The new rules, known officially as the Phase 3 gasoline regulation, prohibit the formulation of gasoline with MTBE after December 31, 2002. MTBE (methyl tertiary butyl ether) helps gasoline burn more cleanly and has been extensively used in California and many other states since the early 1990s. Like other gasoline components, MTBE poses a threat to groundwater when underground fuel tanks leak, but MTBE is more difficult to remove from water than other components and, in small amounts, renders drinking water unusable. Governor Gray Davis in March determined that MTBE in gasoline poses an unacceptable environmental threat, and he directed ARB to develop a regulation prohibiting MTBE use, while ensuring today's air-quality benefits.

To better enable refiners to cost-effectively produce non-MTBE gasoline, the new regulation changes several ARB cleaner-burning gasoline specifications that have been in effect since 1996. The regulation establishes more stringent standards for two major gasoline pollutants -- sulfur and benzene -- while relaxing two standards for distillation temperatures (which affect how cleanly gasoline burns). The regulation also adds flexibility to Reid Vapor Pressure standard that controls gasoline's tendency to evaporate. The new standards will improve the ability of refiners to make non-MTBE gasoline while ensuring motor vehicle emissions do not increase. These new standards, along with the MTBE prohibition, will take effect on December 31, 2002.

Although some non-MTBE gasoline is currently sold in certain parts of California, some refiners will need up to three years to make plant modifications needed to convert their entire production volume to non-MTBE gasoline.

ARB today also approved an assessment that found no significant air-quality impacts are anticipated from the use of ethanol in gasoline. Federal law currently requires gasoline in Southern California and the greater Sacramento area to contain an oxygenated additive such as MTBE or ethanol. If the law remains in effect, gasoline in those areas as well as the San Joaquin Valley would have to contain ethanol beginning in 2003. The Davis Administration has asked the U.S. Environmental Protection Agency to waive the requirement and make the use of ethanol optional throughout California. A decision from U.S. EPA is pending. With the prohibition of MTBE, ethanol use is expected to become commonplace in California even if it were not required. However, elimination of the requirement would give refiners additional options for making cleaner-burning gasoline and would likely have a positive effect on gasoline prices.

California's cleaner-burning gasoline reduced smog-forming emissions from motor vehicles by more than 15 percent upon its introduction in 1996, equivalent to 3.5 million cars. The benefits from cleaner-burning gasoline continue each year, because the emission-control systems in late-model vehicles are designed to take maximum advantage of cleaner-burning gasoline's properties. New California automobiles are up to 85 percent cleaner than new motor vehicles in 1993.

"The use of cleaner-burning gasoline is a critical element in our efforts to provide clean air for all Californians. Today's action will enable us to further clean our air without putting our drinking water at risk," Dr. Lloyd said.

The Air Resources Board is a department of the California Environmental Protection Agency. ARB's mission is to promote and protect public health, welfare, and ecological resources through effective reduction of air pollutants while recognizing and considering effects on the economy. The ARB oversees all air pollution control efforts in California to attain and maintain health based air quality standards.

Fact Sheet

Phase 3 Cleaner-Burning Gasoline

At its December 9, 1999 meeting, the California Air Resources Board (ARB) will consider the adoption of new gasoline requirements, known as the Phase 3 cleaner-burning gasoline regulation. The intent of the regulation is to eliminate the use of the additive MTBE in California. State law, as well as Governor Davis' March 1999 Executive Order on MTBE, require Phase 3 gasoline to provide at least the same air-quality benefits as the state's current Phase 2 fuel, which was introduced in 1996.

Phase 3 Requirements

The proposed Phase 3 regulation prohibits the addition of MTBE to California gasoline after December 31, 2002. To give refiners suitable options for making equivalent non-MTBE gasoline, the Phase 3 proposal modifies the Phase 2 gasoline specifications.

