The following text was automatically extracted from the image on this page using optical character recognition software:
05-08-06
petroleum and chemical companies to pay for cleanup of ground and surface water
contaminated by releases of fuels containing MTBE). A disagreement over the safe harbor
provision for MTBE is seen as one of the issues that led to the failure an energy bill in the
108th Congress.
Issues in the Spring of 2006: MTBE Phase-Out and Ethanol Supply. As a
result of P.L. 109-58, the oxygen requirement for RFG was eliminated on May 6, 2006. This
requirement, which gasoline suppliers asserted was a de facto MTBE requirement, was used
by gasoline suppliers as a defense against liability for MTBE contamination. Therefore,
although P.L. 109-58 actually gives the industry more flexibility, the industry moved quickly
to eliminate MTBE from the gasoline supply in spring 2006. This increased pressure on
already tight refining capacity. The loss in volume and energy from eliminating MTBE
increased demand for gasoline, as well as ethanol. Exacerbating the problem was the fact
that the industry was making the transition from winter gasoline to more stringent
summertime specifications, which adds competition for the highest-quality gasoline
components. These pressures, along with historically high crude oil prices, have led to
historically high gasoline prices. Further, some localized areas (e.g., Norfolk, VA) faced
short-term supply disruptions as refineries made the transition.
(For a detailed comparison of the renewable fuels legislation, see CRS Report RL32865,
Renewable Fuels and MTBE: A Comparison of Selected Provisions in the Energy Policy Act
of2005 (H.R. 6), by Brent D. Yacobucci, Mary Tiemann, James E. McCarthy, and Aaron M.
Flynn. For additional background on the MTBE issue, see CRS Report RL32787, MTBE in
Gasoline: Clean Air and Drinking Water Issues, by James E. McCarthy and Mary Tiemann.
For information on ethanol, see CRS Report RL30369, Fuel Ethanol: Background and
Public Policy Issues, by Brent D. Yacobucci and Jasper Womach.)
Ethanol Imports
There is growing concern among some stakeholders over ethanol imports. Because of
lower production costs and/or government incentives, ethanol prices in Brazil and other
countries can be significantly lower than in the United States. To offset the U.S. tax
incentive that all ethanol (imported or domestic) receives, most imports are subject to a 54-
cent-per-gallon tariff. This tariff effectively negates the tax incentive for covered imports,
and has been a significant barrier to fuel ethanol imports.
However, under certain conditions imports of ethanol from Caribbean Basin Initiative
(CBI) countries are granted duty-free status. This is true even if the ethanol was produced
in a non-CBI country. In this scenario the ethanol is produced in another country
(historically Brazil or a European country), dehydrated in a CBI country, then shipped to the
United States. This avenue for imported ethanol to avoid the tariff has been criticized by
some stakeholders, including some Members of Congress. In the spring and summer of
2004, two companies announced plans to construct new dehydration facilities in CBI
countries and shipping ethanol from Brazil. With the establishment of a renewable fuel
standard, as well as high U.S. gasoline and ethanol prices, there may be more interest in
importing ethanol, either through CBI countries or directly from ethanol producers.
(For more information on ethanol imports from CBI countries, see CRS Report
RS21930, Ethanol Imports and the Caribbean Basin Initiative, by Brent D. Yacobucci.)
CRS-5
IB 10128