ter dated October 2, 1998; Orange County Transportation Authority, letter dated July 27, 1998; Metropolitan Water District of Southern California, letter dated October 5, 1998; and the Lake County Board of Supervisors, letter dated January 9, 1998.] [Additional material submitted for the record follows:]

PREPARED STATEMENT OF HON. MIKE JOHANNS, GOVERNOR OF NEBRASKA, ON BEHALF OF THE GOVERNORS' ETHANOL COALITION

I am very pleased to submit this statement on behalf of the State of Nebraska and on behalf of the 22 members of the Governors' Ethanol Coalition regarding H.R. 11. This legislation, introduced by Representative Brian Bilbray to redress the MTBE water contamination crisis in California, amends the Clean Air Act to eliminate the overlap between California's cleaner burning gasoline program and the federal reformulated gasoline program by allowing California state regulations to prevail.

First of all, as a governor, let me say that I empathize with Representative Bilbray, Senator Feinstein, Governor Davis, and others who, as elected officials like myself, have a responsibility to protect the quality of life of their constituents and as such must provide viable solutions to the current water quality situation in California. However, in light of recent actions by Governor Davis, I do not believe H.R. 11 is any longer necessary, nor do I believe it would it address the problems posed by MTBĚ.

Last month, acting on the Health and Environmental Assessment of MTBE prepared by the University of California-Davis, Governor Davis issued an Executive Order that phases out the use of MTBE in the state by the end of 2002. As a result, MTBE's days are numbered in_California. Governor Davis's action preempts the need for federal legislation, as Representative Bilbray's goal to reduce MTBE use in the state is already being implemented.

The problem in California is MTBE in the water, not oxygen in gasoline. Allowing the California Cleaner Burning Gasoline program, which does not have an oxygen content requirement, to supercede the federal reformulated gasoline program in California will forfeit the public policy benefits of the oxygen standard.

When the federal reformulated gasoline program was established in 1990 as part of the Clean Air Act Amendments, an important component was the inclusion of a year-round oxygen content requirement. There are two commonly used oxygenates today: ethanol, derived from agricultural feedstocks and biomass, and MTBE, a petroleum or natural gas-derived chemical. The oxygen standard was designed to enhance air quality and provide dramatic economic benefits to agricultural America while reducing our dependence on foreign energy supplies.

In parts of the country where ethanol has been the oxygenate of choice, there is tremendous support for the oxygen standard and it is hailed as an unqualified success. The Chicago metropolitan area, Minnesota, Wisconsin, Oregon, and numerous other states have relied on ethanol as an additive to satisfy the requirements of the Clean Air Act. And, wherever acute health effects concerns regarding MTBE have been raised, from Alaska to Maine, the use of ethanol has preserved important pollution reduction programs. Everywhere ethanol is used, it allows compliance with the Clean Air Act without the problems of water pollution or negative health effects. In fact, the American Lung Association of Chicago recently released a report praising the ethanol reformulated gasoline program, stating:

"[Olxygenates like ethanol help fuels burn more completely, thereby reducing emissions of carbon monoxide, volatile organic compounds, and toxic air emissions. Furthermore, oxygenates displace benzene found in conventional gasoline, which reduces emissions of this known carcinogen as well."

In Iowa-where ethanol has been the oxygenate of choice for over 20 years-the legislature last week banned the sale of MTBE-blended gasoline in the state. Although MTBE use in Iowa is relatively insignificant, the U.S. Geological Survey did find MTBE in eight of 30 monitored Iowa water wells, two of which had MTBE concentrations high enough to warrant a potential U.S. Environmental Protection Agency health advisory. With the number of states experiencing MTBE-related water quality problems growing at an alarming rate, Iowa lawmakers took this precautionary measure to protect its citizens and the quality of their water supplies. When blended with gasoline, oxygenates such as ethanol can reduce emissions of carbon monoxide, fine particulates, toxics, nitrogen oxides and exhaust hydrocarbons that contribute to urban ozone. And because ethanol is a renewable fuel, it is the only commercially available transportation fuel that helps reduce carbon dioxide

emissions, a greenhouse gas. These benefits will be forfeited if the oxygen content requirement is eliminated.

