Mr. CHAMBERLAIN. I would just like to ask one question. Our Treas ury people have told us that this proposal we have before us is both. an antipollution measure as well as a revenue-producing measure.

I take it from your response to questions directed to you by the chairman and other members of the committee that you do not regard this as being of any value whatsoever as an antipollution measure; is that right?

Mr. GAMMELGARD. That is correct, sir.

Mr. CHAMBERLAIN. Then it is solely in your view nothing but another excise tax?

Mr. GAMMELGARD. That is absolutely correct, in my opinion.

The CHAIRMAN. If there are no further questions, we thank you very much for your very interesting testimony.

The Chair understands that it is agreeable with Mr. Logan to substitute the witness for the Ashland Petroleum Co. as our next witness. Mr. Yancey is not with us but Mr. Oliver J. Zandona is with us. We are pleased to have you with us.

Mr. WATTS. In view of the fact that the Ashland Oil Co.-I won't take this opportunity to tell the committee that the Ashland Oil Co. is one of the finest and fastest growing companies in the country.

STATEMENT OF OLIVER J. ZANDONA, VICE PRESIDENT, ASHLAND PETROLEUM CO. (PRESENTING STATEMENT OF ROBERT E. YANCEY, CHIEF OPERATING OFFICER)

Mr. ZANDONA. Thank you, Mr. Chairman. With your permission I would like to read the statement of Mr. Robert E. Yancey. Mr. Yancey is the chief operating officer of the Ashland Petroleum Co.

The CHAIRMAN. Please proceed, Mr. Zandona.

Mr. ZANDONA. My name is Robert E. Yancey. I am chief operating officer of Ashland Petroleum Co. I am here today to testify in opposition to the President's proposal to impose a tax of $4.25 per pound of lead in lead additives used in gasoline.

Such a proposal, if enacted into law, would impose a 450 percent tax on the sales price of lead additives. Moreover, it comes at a time when Congress and several departments of Government as well as the automobile and petroleum industries are thoroughly studying the complex problem of fuel consumption and its relationship to automotive emissions. This unprecedented tax preempts an orderly solution of an issue under review and if adopted may cost the motoring public as much as $1.6 billion per year.

Ashland Oil, and I believe the refining industry in general, wants to be cooperative in every feasible way in effectively reducing atmospheric pollution. It is our hope that this end can be accomplished without unnecessary discriminatory damage to industrial enterprises, or impairment of the economy of the country. The proposed tax, we submit, fails to meet these tests.

First of all, the burden of the tax would be inequitably distributed, falling with special severity upon independent refiners. Refiners are in varying situations insofar as their dependence on lead is concerned. Some companies have chosen in the past to use lead efficiently, reserving the capital required for more severe refinery processing, and employing that available capital more heavily in the search for oil and/ or development of markets.

Two or three years will be required then for design and construction and of refining equipment to effect complete lead removal. Therefore, the real cost to refiners will vary widely. The proposed bill includes provisions for easing the impact on smaller refining companies by allowing them a tax moratorium on a quantity of their lead purchases for a limited time. No consideration is given, however, to the company with several small- to medium-sized refineries, which would bear a heavy burden immediately.

Generally speaking the independent refiners, those whose refining capacity greatly exceeds their own crude oil supplies and whose products are distributed mainly through independent marketers lacking capital resources for such equipment, will suffer most severely from the proposed limitation. Ashland's case in this regard is typical of many other independent refiners. Yet these refiners are a most powerful source of competition in the petroleum industry. Impairment of their position in relation to the integrated major oil companies can only mean a substantial lessening of competition within the industry. The discriminatory incidence of the tax is clearly evidenced also by variations among refiners as to their ability to pass the tax along to the consumer through increases in gasoline prices, as suggested by the Treasury Department. To the extent of any such price increase, the tax would be inflationary, communicating its impact to practically all American homes. But the ability to pass on the burden of this tax will be limited by the quantity of lead required by the lowest lead user and all those less favorably situated will suffer a discriminatory reduction in operating margins. Here again the burden will fall most heavily on the smaller independent refiners.

Ashland Oil operates six refineries varying in capacity from 5,000 to 125,000 barrels per day. Therefore, we feel that we know the problems of the smaller independent as well as the larger refiner. At the present time we are unable to produce a 91 octane lead-free pool at any of our refineries.

We and doubtlessly many others, will suffer severely in an attempt to compete with larger refiners who are less dependent on lead. Based on our present use of lead additives, the annual tax Ashland would have to pay approximately equals our last year's after-tax income. I think you will find this same situation exists with many companies. Second, tetraethyl lead has not been proven to be hazardous to health. The only positive proof thus presented concerning lead's detrimental effects relate to its reduction of catalyst life in experimental catalytic mufflers used to reduce automobile exhaust emissions. However, the automobile industry has stated that it would not have suitable catalytic mufflers generally available until 1974 at the earliest. Thus, there is no practical reason to eliminate lead unless some conclusive evidence is presented concerning its effect on health.

