Congress of the United States
Date of this Version
2006
Abstract
As gasoline prices have risen in March and April 2006, renewed attention has been given to methyl tertiary butyl ether (MTBE), a gasoline additive being phased out of the nation’s fuel supply. Many argue that the phaseout of MTBE and its replacement by ethanol have been a major factor in driving up prices.
MTBE has been used by refiners since the late 1970s. It came into widespread use when leaded gasoline was phased out — providing an octane boost similar to that of lead, but without fouling the catalytic converters used to reduce auto emissions since the mid-1970s. MTBE has also been used to produce cleaner-burning Reformulated Gasoline (RFG), which the Clean Air Act has required in the nation’s most polluted areas since 1995. The act didn’t mandate the use of MTBE (ethanol or other substances could have been used to meet the act’s oxygenate requirement), but price and handling characteristics of the additive led to its widespread use.
Under the Energy Policy Act of 2005 (P.L. 109-58), the RFG program’s oxygen mandate terminates on May 6, 2006, and refiners are scrambling to remove MTBE from the nation’s gasoline supply by that date. The phaseout of MTBE (like its use) is not required by federal law, but gasoline refiners have focused on the May 6 date because of concerns over their potential liability for its continued presence. MTBE has contaminated drinking water in a number of states, and about half have passed legislation to ban or restrict its use. Hundreds of suits have been filed to require petroleum refiners and marketers to pay for cleanup of contaminated water supplies, the cost of which has been estimated to be in the billions of dollars. The petroleum industry has maintained that it used MTBE to meet the RFG program’s oxygen mandate and therefore should not be held liable. That position could become more difficult to maintain once the oxygen mandate is removed.
To replace MTBE, refiners are switching to ethanol as swiftly as they can, leading temporarily to supply shortages and higher prices. The ethanol industry maintains that there will be sufficient ethanol to meet demand but concedes that temporary shortages exist in some parts of the country that could affect prices until the end of June. These shortages and higher prices have led to renewed discussion by some of exempting gasoline refiners from liability for MTBE cleanup (a so-called “safe harbor” provision). Others have renewed their call for federal legislation to stimulate the construction of new refining capacity.
Besides removing the RFG program’s oxygen requirement, Congress provided a major incentive to the production of ethanol in the Energy Policy Act of 2005. Under a Renewable Fuels Standard, an increasing amount of the nation’s motor fuels must consist of renewable fuel, such as ethanol. The law requires 4.0 billion gallons in 2006 (a level already being achieved) and an increase of 700 million gallons each year through 2011, before reaching 7.5 billion gallons in 2012.
This report provides background regarding MTBE and summarizes the actions taken by states and Congress to address problems raised by MTBE contamination of the nation’s water supplies. It will be updated if future developments warrant.
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Published by Congressional Research Service, www.crs.gov, RL32787