Ethanol Supply

Some have suggested that the reformulated gasoline oxygen content requirement must be eliminated because the ethanol industry cannot meet demand currently satisfied by using MTBE. That is simply not true. Current U.S. ethanol capacity is more than twice the amount needed to fulfill California's demand. That capacity will quickly expand, including new production from California biomass feedstocks, with growing supply to replace MTBE. The California Energy Commission has concluded that as an alternative to MTBE-blended fuels, ethanol blends can be available at prices lower than non-oxygenated gasoline.

Economic Development

Speaking as the Governor of one of the nation's largest ethanol producing states, I can personally attest to the value that a homegrown ethanol industry brings to agricultural economies. Ethanol production is one of the most effective economic engines we have to stimulate increased domestic demand for grain, boost farm income, and create jobs. During the economic downturn of the early 1980s that devastated economies in agricultural states, Nebraska and similarly situated states were advised to add value to their agricultural bounty by developing new manufacturing and industrial uses for the surplus grain. In Nebraska, we heeded that advice. Hundreds of millions of dollars have been spent to develop the value-added ethanol industry in the state. Nebraska's ethanol industry has grown so that today over 30 percent of the state's corn crop is processed in the state's ethanol plants. Also, over 75 percent of the state's grain sorghum crop is used in ethanol production. Studies have shown that corn and sorghum used for ethanol production results in higher prices paid to farmers. Without the ethanol industry, the grain surpluses and low commodity prices we are experiencing today would be worse. Lastly, we have been able to create new jobs-more than 4,000 in Nebraska-in small towns where job creation is particularly difficult.

The agricultural community is suffering from low commodity prices, falling export markets, decreasing land values and plunging domestic feed use of grain. In fact, recent testimony before the House Agriculture Committee by a Cargill executive confirmed recent US Department of Agriculture findings: U.S. grain exports are dropping, but the domestic market-new uses for grains by American manufacturers and others has grown by more than 50 percent since 1980.

In a recent speech to the Independent Bankers Association of America, Federal Reserve Board Chairman Alan Greenspan noted that while the U.S. economy as a whole continues to experience robust economic growth, the agricultural sector has been adversely affected by severe problems of many foreign economies, which have led both to reduced demand from abroad and to increased competition from imports:

"Farmers, rather than sharing in the general prosperity, have been experiencing disappointing exports and sharply falling prices. Overall, the prices received by farmers in February were about 5 percent below the level of a year earlier. In recent weeks, corn prices have been running around $2 a bushel in the Midwest, the lowest late-winter price for that crop in a number of years." One significant bright spot in agriculture's otherwise dismal outlook is the opportunity for increased domestic grain consumption created by new demand for ethanol. Already, ethanol is the third largest consumer of grain, behind only feed and export markets. The industry uses a portion of the grain from more than 600 million bushels to produce over 1.4 billion gallons of clean-burning, renewable ethanol, adding $4.5 billion in farm revenue annually. The production of ethanol has sparked new capital investment and economic development in rural communities across America. Direct farmer ownership of ethanol production facilities accounts for the majority of the recent expansion within the industry. American farmers are realizing the positive impact from this important value-added market for their crops. Today, a substantial portion of U.S. ethanol production is accounted for by farmer-owned cooperatives.

The current status of farm markets makes the availability of value-added processing that much more important to our nation's farmers and the agricultural economy. Clearly, California farmers could benefit from expanded in-state ethanol production. Today there is modest ethanol production in California, primarily from Parallel Products, a company which produces the product from waste beverage products. As the market for ethanol grows in California, new ethanol plants in the state will be built to provide local supply. These plants can convert waste products such as rice straw, forest residue and urban waste into ethanol. This will help solve vexing waste issues and create jobs as well. The rice industry has three plants currently

planned in the Sacramento valley to convert rice straw into ethanol. Ethanol is the only real alternative foreseen by the rice industry to prevent field burning which has been banned because of air pollution concerns.

