|
||||
Home > News Room > Speeches/Testimony |
|
|
|
Speeches/TestimonyTestimony of Charles Drevna, Director of Technical Advocacy of the
National Petrochemical & Refiners Association before the Senator Marcellino and members of The Environmental Conservation Committee. I am Charles Drevna, Director of Technical Advocacy of NPRA, the National Petrochemical & Refiners Association. NPRA is a national trade association whose members include nearly all U.S. refiners and petrochemical manufacturers. Thank you for the opportunity to appear before you today to testify on motor fuels policy in the state of New York. NPRA supports the development and use of cleaner-burning fuels to meet health and environmental goals while maintaining adequate gasoline supplies to the motoring public. We believe that this can best be achieved if energy and environmental policymaking is integrated, and if the costs and benefits of new regulatory or legislative requirements are carefully balanced to that any adverse impact on energy supplies is both assessed and mitigated. This hearing is a clear case of right time, right place, right agenda. We have collectively arrived at a crossroad where we face two choices on motor fuels energy policy and environmental progress-to risk a potential supply disruption or to do prudent planning in a spirit of cooperation. NPRA prefers the second option and urges the State of New York to reconsider its year-end 2003 ban of MTBE. I join you here today not to rehash the debate on the use of oxygenates -- particularly MTBE -- in gasoline. Rather, I would like to emphasize that a healthy and growing U.S. economy needs a steady, secure and predictable supply of petroleum products at reasonable cost. NPRA believes that government policy in recent years has drifted away from the need to emphasize the supply side of the energy equation, and that an adequate energy supply has been largely taken for granted. In my remarks, I will outline several vital concerns that we believe must be addressed and fully understood before implementing a ban on any fuel blendstock or requiring the substitution of another. These include the need to:
This is a tall order by anyone's assessment, especially when one considers the short time frame available to make a decision that could very well impact the state and its residents for many years to come. If Left Unchanged… With these two concepts -- a supply-oriented motor fuels policy balanced with continued environmental progress -- as a backdrop, NPRA fears that imposition of a unilateral ban of MTBE by the state of New York on 1/1/04 could produce the opposite of the desired and necessary goals. Due to Federal Clean Air Act requirements, the New York City/Long Island metropolitan area (along with Connecticut and other Northeast and Mid-Atlantic States) is required to use RFG. Further, the CAA specifies that RFG contain a 2% oxygen content. The only viable commercial blending components available to meet that requirement are MTBE or ethanol. As currently enacted, the New York ban of MTBE will commence on January 1, 2004 and there will be no other option than using ethanol to meet the 2% RFG requirement. Complicating matters even more, the rest of New York-Western and Upstate-currently utilizes "conventional gasoline" with MTBE found in lower volumes than currently required in RFG. This conventional gasoline has contained MTBE as a blendstock and octane enhancer, especially in mid and premium blends, since the elimination of leaded gasoline in 1975. Therefore, if New York imposes the MTBE ban as currently planned, this will require four separate grades of gasoline:
This is a different situation from Connecticut, where the entire state uses RFG. Supply Implications - Creating An Island Failure to reconsider and postpone the current ban of MTBE could transform the New York gasoline market and its infrastructure into an isolated island, with no access to the supply and distribution chain of regional or neighboring states, or importers. Further, without reconsideration and ultimate action, New York will be creating a non-fungible, single-state, ethanol-based RFG program while at the same time severely limiting options for state-wide gasoline supply and distribution. Unfortunately, this will create a marketplace with little or no margin for production and/or distribution error, given the lack of readily-available replacement fuels. NPRA believes that the potential outcomes outlined above call for a policy of caution towards adopting any proposal to at least until there is certain and convincing evidence that adequate supplies of replacement fuel components are available. NPRA opposes an ethanol mandate and a ban on MTBE in motor fuels because of the impact of these policies on fuel supplies. Mandates are inefficient mechanisms that provide little or no benefit and that unnecessarily increase the cost of making fuels. We favor a well thought-out decision, coordinated among stakeholders and other regional states, to unilateral decisions imposed without adequate lead time. As EIA noted in a presentation last October: "What is not appreciated by many people outside of the petroleum business, is that losing MTBE is more than just losing the volumes of this blending component…no other hydrocarbon or oxygenate equals the emission and engine performance characteristics of MTBE. Hence, losing a barrel of MTBE results in losing more than a barrel of gasoline production. When you remove a clean, high performance gasoline stream from the gasoline pool, it is difficult to find material to replace its volume and quality contributions." (EIA, J. Shore, "Supply Impact of Losing MTBE & Using Ethanol," October 2002, pp. 10, 12). Recent EIA studies also confirm that elimination of MTBE will also affect the ability of many refiners to comply with the Mobile Source Air Toxics (MSAT) rule, which requires refiners to maintain their average 1998-2000 gasoline toxic emission performance levels. Loss of MTBE would make it difficult to match historical toxics performance, and the result might be that those refineries would have to reduce their production of RFG to achieve compliance. In addition the MSAT rule applies to both RFG and conventional gasoline. Hence, refiners will not have an outlet for blending