MTBE Phaseout Cost in Billions, Analyst Says

A gasoline additive that may cause cancer has had far less impact on the state’s drinking-water supply than expected, and replacing it will drive gasoline prices up to $1 billion more than Gov. Gray Davis expected when he banned it, according to a California Energy Commission analyst.

Still, analyst Gordon Schremp and other state officials said they support Davis’ decision to phase out MTBE, or methyl tertiary-butyl ether, by the end of 2003.

“MTBE needs to go. Period,” said William L. Rukeyser, assistant secretary of the California Environmental Protection Agency. “The numbers are important, but they are not something that drives the decision [to ban] MTBE....The reason the decision is not going to be revisited is because of environmental concerns and the very great importance that this administration attaches to water quality throughout the state.”

But MTBE producers are seizing upon Schremp’s gasoline-price estimates to urge Davis to rethink his executive order.

“Many people have dug in their heels on this issue,” said Frank Maisano, spokesman for the Oxygenated Fuels Assn., a coalition of MTBE producers based in Washington, D.C. “This is going to have to cause some sort of reexamination of the policies that California puts in place.”

MTBE is added to gasoline to make it burn cleaner, which reduces air pollution. Use of MTBE became common in the 1990s, but research revealed it is a probable carcinogen that spreads quickly through the groundwater.

In 1999, Davis announced a phaseout of the chemical by the end of this year. But last month, he said the ban would be delayed a year because of concerns about gasoline shortages and price increases.

Six days later, Schremp told a gathering at the World Fuels Conference in San Antonio that the cost projections Davis used to make his 1999 decision to ban MTBE turned out to be wrong.

University of California research in 1998 projected that annual water-cleanup bills could reach $1.5 billion if MTBE were kept in gasoline, but Schremp said that by using new assumptions gleaned from four years of MTBE experience, cleanup costs would be less than one-sixth of that figure.

“The frequency of MTBE showing up in wells is a lot less than anticipated in the UC study,” he said.

Schremp added that the cleanup figures do not include oil companies’ liability for contamination.

A San Francisco jury is to begin deliberations Monday to determine how much to award a South Lake Tahoe utility after more than one-third of that city’s wells were shut down because of MTBE. Cleanup could reach $50 million.

Similar lawsuits have been filed across the country, including Santa Monica and Orange County.

Energy commission research in 1998 said replacing MTBE with ethanol would cost $450 million annually, but Schremp said he now projects that replacing MTBE could cost up to $1 billion more annually, plus a possible one-time price increase of $600 million.

Still, Schremp said the answer is not to allow MTBE to remain in gasoline, but to continue pursuing a federal waiver so that California doesn’t have to include any additive in its gasoline--a position backed by the governor’s office, the state’s U.S. senators and environmentalists.

But MTBE producers said the new cost estimates are a rational, well-reasoned argument to keep MTBE in gasoline.

“MTBE in groundwater is a manageable issue,” said David Harpole, spokesman for Lyondell Chemical Co., the world’s largest MTBE producer. Environmentalists said that’s absurd.

“It makes no sense to pollute water and then try to clean it up,” said Will Rostov, a staff attorney with Communities for a Better Environment.

However, Harpole said he hopes the state’s leadership will consider the new cost estimates and decide that MTBE has a role in California.

But Rukeyser said, “The decision has been made and it’s final....California is going to get rid of MTBE in gasoline, and we’re going to do that before the rest of the country.”