Conclusion

While the oxygenate of choice for refiners in California has been MTBE, demand for ethanol to replace MTBE in the state can result in developing an in-state ethanol industry. Ethanol demand will be met by a combination of an expanded California ethanol industry and supplies from existing ethanol production facilities across the U.S.

The members of the Governors' Ethanol Coalition and I are committed to working with Congressman Bilbray and this Committee to ensure the best possible solution for California without abandoning the significant air quality, energy security, and rural economic development benefits of the oxygen content requirement in reformulated gasoline. No citizen should have to choose between clean air and clean water. With ethanol, that choice does not have to be made.

BLUEWATER NETWORK'S LEGISLATIVE RECOMMENDATION FOR METHYL TERTIARY

BUTYL ETHER

EXECUTIVE SUMMARY

The gasoline additive methyl tertiary-butyl ether (MTBE), listed as "a possible human carcinogen" by EPA, is being found in ground and surface water resources throughout the United States. Drinking water shortages, boating restrictions, litigation and remediation costs, and increased human exposure to toxins are unavoidable consequences of using MTBE. Bluewater Network contends that in order to avoid massive water contamination throughout the U.S., MTBE must be expeditiously phased out nationwide. Other ether-based additives should be banned until they are adequately studied. A realistic phaseout can be accomplished in 2-4 years.

The use of non-oxygenated ethanol-blended gasoline as a replacement for MTBE does not result in increased air emissions (assuming volatility and other existing regulations are left intact). Urban areas within Reformulated Gasoline Program areas which are required to use oxygenates, will shift to ethanol until acceptable alternatives are available. In some areas, a volatility waiver may be appropriate to better accommodate the use of ethanol provided that overall air quality is maintained as a result of the waiver. Ethanol's positive effect on carbon monoxide emissions, as well as high emitters, should be accurately weighted in the analysis.

A temporary 2-4 year moratorium from the oxygen standard of the Clean Air Act will have two primary benefits: (1) accelerating the phase-out of MTBE by allowing non-oxygenated fuels to displace MTBE-blends in previously, oxygenated areas; (2) providing a grace period to review the effectiveness of ethanol, the oxygen standard and progress towards the use of non-petroleum fuel. Until those question's are answered, Bluewater Network strongly recommends that the general requirements of the CAA are permanently protected.

Section 1: Bluewater Network supports state and federal bills calling for a ban or phase out of ether-based oxygenates, including MTBE.

MTBE and other ether-based oxygenates (e.g. ETBE) are suspected carcinogens. Although all gasoline compounds are a threat to ground and surface water resources, ether additives have the following unique characteristics:

High water solubility (e.g. sub-surface contamination);

• High mobility in soil and water (e.g. larger and deeper plumes);

High persistence in the environment (e.g. accumulates in boating season)

• Resistance to biodegradation (i.e. slower than other gas compounds);

• Resistance to traditional water treatment (e.g. intake/tap levels similar);

• Noxious odor and taste at extremely low concentrations (e.g. 2 ppb);

• High remediation costs (e.g. air stripping not effective).

Extensive investigation into the hazards of MTBE demonstrates that continued use of MTBE or other ethers will further jeopardize U.S. water supplies, undercut the public's right to clean drinking water, shoulder water and regulatory agencies with unprecedented liabilities and cost burdens, and seriously threaten public health. Although MTBE proponents argue that aggressive replacement of leaking underground storage tanks (USTs) and two-stroke marine engines will mitigate the MTBE problem, the most advanced USTs available have proven ineffective at preventing leaks large enough to contaminate groundwater with dangerous levels of MTBE, and two-stroke marine engines will remain in use for at least twenty years.

