Press Release

Governor's Seal
OFFICE OF THE GOVERNOR


PR02:139
FOR IMMEDIATE RELEASE
03/15/2002


GOVERNOR DAVIS ALLOWS MORE TIME FOR ETHANOL SOLUTION

REDONDO BEACH - Governor Gray Davis today issued an Executive Order that will allow California refineries up to 12 additional months for the transition from MTBE (methyl tertiary butyl ether) to ethanol in gasoline to prevent gasoline prices to reach $3 per gallon at the pump.

"If I could snap my fingers and make MTBE go away tomorrow, I would. But we've seen this movie before and I am not going to allow Californians to be held hostage by another out-of-state energy cartel," Gov. Davis said. "After two years of delay, California's request for a waiver from the strict oxygenate requirement was denied by the federal government. Senator Daschle, who I spoke to last night, has a bill to fix the problem and it's heading in the right direction. But there's a chance that it might not become law and so it is my duty to take action to protect Californians from paying $3 per gallon at the pump. And that's exactly what I'm doing."

"I am working with Senators Feinstein and Boxer to make sure California has the flexibility we need to protect our state from severe gas shortages and price spikes. In California and throughout the nation, gas prices are already increasing due to market forces beyond our control. I will not allow Californians to be exposed to additional price increases due to shortages that can be avoided."

"The federal legislation to create a national renewable fuels standard is important to California. We will watch developments very carefully as we decide how to proceed with the transition to ethanol -- including, if necessary, a review of this executive order next year."

The new timeline for the MTBE phaseout gives the Congress time to harmonize its new ethanol mandate with California's actual ethanol usage in 2004 and beyond.

Last summer the U.S. Environmental Protection Agency denied California's request for a waiver of the federal oxygenate mandate despite the fact that the EPA's own scientific panel declared the mandate ineffective (see The Report of the Blue Ribbon Panel on Oxygenates in Gasoline at http://www.epa.gov/otaq/consumer/fuels/oxypanel/blueribb.htm). California has also demonstrated that it can meet Clean Air Act standards without the oxygenate requirement.

Because of the EPA decision, California would need to import between 750 and 900 million gallons of ethanol each year as soon as it bans MTBE under current federal law. The California Energy Commission and independent consultants have questioned whether the necessary quantity of ethanol could be efficiently transported to and distributed within California by 2003.

In February an independent study commissioned by the California Energy Commission warned that price spikes of up to 100 percent are likely if MTBE is phased without an adequate supply of ethanol available and ready for distribution. In 1999, California experienced a supply reduction of similar magnitude due to fires at TOSCO and Chevron refineries, and the price of gasoline doubled. The independent study also said that phasing out MTBE next year could result in a five to 10 percent gas shortage.

Ethanol is one of two oxygenate additives that can be mixed into gasoline. The other is MTBE. Oxygenates are required in most California gasoline under the 1990 version of the Federal Clean Air Act.

Under the newly announced timeline, the MTBE phaseout will be accomplished no later than December 31, 2003. Individual refineries have may continue to make the transition to ethanol earlier than December 2003 if they determine it is feasible and will not risk supply shortages or price spikes.

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