States Geological Survey, downloaded from http://sd.water.usgs.gov/public_naw/vocns/ on July 13, 2000.

7 "RFG/MTBE Findings & Recommendations," Northeast States for Coordinated Air Use Management, downloaded from http://www.nescaum.org/pdf/MTBE_PH2/Ph2summ.pdf on June 30, 2000.

8 "The Health Effects of Gasoline Constituents."

9 "Health and Environmental Assessment of the Use of Ethanol as a Fuel Oxygenate," Report to the California Environmental Policy Council in Response to Executive Order D-5-99, downloaded from http://www-erd.llnl.gov/ethanol/AR-135949VOL1.pdf on June 29, 2000.

10 "Midwest Gasoline Price Increases," Congressional Research Service, June 16, 2000.

11 "NPRA Opposes Ethanol Mandate; Asks Congress Not To Hinder Efforts To Maintain Supply," National Petrochemical and Refiners Associations, downloaded from http://www.npradc.org/press/6-14-00.html on June 28, 2000.

12 "NPRA Opposes Ethanol Mandate; Asks Congress Not To Hinder Efforts to Maintain Supply."

13 "An Assessment of Options for Reducing MTBE in Reformulated Gasoline," Northeast States for Coordinated Air Use Management, downloaded from http://www.nescaum.org/pdf/MTBE/options.pdf on June 30, 2000.

14 "Air Quality, Fuel Supply and Cost Impacts of MTBE and its Alternatives," Northeast States for Coordinated Air Use Management, downloaded from http://wwwnescaum.org/pdf/MTBE_PH2/Ph2AQ_costs.pdf on June 30, 2000.

15 "The Big Picture: The Money Behind the 1998 Elections, " Center for Responsive Politics, downloaded from http://www.opensecrets.org/pubs/bigpicture2000/index.htm on June 29, 2000.

16 "Common Cause Report: Fuel's Gold, ADM's Million-Dollar Soft Money Donations Help The Ethanol Tax Break Survive," Common Cause, downloaded from http://www.commoncause.org/publications/fuelsgold_toc.htm0 on June 30, 2000.

17 "An Assessment of Options for Reducing MTBE in Reformulated Gasoline."

18 "Midwest Gasoline Price Increases"; Irwin, July 4, 2000.



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Syd Gernstein is a research associate of The National Center's African-American leadership network, Project 21. Comments may be sent to [email protected].


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