Two-stroke engines currently emit an estimated 8 million pounds of MTBE into U.S. waterways every year. Containment of MTBE or other ethers is not a viable option.1 Section 2: Bluewater Network supports state and federal bills designed to provide increased protections from MTBE-related contamination, and/or which accelerate the phase-out of MTBE and other ethers with either of the following conditions: 1) any amendments to the Clean Air Act provide only a 2-4 year temporary moratorium from the oxygen requirement, and other components of the Act are not considered for amendment; or

2) the Clean Air Act is not amended.

Bluewater Network's top priority is protect water resources from ether-based oxygenates. Bluewater supports aggressive legislation which seeks to improve the underground storage tank system, protect drinking water reservoirs from two-stroke engine pollution, safeguard vulnerable and at-risk areas, and provide more extensive liability and clean-up programs and funds. We agree with California Governor Gray Davis' assessment that MTBE poses a significant risk to public health and the environment, especially his emphasis on the need for continued action at the legislative level.

Consistent with extensive research indicating that MTBE is not a unique and indispensable component of the Reformulated Gasoline Program, or the only viable oxygenate for "non-attainment" urban zones or RFG-designated areas, Bluewater Network does not believe that banning one category of oxygenates necessitates permanently lifting the oxygen standard in the Clean Air Act.

Although temporarily lifting the oxygen mandate may accelerate a shift away from ether-based additives in areas where a phase-out is required, permanent changes to the Act may have the following consequences:

opening the Act may lead to damaging amendments;

loss of current and potential fuel diversity through an immediate return to 100% hydrocarbon-based fuel;

continued use of MTBE and other ethers which provide octane and regulatory benefits to refiners; and as a result, continued ground and surface water MTBE contamination;

an increase in carbon monoxide (CO) emissions;

⚫ an increase in ground level ozone;

⚫ an increase in primary particulate matter (PM2.5) emissions;

• loss of a dilution effect of other toxic gasoline compounds such as benzene, toluene, xylene and aromatics inherent with the use of oxygenates;

• a potential increase in the use of other toxic gasoline compounds to replace octane, such as toluene;2

loss of progress towards renewable or alternative fuels, including ethanol, which offer the current or potential for less dependence on imported oil, a non-petroleum fuel source with the potential to be produced from agricultural and commercial waste, and a reduction in climate change greenhouse gases. Promoting alternative fuels was one of the primary goals of the Clean Air Act.

Relevance to current bills

S 645, as currently drafted, would allow the U.S. EPA to waive the 2% reformulated gasoline oxygenate requirement of the Clean Air Act in any state where use of gasoline with less than 2% oxygen, including non-oxygenated fuel, does not result in greater emissions. As discussed, although the bill may help California to accelerate the shift away from ether-based additives such as MTBE, it will not help to reduce MTBE use throughout the United States. In fact, it may actually perpetuate

1 The current California Department of Health Services "aesthetic" standard is 5 parts per billion (ppb) for MTBE in drinking water. In April, 1999, a pinhole sized leak in the "vapor recovery line" of a new, fully compliant underground storage tank in South Lake Tahoe, CA caused MTBE groundwater contamination at levels of 100,000 ppb. In terms of two-stroke engines, a 5 ppb standard.is the equivalent of a 12-ounce soda can of MTBE in 13 million gallons of drinking water (the water consumed daily by about 90,000 people). The California public health standard is roughly three times that amount. A single jet ski releases enough MTBE to exceed the "aesthetic" standard in less than I hour, and enough MTBE to exceed the public health standard in less than 2 hours.

2 Because regulations are more stringent in California than in other states, refiners would utilize different means to produce compliant gasoline and octane needs depending upon the regulations in effect. In California, refiners may alter aromatics and paraffins to boost octane, while in New England refiners may use toluene.

In the short term, experts believe that refiners would continue to utilize ethanol to comply with gasoline regulations and octane needs; however, refiners would quickly begin moving away from ethanol-or other alternative or renewable products produced by outside vendors-towards their own oil-based sources.

the status quo use of MTBE and other ethers, since such additives have similar costs to ethanol while continuing to provide competitive, regulatory and octane benefits to refiners. For that reason, Bluewater Network has requested that Senator Feinstein sponsor a companion bill to phase-out the use of added ethers such as MTBE over a two to four year period.

