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organized staff of the Council on Environmental Quality between the size of a refiner for eligibility as "small business" under SBA programs (up to 30,000 B/D) and the independent refiner class as a whole. There are a number of independent refiners with capacities above 30,000 B/D situated noncompetitively like their counterparts under 30,000 B/D (nonintegrated, dependent on domestic crude oil, requiring more lead additives, than the majors) for whom this exemption is equally needed.

I realize that some major company spokesmen have complained about this exemption as unfair and discriminatory.

I hope that what I have said explains why this exemption is necessary not as a subsidy to independent refiners but to avoid the discrimination against independent refiners which is otherwise inherent in a tax on lead additives.

3. ADVERSE IMPACT ON CONSUMERS

Your committee is already aware of the immediate impact of this proposed tax upon consumers, in terms of some inevitable increase in the retail price of gasoline.

But there are additional threats to consumers which may not have been brought to your attention.

I urge that your committee consider, for example, the long term adverse impact upon consumers if the net effect of this legislation is to force a substantial number of independents from the marketplace.

The special role of the independent refiner in preserving competition in the oil industry, and in holding prices to consumers down, has been demonstrated in numerous hearings by Government agencies and the Congress.

Suffice it to say that the increase of 2 to 3 cents in the cost of gasoline which the administration now forecasts will prove to be grossly understated if gasoline prices 10 years from now are set by a handful of companies without the independent refiner's competition.

With respect to consumers, have you considered the element of fairness between consumers in different areas? Gasoline users in the inland and rural sections of America do not contribute to air pollution in the congested seaboard urban areas but the proposed tax will impose the cost of pollution control upon all consumers according to their gasoline use, wherever they may be located.

Is this fair? Indeed, is it really necessary?

Let me say a word also on behalf of the farmers who are customers of many independent refiners. The documents supporting the proposed legislation tabulate the automobile population and the gasoline requirements for autos in the next decade but little is said about farm tractors and other gasoline driven equipment on farms.

I call your attention to the fact that this equipment has a useful life many years longer than that of the typical automobile. Years in which gasoline with some lead content must continue to be available if this machinery is to continue to operate.

Why should these farmers, otherwise eligible for a rebate of the usual gas tax, have to pay an extra cost for leaded gasoline? Yet that is what this legislation will require.

4. THE SOCIAL WASTE IN THE THREE-PUMP SYSTEM

For independent refiners it will be most distressing if the end result of Government actions on air pollution is to foster the marketing of the three separate grades of gasoline.

This was brought to the attention of the Secretary of Health, Education, and Welfare, and to the Department of Commerce's Panel in the numerous submissions by independent refiners and their associations.

The Panel recognized the role which Government policy might have in this area but it did not adopt one position or another (pp. 27–28). This inconclusive state of affairs may be due to the hurried and interim nature of the Panel's report and we hope for a fuller treatment in the complete report scheduled for later this year.

In the meantime let me emphasize to your committee that a national policy which would have the effect of favoring three grades rather than two basic grades of gasoline would foster a social waste of staggering proportions.

I say social waste because it appears that there will be no need whatsoever 10 years hence for more than two grades of gasoline.

The tremendous investment in additional tanks, pumps, and so forth to accommodate a third grade is more than wasteful; it will represent an impossible financial burden for all refiners, jobbers, and marketers. The fact that some companies have elected as a matter of their individual company marketing strategy to employ three, and in some cases more, grades of gasoline should not mislead this committee on this point.

Where this is done, it is the individual company's own voluntary decision as to a promotion means which will advance its image in the market.

It certainly does not prove that this is the most efficient marketing method for the industry as a whole. As independent refiners we assert the contrary-we can achieve the economies which the consumer expects of us only through a two-grade system.

Government policy must not force refiners desiring to maintain the efficiencies of a two-grade system into the ridiculous expenditures required to market gasoline in three grades.

CONCLUSION

In conclusion let me assure your committee that we share the public interest in reducing air pollution and we agree that all appropriate steps should be taken to that end.

