Other Issues

The last two issues concern the potential gasoline supply impacts of the increased number of non-attainment areas arising from the new 8-hour ozone standard and whether a limited Federal menu of gasoline types might help to ameliorate local price volatility stemming from the increased number of distinct fuel types that have arisen.

The impact on gasoline price and supply, particularly RFG, when many additional ozone non-attainment areas come under the new 8-hour ozone standard

This issue involved concerns over the potential need for more RFG as well as the potential growth in boutique fuels. The new standard changes the ambient air standard for ozone from 0.12 parts per million (ppm) averaged over a 1-hour period to 0.08 ppm averaged over 8 hours. VOCs and nitrogen oxides, which are precursors to ozone creation, are the emissions States control to deal with ozone compliance. By 2007, further nitrogen oxide reductions from motor vehicles will become increasingly costly, as gasoline and diesel sulfur reduction programs remove growing amounts of nitrogen oxides from the air. States with continuing VOC emissions problems are likely to address these emissions with low-RVP gasoline, rather than more-costly RFG. Therefore, it is unlikely that the 8-hour ozone standard will lead to much increase in RFG consumption. While this standard could add to fuel proliferation, it is not expected to have a major impact on supply or price to consumers.

The potential effect/role of implementation of a national menu of fuels to address the proliferation of boutique fuels

Many of the fuel provisions in H.R. 4 would result in an increase in the number of fuel types in the system, and as such raise the question of whether near-term actions can be taken to reduce the strain on the distribution system with its associated increase in the potential for local supply disruptions and price volatility.

Fuel-type proliferation grew unexpectedly following the Clean Air Act Amendments of 1990, and in some areas, the unique fuels were accompanied with increased price volatility. Price volatility associated with a boutique fuel (versus world crude oil price variations that affect all fuels) is a function of volume of the distinct fuel, geographic distance from supply sources, number of suppliers, and uniqueness of the fuel type. The two boutique fuels that have experienced the largest price volatility are California RFG and the summer ethanol-blended RFG produced in the Chicago-Milwaukee area. In the near term, it would be difficult to devise a Federal menu of fuels that would have much impact on gasoline price volatility because of the number of distinct fuel programs already in place. For example, reducing the number of low-RVP fuels that can be used would not reduce the geographic locations of distinct fuel usage. A distinct fuel would still have to travel to an isolated area, and the area would still be exposed to potential short-term shortages since it cannot use fuel from neighboring areas if a temporary shortfall occurs. In the longer term, while reducing fuel types to one or two of the cleanest-burning fuels would reduce the fuel-type strain on the distribution system, the solution could be costly for many consumers not needing the cleaner fuels because of increased production costs incurred by the refiners.