Third, there are strong indications that rapid removal of lead from gasoline will have the effect of actually increasing air pollution, not reducing it. Tetraethyl lead is used in gasoline to increase the octane rating. These higher octanes have enabled auto manufacturers to build high compression engines which attain high fuel efficiency, thereby giving the consumer greater mileage per gallon. Removal of lead will reduce the octane number so far that most of the automobiles presently on the road will function inefficiently-thus decreasing their

mileage per gallon, increasing total consumption, and increasing the output of pollutants.

The automobile industry has indicated that it would have on the market this year new engines designed to run on the lower octane fuel and to release greatly reduced exhaust emissions. This is a step in the right direction. However, a number of years will be required for these new engines to have any impact on the entire automobile industry population. Meanwhile, the petroleum industry has a responsibility to the owners of the older models to supply them with the quality of gasoline required by their vehicles during the period when those vehicles are being phased out.

Likewise, auto engine manufacturers have indicated that lead compounds in gasoline act as valve lubricants. Serious valve problems occur when internal combustion engines have operated for long periods on 100 percent lead-free gasoline. Once again, poor engine performance due to valve burning will result in increased hydrocarbon emissions, as well as increased maintenance charges for the car owner.

Fourth, more severe refining techniques are required to realize higher octanes without lead, resulting in lower refining yields of gasoline per barrel of crude oil processed. One can readily visualize the cumulative effect of this change on the country's crude oil requirements. The lower effect octane product will result in fewer miles per gallon, hence more gasoline will be required per vehicle mile traveled. The more severe refining techniques required to produce this lower octane lead-free gasoline will result in fewer gallons of gasoline per barrel of crude oil produced. Thus the amount of crude oil required per vehicle mile traveled will be increased by both actions. This, I submit, represents a gross waste of our natural resources at a time when our Nation faces a severe energy crisis.

Once again, the economic impact of the lower yields associated with the higher octane unleaded products bears most heavily on the small, less efficient independent refineries. Larger quantities of light gases are produced as by-products of the more severe cracking or reforming conditions required. A large refinery complex would recover these light products and convert them now into petrochemical feedstocks with already existing facilities. The smaller fuel products refineries left with only the option to burn these gases as plant fuel. Again the tax is discriminatory against the small plant.

The economic impact of producing lead-free gasoline via new plant construction is gigantic. Studies which have been made indicate that expenditures of billions of dollars by the refining industry would be required to effect the complete removal of lead additives. These capital investments will have to be supported by the motoring public.

Any program calling for complete lead removal will certainly be inflationary and should be avoided until these lead compounds have been proved beyond question to be the culprits they are now accused. Serious consideration of the impact on the economy should be given to any legislation forcing rapid change.

Lastly, the various high octane components produced by refineries to increase octane levels-primarily aromatic-are in themselves pollutants, possibly having more serious effect on the populace than the lead compounds they replace.

Also, aromatics have an alternate value as petrochemical intermediaries, or raw materials for such items as plastics, synthetic fibers and

numerous other consumer products. An increased value of these aromatics in gasoline as a substitute for lead will be reflected in increased costs of the chemical end products manufactured from aromatic feedstocks, which also must be borne by the consumer.

One other segment of the industry deserves special mention in this discussion. Ashland Oil has long been a major supplier for the socalled independent unbranded jobbers, most of whom are equipped to handle only two grades of gasoline. Most of the major oil companies who have announced intentions to market an unleaded gasoline or a low lead gasoline plan to do so through a third grade.

The economic impact upon these small businessmen should they be forced to market three grades of gasoline is overwhelming. Many of these independent jobbers will be forced out of business if compelled to change their historical marketing practices. By forcing abandonment of the marketplace to the major oil companies, the proposed program could have serious anticompetitive implications.

Decisions based on facts, and not precipitated by revenue producing pressures unrelated to the problem at hand, will tend to conserve our natural resources and be less costly and onerous to the consuming public. We appear here in opposition to the proposed tax on lead because we fear it will result in an actual increase in air pollutants, and this at a great cost to the motoring public.

Our company's often stated policy remains completely dedicated toward the goal of achieving an acceptable ambient air quality.

Mr. Chairman, I have with me two telegrams, from Cities Service Oil Co. and Standard Oil Co. of Ohio, supporting our comments which I would like to present to you for your records.

The CHAIRMAN. Without objection, the telegrams will be included in the record.