The present proposal for an immediate tax on lead additives is not necessary to that end.

It is altogether possible that steps now underway by industry and Government will lead to solutions which will not require a lead-free gasoline in 1974. Even if these efforts fail, there are means, other than a tax on lead additives, by which lead free gasoline can be provided and its use by consumers insured.

Even if a tax to offset lead's cost advantage is ultimately deemed to be the best means that need not be operational before 1974. If such a tax be necessary at that time, its special hardship upon independent refiners should be recognized and appropriate exemptions provided.

The CHAIRMAN. Thank you, for your very interesting statement. We appreciate your bringing it to the committee. If there are no questions, again we thank you. Without objection, the committee will recess until 2 p.m. to hear the remaining two witnesses.

(Whereupon, at 12:35 p.m. the committee recessed, to reconvene at 2 p.m.)

AFTER RECESS

(The committee reconvened at 2 p.m., Hon. Al Ullman, presiding.) Mr. ULLMAN. The committee will be in order. Our next witness is Mr. James H. DeMaras. We welcome you before the committee, Mr. DeMaras. If you will identify yourself officially for the record, then we will recognize you, sir.

STATEMENT OF JAMES H. DeMARAS, JR., EXECUTIVE VICE PRESIDENT, INDEPENDENT REFINERS ASSOCIATION OF CALIFORNIA, INC.

Mr. DEMARAS. Mr. Chairman and members of the committee: My name is James H. DeMaras, Jr., executive vice president of the Independent Refiners Association of California, Inc., Los Angeles, Calif.

Mr. Chairman, this association and many of its members have been testifying on the subject of the advantages and/or disadvantages of the removal of lead from gasoline for the past 6 months before two committees of both houses of the California State Legislature, a leader in the field of air pollution control.

These hearings covered the complete spectrum of the pros and cons of the subject at hand, with the result that a bill for the progressive removal of lead was voted down in a committee of the State senate.

At these hearings, and for the benefit of your committee, I think it appropriate to illustrate the number of small refineries involved in this critical issue and who, unlike the major oil companies will bear the brunt of any precipitous legislative action either by lead removal or by a tax imposed to discourage the use of lead.

For purposes of evaluation as to size, there are in the west coast area eleven refining companies with a crude oil refining capacity in excess of 156,000 B/D with a current replacement value of approximately $300 million for their refining and related facilities, and these companies employ approximately 2,500 people, not counting the people involved in the marketing end of the business. So that there is no misunderstanding it is the unanimous position of this association and its members on the issue before us that we concur and support wholeheartedly the policy of solving the critical pollution problems confronting the country as a whole. The real and significant question at hand is how to best accomplish this as expeditiously and with a minimum economic burden on the consumer.

I have been advised that the position taken by the Government witnesses before this committee last week in summary concluded that "lead must go" because it is a health hazard. It is also my understanding that there was no particular definitive evidence presented that lead per se as emitted from the automobile tailpipe was having or causing any deleterious effect on either the ecology or the man on the street.

There was however, I understand, speculation that it could cause undesirable results at some undefined future date. The companies

represented by this association do not have the research facilities or scientific expertise to evaluate this subject and these allegations through our own facilities. So we are placed in a position where we must evaluate this controversial issue on the basis of information already generated and publicly available at all levels of government and from private sources.

I think you can appreciate that in the early stages of this evaluation we were in quite a quandary at the divergence of opinion from the Federal Government's comments and positions on this issue.

In illustrating our early problem, I will quote from a statement made by Mr. Richard Hurn of the U.S. Bureau of Mines, presented before the California Air Resources Board on March 15 of this year.

Mr. Hurn was referring to tests run on standard automobile engines in the Bureau of Mines laboratory in Bartlesville, Okla. Mr. Hurn said, "Now, the result that was obtained in these tests is, I think best summarized in a paper that was presented here on the west coast to the American Society of Mechanical Engineers in the fall of this year.