gasoline components that are not desirable for RFG production but could otherwise be used as blendstocks in combination with MTBE for conventional gasoline. This limitation will clearly exacerbate overall supply constraints given even a minimal disruption at any one facility. The California Comparison One hears today that California banned MTBE and has adapted to an ethanol-based program with little or no difficulty. In reality, the California ban does not take effect until 2004 and MTBE is still being used in the state although a number of refiners have made the switch to ethanol. While long term documentation of California's "success" has yet to be demonstrated (the summertime driving season is just approaching), comparing the New York gasoline supply and distribution system with that of California shows several significant differences. First, discussions concerning the elimination of MTBE from the California gasoline supply had been on-going for nearly five years before the state ultimately acted. Detailed studies performed by government, industry, and independent experts outlined the consequences of acting in haste. Even at that, policymakers in California realized that additional time was required by the refiners in the state to comply with the order. For that reason, the Governor acted prudently and delayed the ban by a full year-until 2004. New York has done no such analysis and the ban is only months away. In addition, the state of California has 16 refineries, with a total capacity of nearly 2 million barrels per day. These facilities are primed to produce the gasoline required by the California Air Resources Board (CARB). If any state is positioned to bear the "luxury" of fuel mandates and bans, it would be California. Even with a captive refinery supply and distribution system, however, California gasoline remains the most costly to produce in the nation and even a minor disruption at one of the facilities can and often does lead to supply constraints accompanied by price volatility. Compared to California, New York has no refineries. Its gasoline requirements are supplied by regional refineries located in New Jersey and Pennsylvania, Gulf Coast refiners providing finished product through the Colonial Pipeline System, and foreign suppliers provide gasoline mostly from Canada, the Caribbean, South America, and Europe. Given the limited supply requirements of New York when compared to the overall Northeast marketplace, the state may well be basing its total gasoline supply needs on a handful of regional, domestic producers. Recommendations NPRA opposes an ethanol mandate and a ban on MTBE in motor fuels because of our serious concerns about the negative impact of these policies on fuel supplies. We vigorously support the elimination of the 2% oxygen content mandate for RFG in the Clean Air Act. NPRA also has serious concerns with the fuels package approved by the Senate Environment and Public Works Committee last month which would impose an ethanol mandate on all U.S. gasoline, eliminate the 2% RFG oxygenation requirement and ban MTBE. The majority of our membership does not support this approach. We believe that a program that substitutes an ethanol mandate for the oxygen content requirement in RFG is seriously flawed. We do not recommend substituting one fuel mandate for another. Ethanol already enjoys a large federal subsidy and a protective tariff, as well as several generous state subsidy programs. If New York consumers want to use ethanol, that's one thing. Congress should not, however, force them to pay for the privilege of not using ethanol, which is the end result of the fuels language being debated by the Senate. Few proposals on any subject unite the editorial pages of the Wall Street Journal, New York Times and Washington Post. But the ethanol mandate is one of them. All three papers have denounced the ethanol mandate proposal in no uncertain terms. Simple elimination of the 2% oxygen requirement, absent mandates or bans, would address most, if not all, of the concerns about RFG usage in New York and the Northeast. This matter is being debated at the federal level, and may well be resolved soon. In the meantime, we note the recent action taken by New York to seek a waiver from the 2% oxygen requirement. California had submitted a similar request and, although denied by EPA, the matter is now before the Courts. NPRA has filed in support of California's request for a waiver from the courts We also believe that EPA should grant New York's requested waiver. As fuel manufacturers and suppliers, we urge the Northeast and New England to adopt consistent fuel specifications. We believe that the best way to achieve this objective, maintain adequate fuel supplies, and continued environmental progress is through repeal of the 2% oxygenation requirement with no accompanying mandate or ban. When addressing fuels and environmental policy, state or federal officials should consider the following key factors:
Summary Transportation, energy, and environmental policies are closely connected. Unfortunately, these policies are often debated and decided separately or in a vacuum-as part of an energy bill, an environmental bill, or a transportation bill. As a result, positive impacts for one policy area sometimes conflict with or even undermine goals and objectives in another. Whether by federal direction or self-imposition, an ethanol mandate for New York's RFG supply, coupled with additional constraints on the conventional gasoline pool and an arbitrary MTBE ban, may well affect documented air quality gains, inhibit fuel supply and distribution, and subject the driving public to unnecessary market supply disruptions. These conditions can be minimized, if not avoided, through concerted and cooperative efforts by states and regions working with fuel producers, transporters, and marketers to implement the needed changes in federal policies. NPRA stands ready to work with New York and other states to ensure fuels policies that are environmentally sound, economically justifiable, and provide fuel supply stability. Thank you for this opportunity to share NPRA's views with you on this important matter. I will be happy to answer any questions that you may have concerning any specific details of my testimony. |