(The documents referred to follow :)

Mr. REXFORD S. BLAZER,
Chairman of the Board,

Ashland Oil, Inc., Ashland, Ky.:

NEW YORK, N. Y., September 4, 1970.

You are authorized, if desired, to use the following statement in testimony be fore the Ways and Means Committee:

"Cities Service Co. supports the position of Ashland Oil, Inc. in opposition to the special Federal tax on the use of tetraethyl lead in gasoline for the following

reasons:

1. The tax is unnecessary to accomplish the stated purpose of making low-lead and lead-free gasolines available since such fuels are being placed on the market. 2. The tax would impose an additional burden on the consumers at a time when benefits, if any, are still uncertain and would exert an inflationary pressure on the economy."

CHARLES S. MITCHELL,
J. EDGAR HESTON,
Cities Service Co.

CLEVELAND, OHIO, September 15, 1970.

Mr. ROBERT YANCEY,
Ashland Oil and Refining Co.,
Ashland, Ky.:

Following is the statement suggested by Sohio for possible inclusion in your testimony in opposition to the proposed tax on lead in gasoline.

"The Standard Oil Company of Ohio is strongly opposed to the imposition of a tax on lead in gasoline. It sincerely believes that the effect of this tax will be to unfairly discriminate among oil companies; to create greater inflationary conditions; and to inhibit the profitability and growth of the oil industry in a period

of critical energy shortage. Moreover, it represents still another direct tax on gasoline, and one that would constitute a diversion from the sound policy of reserving gasoline tax revenues for highway use.

"Refiners are in varying situations insofar as their dependence upon lead is concerned. The sudden imposition of a tax on lead in gasoline would have a discriminatory and inequitable effect. In the relatively free business climate that has existed, some oil companies have chosen to use higher lead contents than others while employing their available capital more heavily in the search for oil and the development of markets than in refining equipment that will minimize lead

usage.

"SOHIO has kept its refineries in Ohio modern. The lead requirements for these plants are substantially less than those of many other refiners. However, a few months ago refineries in Pennsylvania and Texas that were formerly operated by Sinclair and Atlantic Richfield were acquired. These refineries are quite unlike the Ohio plants. They need new equipment and modernization and are heavily dependent on lead additives to produce an acceptable, marketable gasoline.

"These refiners will be modernized as soon as possible, but it can't be done overnight. It takes two or three years to design and construct a modern refinery or to substantially alter an existing one. It is a costly job too. SOHIO and others will be critically hurt in their abilities to compete with those who are less dependent on lead, if they would have to pay disproportionate taxes while investing substantial sums of capital to improve refineries at the same time.

"The Treasury Department has suggested that the proposed tax can be passed on to the consumer through an increase in gasoline prices. If the Treasury Department is accurate in its judgment that the proposed tax can be passed on to the consumer, the inevitable result will be more inflation and a dollar that is increasingly less valuable to the American consumer.

"The impact of the tax on profits, Capital availability and thus growth of the petroleum industry will be highly unfavorable in a period, ironically, when energy needs relative to supply are verging on becoming critical. This tax is but a part of what appears to be an almost insurmountable wall of resistance to the petroleum industry's efforts to respond to these demands and avoid what is now being termed an almost inevitable energy crisis.

"Finally, gasoline, already one of the most heavily taxed commodities, would be subjected to still another tax, the effect of which would be to increase Federal taxes on a gallon of gasoline by more than 50 percent. Further, it would represent a diversion of gasoline tax revenues from highway purposes. Such a move, many believe, would be highly undesirable and unacceptable to the American public.

"We at SOHIO urge your thoughtful consideration of this tax proposal. The goal of auto emission pollution control is one we share. The way in which this goal is met is of critical importance to all of us."

R. A. HART,
The Standard Oil Co. (Ohio).

Mr. BYRNES. I would like to know why companies are putting out nonleaded gas? We just reviewed a list of those producing and selling unleaded or low leaded gasolines. It is acknowledged that this is more costly, and is not any more efficient. Why are these companies marketing unleaded gas?

Mr. ZANDONA. I appreciate your question. I am sure you appreciate Ashland Oil does not market an unleaded gasoline.

Mr. BYRNES. It is going to be very difficult for the independent refinery to do it at the 92 or 93 octane level?

Mr. ZANDONA. In order to substantiate marketing unleaded gasoline we would have to obtain additional moneys at the marketplace. Mr. BYRNES. Why are the other people doing it?

From their standpoint it costs them more, and they are going to have to sell it at a higher price in the market.

I have great difficulty understanding the economics of this. Why would anyone market something when the consumer can get the same product cheaper and it would be just as efficient and do just as good a job?