And I concluded as follows: Leaded and comparable quality prototype unleaded fuels yield about equal amounts of emissions. This was true for both evaporative and exhaust losses.

If the photochemical effect is considered, the fuel factor is shown exerting influence. The fuel alterations from leaded to unleaded changed emission characteristics so that the pollution effect was increased by as much as 25 percent."

And further Mr. Hurn stated, "The photochemical effects from the exhaust gases of the low olefin unleaded fuel were increased by 38 percent over the photochemical effect from the regular fuel. Now again, that is not to say, gentlemen, that if one changes, if one removes lead from fuel that this will happen.

"It is to say that it can happen if the fuel composition is as was used in this test."

It seems apparent to the people in the independent segment of this industry that the conclusions of Mr. Hurn would indicate that unleaded gasoline would produce a result which is diametrically opposed to the results desired by this committee as a result of the removal of lead from gasoline.

Our doubt of the beneficial results of lead removal as a means of controlling pollutants is further increased when consideration is given to the statements made by the lead producing companies and their efforts to control the tailpipe emissions problem through the medium of mechanical devices.

It is now a proven fact that this approach to the problem is a perfectly feasible and economic possibility. In the State of California automobiles equipped with the DuPont thermal reactor have been tested using leaded gasoline by laboratories of the California Air Resources Board, with the result that the 1975 emission standards were exceeded and the 1980 standards were approximated.

It is also interesting to note at this point, and again I understand that the Government's witnesses last week before this committee referred to the catalytic device as being one of the reasons for the necessity for the removal of lead in gasoline, but it is our understanding as of this moment no practical device of this sort exists, nor has any

catalytic device been submitted for test at the State level, so we have to conclude that this is not a valid argument since the thermal reactor approach to this problem is a proven fact.

I might add the Air Resources Board of California requested if there were any catalytic devices available in the United States that they be submitted for tests and they gave the time period of 6 months for this submission and there were no offers.

With respect to the proposed legislation which would impose a tax on lead, we're opposed to this. It is our understanding that the basic purpose of this tax is to discourage the use of lead. We consider this an unwarranted economic burden on the consuming public without justification, because if the consumer is forced to underwrite an additional tax he will also be forced to pay the cost eventually of the additional sophisticated refining equipment to produce unleaded or low-leaded gasoline, and then still have to pay for the automotive devices which Detroit will have to add to the internal combustion engine for the purpose of controlling all of the tailpipe emissions, which will be required whether lead is removed or not.

We see no justification and/or reason for the consumer to be penalized and I might add heavily, for a solution to this problem which eventually, and as of today, has been solved by mechanical devices using currently available leaded gasoline. I submit that it is the responsibility of the automobile manufacturers to avail themselves of these devices.

I think it significant to note at this point that in the rather emotional discussion of the amount of lead being emitted from the automobile tailpipe, that this is just one of the factors which must be controlled in the standards being set for tailpipe emissions.

The removal of lead from gasoline, either by a confiscatory tax or outright prohibit by legislation will have no effect on the other undesirable elements being emitted. Again the conclusion is reached that the mechanical device, whether it be the thermal reactor or some device still on the drawing board, in the final analysis is the answer, and that this device will have to be paid for by the consumer regardless of what restrictions are placed on the chemical composition of gasoline in the meantime.

I think it will be of interest to the committee to point out that the capital requirements for the refining companies which I represent today to install the additional equipment required to manufacture a lead-free gasoline exceeds the value of their existing facilities which in effect, is saying, what lending institution would be so foolhardy as to approve a loan of $10 million on a $5 million plant? As of this moment this particular economic problem is one to which there is no solution for the independent refiner.

I think it also significant to point out that even if the necessary capital was made available to these small companies, the requirements of the major oil companies for the necessary hardware to produce unleaded gasoline on a nationwide basis far exceeds the manufacturing capabilities of the suppliers, and based on personal inquiry as to availability of this type of equipment it would take the average independent approximately 5 years before he would receive his first piece of equipment.

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