8

4

commitments of research and development expenditures by private. industry, is obviously seriously hampered by uncertainty as to whether nonleaded or low lead gasoline will be generally available in the future. Lead additives are used by refiners as the cheapest way to increase the octane rating of their gasoline. If the lead were to be removed concentration of more expensive blending components. Thus, there additives from gasoline. This bill is designed to remove this present is at present a clear economic disincentive to removing the lead competitive price advantage of the less desirable fuel by imposing an additional tax on the leaded gasoline which will eliminate the cost

of

vantould not suffice for this Congress to announce, even through

encourage manufacturers of gasoline to produce an unleaded fuel at legislation with a postponed effective date, that it will require or industries must make final irrevocable decisions by early 1971 at the expected to be generally available. The automotive and petroleum that time in the future when advanced emission control devices are latest as to fuel and engine requirements for the 1975 model year standards call for limits on emissions. There must be assurance now (the Fall of 1974) when proposed national auto exhaust emission that unleaded gasoline will be available at that time so that the emission control systems will operate effectively and thus can be incorporated now in the automobile designs. Thus, the conversion to unleaded gasoline must begin at once. Such conversion can be accomplished most effectively by a tax incentive which removes the cost advantage of using lead and thus encourages each gasoline refiner to accomplish the transition as quickly as possible without establishing absolute and inflexible requirements. in advance of the target dates for federal emission control requirements It is also important to have unleaded gasoline generally available so that automobile designers have the option of using emission control devices to enable them to meet the developing state emission standards; and, probably more importantly, to enable them to test performance of new emission control devices manufactured under actual high volume conditions. Simulated laboratory testing does not guarantee equivalent performance in the field. Requirements which are only to take effect at some future date find themselves unprepared to meet the requirements when that too often must be extended and re-extended as the affected parties future date arrives. A tax incentive provision, made operative now, avoids this problem. It adequately reduces the cost advantage of using lead, so that each refiner will achieve the conversion on a basis suited to his particular needs. Competitive pressures will insure that a conversion is made at a reasonably early date, and these pressures I will be a sufficient constraint to assure developers of the emission control systems that unleaded gasoline will be available in time so that their equipment may be put into operation as soon as develop

ment is completed.

The immediate beneficial effect to the environment of removing lead from gasoline is an equally important consideration. Hydrocarbon emission levels from cars presently on the road are directly related to the level of lead additives in the fuel. Estimates of the increment caused by leaded fuels vary from 7 to 20 percent. Further, at least 30 percent of the particulate emissions (solid materials) of engine

5

3

exhausts consists of lead. We must take account of the undeniablealthough admittedly unmeasurable-adverse effects of this lead level on the health of our population. There are many recognized health e authorities who argue that the possible health hazards of increased lead concentration in the atmosphere due to emissions of lead salts from cars, more than justifies, solely on the basis of information already available, any action which may be taken to encourage a switch to unleaded fuels. Evaluation of these data is continuing, but we cannot continue to tolerate this clear and present danger to our national health level.

For these reasons, the tax on lead in gasoline is an extremely important part of the Administration's program to improve the quality of our environment.

It is estimated that the proposed tax will result in a first year revenue gain of approximately $1.6 billion. This amount will diminish as the incentive takes effect and lead free or low level leaded gasoline is successfully developed.

The proposed tax would be imposed on the sale by the manufacturer or importer of lead additives which are used in motor fuels. In order to prevent possible circumvention of the tax, importer would be defined to include an importer of gasoline containing lead additives. The tax would apply to lead additives in gasoline used in all gasoline engines although its primary impact would be on automotive fuel. The tax would be imposed on the manufacturer's sale of lead additives after July 31, 1970. To bring the tax fully into play at that date and to discourage possible stockpiling of tax free lead additives, a floor stock tax would be imposed on all inventories of lead additives held by any person other than the manufacturer or importer on August 1, 1970. This floor stock tax would be in the same amount and measured in the same manner as the tax on the sale by the manufacturer of lead additives.

In order to prevent the tax from causing undue hardships on the part of smaller refiners of gasoline, it is proposed that each separate company (but only one for an affiliated group) engaged in the refining business be permitted to use, free of tax, additives containing up to 1,000,000 pounds of lead during the first year the tax is in effect. This amount would be decreased by 200,000 pounds annually until 1976 when all lead contained in such additives would be fully taxable. The figure of 1,000,000 pounds is based upon the average amount of lead in additives that is believed to be used by a typical independent refinery. This level is based on the criteria used by the Small Business Administration for distinguishing small refiners eligible for set-asides for contracts with the Department of Defense. Although each such refiner would be able to use additives containing up to 1,000,000 pounds of lead, the bill limits this allowance to the amount of additives containing no more lead than that contained in the additives actually used during the year preceding August 1, 1970. the effective date of the tax, or if greater, the average of the three years preceding that date. In this manner the possibility of small refiners profiting by selling unused tax free additives to other refiners will be avoided.

I urge the Congress to give each of these three important recommendations of the President your immediate attention.

Sincerely yours,

(S) DAVID M. KENNEDY.