S 266, as currently drafted, would allow California to apply its own clean or reformulated gasoline rules [over those stipulated by the Clean Air Act] as long as emissions reductions are equivalent or greater. As discussed, although this may be a viable and immediate short-term solution to curb MTBE use, in the long term California may be inhibiting its growth towards fuel diversity, the use of a renewables, and a reduction in climate change greenhouse gases.

Therefore, if Senator Feinstein proceeds with S 645 and S 266, we urge her to take either of the following two steps to preserve those benefits:

1. Amend the bills to incorporate a renewable content requirement for all fuels. This could start at modest levels and increase each year until achieving maximum practical, sustainable (or politically acceptable) levels. It would also provide an excellent mechanism in the future should the Congress choose to try to further reduce US carbon emissions through a fuels program.

2. Amend the bill to create a 2-4 year temporary moratorium from the oxygenate requirement, in order to accelerate the shift away from MTBE and other ether-based additives. The Clean Air Act would remain intact and the oxygenate requirement would be reinstated after the moratorium.

Governor Davis' support of Feinstein's oxygenate bills is consistent with his hope to provide an impetus for refiners to shift, as quickly as possible, to less dangerous fuel blends in California. Bluewater Network supports the Governor and Senator Feinstein in their pursuit of an accelerated phase-out so long as the exemption from the Clean Air Act is exclusive and temporary, and tied to a ban on the use of etherbased additives.

HR 1367, as currently drafted, would ban the use of MTBE nationwide within the next three years. Congressman Bob Franks (R-NJ) has proposed the only bill that will effectively end the threat of MTBE contamination. However, to prevent refiners from switching to other equally dangerous additives to replace MTBE, we have requested that the bill include language banning other ether based additives until they are adequately studied.

Questions concerning an expected increase in the use of ethanol

Production-There has been concern in California that a shift to ethanol as the primary oxygenate could not be accommodated by the ethanol industry. However, according to a recent study, the current capacity for ethanol production is more than double the amount needed to meet California's demand if MTBE use is eliminated. According to the report, this ethanol supply could be made available to the state almost immediately.

Nationally, actual production of ethanol in 1998 was approximately 1.5 billion gallons. Production capacity is expected to exceed 1.8 billion gallons in 1999. By comparison, current production of MTBE is approximately 3.5 billion gallons. According to ethanol producers, expanding ethanol use to meet demand is feasible based on 1) the diversity of potential sources of ethanol (e.g. corn, feedstock, agricultural waste, rice, etc.); 2) the potential for growth in the agricultural community; 3) the relatively short time period required for new facility construction (6 months). Furthermore, ethanol contains more oxygen than MTBE. Attainment of the 2% oxygen mandate requires only 7% ethanol by volume versus 11% MTBE. Therefore, compliance with the Act demands less supply of ethanol. Demand for ethanol may also stimulate the production of new ethanol facilities, including waste and cellulosic material conversion plants, especially in states where it is used. Some believe that California alone has the potential to produce 2 billion gallons of ethanol within a few years.5

In addition, the California Energy Commission found that "potential suppliers appear to have the production capacity and raw materials necessary to produce sufficient volumes of ethanol... under any of the various cases [of an MTBE phase-out]." Cost to refiners and consumers-According to the California Energy Commission, "if the scope of replacing MTBE were to be broadened to include the elimination of all oxygenates from gasoline, the cost impact for consumers would be the greatest,

4"The Use of Ethanol in California Clean Burning Gasoline: Ethanol Supply/Demand and Logistics," study requested by the Renewable Fuels Association in anticipation of CA Governor Davis' decision to ban MTBE, conducted by Downstream Alternatives, Inc., January/February, 5 Personal contact with ethanol industry business representative, April, 1999.

1999.