There are eight ARB specifications for gasoline: sulfur, benzene, aromatics, olefins, volatility, two distillation temperatures (or boiling points), and oxygen. The modifications raise some standards and lower others, so that, on balance, refiners have more flexibility and the Phase 3 fuel is equally clean. Specifically, the new rules reduce the allowable amount of sulfur in gasoline and also reduce levels of benzene, a known human carcinogen. At the same time, the Phase 3 regulation relaxes two standards for distillation temperatures and allows more aromatics to be blended in the fuel. The new sulfur, benzene and distillation temperature standards collectively would improve the ability of refiners to make non-MTBE gasoline while ensuring motor vehicle emissions do not increase. Another proposed change would add flexibility to the standard that controls gasoline's tendency to evaporate.

Equivalent Air-Quality Benefits

The new sulfur standard is needed to ensure that emissions of smog-forming hydrocarbons would not increase following conversion to Phase 3 gasoline. In addition, the sulfur standard has the effect of reducing vehicular emissions of nitrogen oxides, another smog-forming pollutant, by about 2 percent (a total reduction of 19 tons per day) and the toxicity of motor vehicle emissions by about 7 percent compared to Phase 2 gasoline

Cost and Supply of Phase 3 Gasoline

To make Phase 2 gasoline, California's oil companies configured their refineries to use MTBE. The Phase 3 regulation would give refiners three years to make further plant modifications for the production of non-MTBE gasoline. These plant modifications would cost approximately $1 billion. While significant, this is much less than the estimated $4.5 billion in refinery modifications completed prior to the production of Phase 2 gasoline.

The Phase 3 requirements would add about 4 to 7 cents per gallon to gasoline production costs in 2003. After 2003, these "added" production costs should decrease to 2 to 6 cents per gallon as the cost of gasoline components stabilize and new refining equipment reaches peak efficiency. Production costs are only one of many factors that determine gasoline prices, so it is impossible to predict future gas prices.

The conversion to Phase 3 gasoline would occur at a time when the importation of gasoline into California from out-of-state refineries will become an everyday occurrence. Traditionally, California refineries have produced nearly all gasoline used in the state. However, gasoline consumption in California has been growing by 1.5 percent a year and will soon outstrip the production capacity of the state's refineries. The California Energy Commission estimates that gasoline imports into California will be routine by 2003 with or without a Phase 3 regulation. ARB staff estimates that the elimination of MTBE and other Phase 3 requirements will further increase, by 10 to 20 percent, the amount of California gasoline that is produced out of state.

A greater reliance on imported gasoline could help protect California from the types of gasoline price spikes that occurred following refinery outages in 1996 and 1999. Those price spikes partially reflected the time needed to arrange for importation of Phase 2 gasoline from out-of-state refineries. As California becomes a regular importer of gasoline, out-of-state refineries will be routinely producing Phase 3 gasoline for sale in California, and they should be able to respond more quickly to supply disruptions.

The Use of Ethanol in Phase 3 Gasoline

Many refiners intend to use ethanol as a partial replacement for MTBE. In addition, federal law requires the use of oxygenates such a  ethanol in gasoline in Southern California and the greater Sacramento area, which consume about 70 percent of the state's gasoline. As long as this law remains in effect, Phase 3 gasoline in these areas will most likely contain ethanol. In the rest of the state, refiners will choose whether or not to add ethanol to gasoline.

California is seeking an exemption from the federal oxygen requirement so that refiners can make the most cost-effective choice. That should tend to have a positive effect on gasoline prices and supplies. However, it is not clear at this time whether the federal government will remove the requirement. In any event, the use of ethanol is expected to increase significantly as MTBE is phased out. An assessment of ethanol use by several state agencies has not found any evidence that increased ethanol use will create any health or environmental risks. In fact, ethanol use would decrease emissions of gases linked to global warming.

SOURCE: California Air Resources Board

Web site: http://www.arb.ca.gov/

CO: California Air Resources Board; California Environmental Protection Agency