50-374 070-3

4

commitments of research and development expenditures by private. industry, is obviously seriously hampered by uncertainty as to whether nonleaded or low lead gasoline will be generally available in the future. Lead additives are used by refiners as the cheapest way to increase the octane rating of their gasoline. If the lead were to be removed from motor fuels, additional octane could be provided only by higher concentration of more expensive blending components. Thus, there is at present a clear economic disincentive to removing the lead additives from gasoline. This bill is designed to remove this present competitive price advantage of the less desirable fuel by imposing an additional tax on the leaded gasoline which will eliminate the cost advantage of using lead.

It would not suffice for this Congress to announce, even through legislation with a postponed effective date, that it will require or encourage manufacturers of gasoline to produce an unleaded fuel at that time in the future when advanced emission control devices are expected to be generally available. The automotive and petroleum industries must make final irrevocable decisions by early 1971 at the latest as to fuel and engine requirements for the 1975 model year (the Fall of 1974) when proposed national auto exhaust emission standards call for limits on emissions. There must be assurance now that unleaded gasoline will be available at that time so that the emission control systems will operate effectively and thus can be incorporated now in the automobile designs.

Thus, the conversion to unleaded gasoline must begin at once. Such conversion can be accomplished most effectively by a tax incentive which removes the cost advantage of using lead and thus encourages each gasoline refiner to accomplish the transition as quickly as possible without establishing absolute and inflexible requirements. It is also important to have unleaded gasoline generally available in advance of the target dates for federal emission control requirements so that automobile designers have the option of using emission control devices to enable them to meet the developing state emission standards; and, probably more importantly, to enable them to test the performance of new emission control devices manufactured under actual high volume conditions. Simulated laboratory testing does not guarantee equivalent performance in the field.

Requirements which are only to take effect at some future date. too often must be extended and re-extended as the affected parties find themselves unprepared to meet the requirements when that future date arrives. A tax incentive provision, made operative now, avoids this problem. It adequately reduces the cost advantage of using lead, so that each refiner will achieve the conversion on a basis. suited to his particular needs. Competitive pressures will insure that a conversion is made at a reasonably early date, and these pressures will be a sufficient constraint to assure developers of the emission control systems that unleaded gasoline will be available in time so that their equipment may be put into operation as soon as development is completed.

The immediate beneficial effect to the environment of removing lead from gasoline is an equally important consideration. Hydrocarbon emission levels from cars presently on the road are directly related to the level of lead additives in the fuel. Estimates of the increment caused by leaded fuels vary from 7 to 20 percent. Further, at least 30 percent of the particulate emissions (solid materials) of engine

5

exhausts consists of lead. We must take account of the undeniablealthough admittedly unmeasurable-adverse effects of this lead level on the health of our population. There are many recognized health authorities who argue that the possible health hazards of increased lead concentration in the atmosphere due to emissions of lead salts from cars, more than justifies, solely on the basis of information already available, any action which may be taken to encourage a switch to unleaded fuels. Evaluation of these data is continuing, but we cannot continue to tolerate this clear and present danger to our national health level.

For these reasons, the tax on lead in gasoline is an extremely important part of the Administration's program to improve the quality of our environment.

It is estimated that the proposed tax will result in a first year revenue gain of approximately $1.6 billion. This amount will diminish as the incentive takes effect and lead free or low level leaded gasoline is successfully developed.

The proposed tax would be imposed on the sale by the manufacturer or importer of lead additives which are used in motor fuels. In order to prevent possible circumvention of the tax, importer would be defined to include an importer of gasoline containing lead additives. The tax would apply to lead additives in gasoline used in all gasoline engines although its primary impact would be on automotive fuel. The tax would be imposed on the manufacturer's sale of lead additives after July 31, 1970. To bring the tax fully into play at that date and to discourage possible stockpiling of tax free lead additives, a floor stock tax would be imposed on all inventories of lead additives held by any person other than the manufacturer or importer on August 1, 1970. This floor stock tax would be in the same amount and measured in the same manner as the tax on the sale by the manufacturer of lead additives.

In order to prevent the tax from causing undue hardships on the part of smaller refiners of gasoline, it is proposed that each separate company (but only one for an affiliated group) engaged in the refining business be permitted to use, free of tax, additives containing up to 1,000,000 pounds of lead during the first year the tax is in effect. This amount would be decreased by 200,000 pounds annually until 1976 when all lead contained in such additives would be fully taxable. The figure of 1,000,000 pounds is based upon the average amount of lead in additives that is believed to be used by a typical independent refinery. This level is based on the criteria used by the Small Business Administration for distinguishing small refiners eligible for set-asides for contracts with the Department of Defense. Although each such refiner would be able to use additives containing up to 1,000,000 pounds of lead, the bill limits this allowance to the amount of additives containing no more lead than that contained in the additives actually used during the year preceding August 1, 1970. the effective date of the tax, or if greater, the average of the three years preceding that date. In this manner the possibility of small refiners profiting by selling unused tax free additives to other refiners will be avoided.

I urge the Congress to give each of these three important recommendations of the President your immediate attention.

Sincerely yours,

(S) DAVID M. KENNEDY.

50-374 O-70-3