COURT BLOCKS ETHANOL REQUIREMENT IN EPA PROGRAM

A federal appeals court in Washington last week issued an order blocking the ethanol mandate in the U.S. Environmental Protection Agency's reformulated gasoline (RFG) program.

The National Petroleum Refiners Association and American Petroleum Institute had filed an appeal against the EPA mandate (OGJ, July 18, p. 29).

The action will not affect EPA's requirement that RFG be used in urban air quality nonattainment areas beginning next January.

The ethanol mandate said renewable fuels must provide 15% of the oxygen content of RFG effective Jan. 1 and 30% Jan. 1, 1996.

The three justice appeals court unanimously ordered a stay of the rule and expedited consideration of the NPRA API lawsuit challenging it. Initial briefs are to be filed next month, and the court is expected to hear the case early next year.

NPRA, API RESPONSE

NPRA and API said, "We are pleased with the decision because courts rarely grant stays, and it means the court believes we have raised enough serious questions to stay the rule pending court review.

"We believe the rule would impose unwarranted, politically motivated, costly burdens on large and small domestic refineries and their customers, would provide no environmental benefits, and would complicate the largest ever transition to clean, reformulated gasoline next January."

A lawyer familiar with the case said in a petition for a stay, plaintiffs are required to show they have a likelihood of success at trial and they would suffer irreparable harm if the stay were not granted. Individual refiners have filed affidavits with the court showing they would be harmed if the stay were not granted.

NPRA and API said EPA has not given refiners enough time to prepare to use 15% renewable fuels effective Jan. 1, and the mandate exceeded EPA's statutory authority.

They claimed there was no environmental or economic basis for the rule, but the Clinton administration simply wanted to help corn growers and ethanol processors.

The oil groups said they do not object to using ethanol in RFG, just to any, government mandate for its use. And they said the ethanol mandate violates a deal industry struck with EPA in a regulatory negotiation process that preceded the RFG rule.

WRIGHT KILLEN STUDY

NPRA and API hired Wright Killen & Co., Houston, to provide an analysis of the RFG mandate.

Peter Killen, executive vice president and author of the study, said, "Wright Killen found that the EPA's cost estimates of oxygenates, blending and transportation, and toxics compliance to be considerably understated."

EPA had estimated costs of $4 60 million for the program plus one time capital costs of $17.6 million for additional storage and blending capacity.

Killen said, "In effect, we believe the EPA has underestimated the increased costs of the program by at least $72 152 million/year.

"Our findings further indicated that not only would the execution of the mandate in its present form be costly and disruptive, but the program also would create economic distortions.

"Such distortions would disadvantage certain petroleum refiners and manufacturers of gasoline additives disproportionately companies that already have acted in good faith to comply with the 1990 Clean Air Act Amendments."

The company used models that assumed almost total flexibility by the refining industry to adjust patterns of refinery operations and product blending/distribution as needed to meet the RFG requirements.

"In fact, such flexibility does not exist," Wright Killen said. "Moreover, we have not considered any of the costs that will be incurred to accommodate seasonal transitions from ethanol to ether based oxygenate or the full impact of the vapor pressure and octane losses that will result from expected refinery process changes.

"As a result, we consider our estimates of the costs of the renewable oxygenate program as conservative and likely to understate the actual costs that will be incurred."

The study disputed EPA's estimate that the program would reduce direct oxygenate costs $22 72 million. Wright Killen said there will be no reduction.

EPA pegged the costs of transporting ethanol at $20 27/million year, but Wright Killen estimated $39 46 million.

The agency estimated the refining costs for meeting the toxic emissions requirements for RFG will increase as much as $49 million/year. Wright Killen said they would be $67 125 million for new refining facilities and $80 125 million/year in refining costs.

"We believe the EPA's renewable oxygenate program creates a significantly increased potential for gasoline supply disruptions as the program commences in implementation this year," Wright Killen said.

"We anticipate that disruptions during the program's first year will be mainly attributable to the lack of adequate transportation and blending facilities for ethanol in the RFG market regions.

"During the program's second year, disruptions that occur will reflect the lack of adequate refinery process facilities that will be needed for compliance with the second phase of implementation.