House panel debates boutique fuels legislation

June 8, 2006
Republicans and Democrats squared off over "boutique" fuels—special formulations designed to help states and urban areas reach federally mandated air quality improvement goals—in the US House Energy and Commerce Committee on June 7.

Nick Snow
Washington Correspondent

WASHINGTON, DC, June 8 -- Republicans and Democrats squared off over "boutique" fuels—special formulations designed to help states and urban areas reach federally mandated air quality improvement goals—in the US House Energy and Commerce Committee on June 7.

Democrats on the committee said that draft legislation to further reduce the number of federally approved boutique formulations from seven to three is unnecessary. But several Republicans warned that efforts by states to increase ethanol and biodiesel fuel use could make supply problems reappear.

Chairman Joe Barton (R-Tex.) said he convened the hearing to determine if more federal action is needed.

"There's no question that blending special fuels for different parts of the country serves a good purpose, but it adds dramatically to the complexity of the gasoline distribution system if every part of the country chooses a unique fuel," he said.

The Energy Policy Act of 2005 contained the first steps to simplify the system by capping the number of formulations to those approved by the Environmental Protection Agency as of Sept. 1, 2004, he continued. The law also gave EPA authority to waive specifications during emergencies, which the federal agency used within weeks following Hurricane Katrina, Barton said.

The law also directed EPA to conduct studies of ways to simplify the nation's fuel supply and, in cooperation with the Department of Energy, of developing a national fuels system that maximizes fungibility and supplies, addresses regional air quality requirements and reduces price volatility, he said.

The agencies are due to complete the studies in August. Barton said that the discussion draft would accelerate completion of some parts of the studies so EPA and DOE could use the information to develop what the draft calls an approval state fuels list.

Fuels on this list would have to help a state or urban area attain National Ambient Air Quality Standards, provide net benefits to the national or regional fuel supply, and not reduce supplies or producibility, he said. "States, in turn, may choose a fuel from the list, provided that no more than two of the approved fuels may be used in each Petroleum Administration for Defense District," Barton said.

Unnecessary diversion
Democrats immediately criticized the draft as an unnecessary diversion from more pressing issues. Bart Stupak (Mich.) said identifying the roots of high gasoline and natural gas prices was more important, while Tammy Baldwin (Wis.) and Anna G. Eshoo (Calif.) said the discussion draft may be trying to address problems that are in the process of being solved already by provisions of the 2005 energy act.

"The use of these fuels is often the most cost-effective way for states to meet their clean air goals," added Tom Allen (Maine), and Jan Schakowsky (Ill.) declared, "No analysis shows this legislation would bring down gasoline prices. No industry representative has said that it would have that effect."

Witnesses representing DOE and EPA withheld comment on the discussion draft until the studies ordered by the energy act are completed. Chief Minority Member John D. Dingell (Mich.) charged the administration already dragged its feet when EPA delivered the initial list of seven acceptable formulations seven months late on June 1.

Henry A. Waxman (Calif.) said that making it harder for state and local governments to reduce air pollution by limiting their fuel formulation choices could undermine the Clean Air Act.

"This Congress has consistently moved to restrict state and local governments and concentrate more decision-making in Washington. I'm amazed at this since I've always understood that Republicans prefer to keep this authority at the state and local level," he said.

Republicans warned that some states, in their zeal to encourage more ethanol and biodiesel use, may be going too far, however. John B. Shadegg (Ariz.) warned against imposing mandates that potentially could create another restricted fuel supply situation.

"In this year alone, several states have considered ethanol or biodiesel mandates instead of allowing market forces to determine when biofuels should be used," observed John Sullivan (Okla.).

Two states so far
Renewable Fuels Association Pres. Bob Dinneen said that only 2 states, Minnesota and Hawaii, have biofuel mandates in place. "Indeed, several of the proposed state programs wouldn't even become effective until there is meaningful biofuel production in the state. Others rely on tax incentives," he said.

"I am sympathetic to the concern some people express over states' adopting biofuel mandates that potentially could chip away at nationwide flexibility. But that is an issue affecting RFS (renewable fuel standard) implementation," Dinneen said.

But Sonja Hubbard, vice-chair for government relations at the National Association of Convenience Stores and chief executive of E-Z Mart Stores Inc. in Texarkana, Tex., recommended that any state's implementation of an alternative fuel mandate require determinations by the US Energy and Transportation secretaries that fuel supplies and transportation logistics can support it.

"Currently, state alternative fuel mandates are the biggest threat to gasoline and diesel fuel fungibility confronting the motor fuel manufacturing and distribution industries. These state mandates are not covered by the Energy Policy Act's boutique fuels restrictions, but they should be," said Hubbard, who also testified on behalf of the Society of Independent Gasoline Marketers of America.

Hubbard and Dinneen were on a panel of witnesses that also included Edward Murphy, group director for downstream and industry operations at the American Petroleum Institute; Bob Slaughter, president of the National Petrochemical & Refiners Association; and William Becker, president of the State & Territorial Air Pollution Administrators and the Association of Local Air Pollution Control Officials.

Murphy said that the discussion draft contains several positive provisions already but needs a provision addressing state-imposed biofuel boutiques which could undo benefits from both the 2005 energy act and Barton's discussion draft.

Preempt mandates
"We urge you to consider extending regulations on state-mandated fuels to include renewables or biofuels. Given the existence of the federal renewable fuels standard mandating the use of a minimum amount of biofuels each year, and a trading program intended to provide flexibility where the biofuels are used, all state biofuel mandates should be federally preempted," he suggested.

Slaughter expressed concern that "boutique fuels have been taken out of perspective and targeted by some as the cause of high prices in the current transportation fuels market."

He urged that impacts of reducing the number of formulations further be studied fully because an additional change to a more stringent fuel specification now would be difficult and disruptive for refiners. Slaughter also recommended that Barton's discussion draft consider the boutique-like impacts of states' ethanol and biodiesel mandates.

Becker's primary concern was that additional federal fuels legislation could undermine state and local governments' air pollution reduction efforts.

"A state is not allowed to look at any fuel until it has exhausted all other measures. If our ability to adopt clean fuels is taken away from us, we'll have to look at more expensive approaches to achieve these goals," he said.

"I want the Clean Air Act implemented in the most efficient way possible. I want each nonattainment area to look at its situation and decide what the best approach could be," Barton responded.

He said that before Congress passed the Energy Act of 2005, there potentially could have been many more local fuel formulations than seven. "There's no magic number. Seven is closer to the minimum. We could go lower, but we may not want to," Barton said.

But Hubbard said that convenience store owners and operators and independent gasoline marketers aren't certain more legislation is needed. "NACS and SIGMA have, for many years, warned Congress about the fragmentation of fuels markets that has resulted from various jurisdictions adopting their own boutique fuel blends," Hubbard testified. "Nevertheless, it is our straightforward message to this committee today that we are more concerned than reassured by the prospect of new fuels legislation this year."

Contact Nick Snow at [email protected].