EPA'S RFG RULE UNDER PETROLEUM INDUSTRY FIRE

Oil industry groups are considering suing the Environmental Protection Agency to block a rule it issued requiring U.S. renewable fuels, mainly ethanol, to provide 30% of the oxygen content of reformulated gasoline (RFG).

To assure adequate gasoline supplies this winter, EPA will require only a 15% oxygenate content in RFG, which must be sold in nine major metropolitan areas beginning Jan. 1 (OGJ, July 4, Newsletter). The 30% requirement is to take effect in 1996.

The 1990 Clean Air Act amendments require development of RFG for the nation's most polluted areas, specifying at least 2 wt % oxygen to reduce pollution in the nation's most polluted cities. The refining industry generally favors use of methyl tertiary butyl ether (MTBE) to supply the oxygen.

"FUEL NEUTRAL"

EPA stressed the rule does not mandate ethanol. It said the renewable requirement is "fuel neutral" regarding the type of renewables to be used as long as clean air standards are met.

Carol Browner, EPA administrator, said ethanol will be used at first, but her agency also expects roles for ethyl tertiary butyl ether (ETBE) and methanol from municipal solid waste or landfill gas.

Only receivables such as ETBE, which do not increase evaporative emissions in summer, will be used during warmer months. All renewable oxygenates, including alcohols, are expected to be used in cooler months.

EPA said, "To assure that the full air quality benefits of the RFG program are achieved, the rule does not credit the use of oxygenates during the summer smog season that increase vehicle evaporative emissions.

"Thus, there will be strong incentive to not use splash blended alcohols in reformulated gasoline cities during the summer months. To provide flexibility to the fuels industry, EPA has included a 12 month averaging period for the use of renewable oxygenates and will allow refiners to trade oxygen credits among refineries and cities."

EPA said RFG will cost consumers 3-5cts/gal more than conventional gasoline, but the renewables program will have no additional costs.

It said the program will create demand for 335 million gal/year of renewables and cost as much as $240 million in increased federal subsidies and distribution and storage costs, but they will be offset by a reduction in Agriculture Department corn deficiency payments of $275 million/year and net farm income increases of $160 million/year.

POLITICS CLAIMED

Charles DiBona, American Petroleum Institute president, said his group is polling its membership regarding whether it should file suit against the EPA move and seek an expedited hearing. Congress may also attempt to block the rule.

Based on his conversations with API members, DiBona is confident there will be a suit and industry will win. He noted the Bush administration also tried to require ethanol in gasoline, and even EPA's lawyers said the action was illegal.

"This outrageous decision is bad for the environment, bad for the economy, and bad for consumers," DiBona 'd. "It is good only for the narrow, selfish interests of the ethanol lobby, which used political pressure rather than any rational justification to get it adopted."

DiBona said the rule shows "a blatant disregard" for the regulatory negotiation (reg-neg) agreement on reformulated fuels EPA signed in 1991 with representatives of the ethanol industry, agricultural interests, automakers, environmental groups, and the petroleum industry.

He charged the rule was issued "for blatantly political purposes" so the administration could make good on a deal that was cut during Clinton's election campaign.

DiBona said because it takes fuel to raise corn and process ethanol, the EPA rule will increase oil imports, not decrease them.

He said the refining industry participated in the reg-neg to eliminate uncertainty so it would have adequate lead time to invest the billions of dollars needed to make RFG.

"Now EPA has decided to totally break its word on this agreements. That's what happens when you make an agreement with the Government.

"And here we are, 3 years later, a few months before we have to put RFG gasoline in the system in September, still faced with Uncertainty.

"We're going to make every conceivable effort to supply the public with adequate fuels this winter. But don't let EPA tell you they helped us do that."

REFINERS ANGRY

Urvan Sternfels, National Petroleum Refiners Association president, charged that regulatory rulemaking has been converted into "political log rolling masquerading as environmental activism."

He said, "The irony of this ethanol mandate is that it neither benefits the environment nor consumers and tax-pavers.

"'No industry should receive preferential treatment or a government conferred quota in the manufacturing of reformulated gasoline-particularly one that needs to be subsidized by tax dollars to be competitive.

"EPA is meddling in areas which should be left to the marketplace. The refining industry is using ethanol in many areas of the country through decisions made by consumer demand and supplies.

"The principal goal of the clean fuels program is to provide ozone nonattainment areas with RFG beginning Jan. 1. Requiring the refining industry to transport huge amounts of ethanol from the Midwest to the Northeast and the Los Angeles basin will frustrate that objective."

In addition, the Natural Gas Supply Association said, "By bowing to pressure, the administration has reduced the likelihood that businesses and industries will participate in future reg-neg processes or accept their results.

"It moves the U.S. away from government-industry cooperation and back toward adversarial relationships that produced less effective and more costly regulations."

RULE DEFENDED

Browner said, "Adding renewable fuels to gasoline promotes products that are grown on American farms by American farmers. It promotes environmentally friendly jobs. It reduces air pollution. It protects public health. It reduces our nation's dependence on foreign oil."

She denied the rule violates the reg-neg deal. "We are not changing the agreement about how RFG will be made."

Eric Vaughn, president of the Renewable Fuels Association, said the rule could increase demand for ethanol 650 million gal/year when fully implemented.