"Boutique Fuels" and Reformulated Gasoline: Harmonization of Fuel Standards

Publication Date: May 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

Type:

Abstract:

The current system of gasoline standards in the United States is complex. Because of federal and state programs to improve air quality, and local refining and marketing decisions, suppliers of gasoline face many different standards for fuel quality. As a result, fuels are formulated to meet varying standards. State and local decisions overlap with federal requirements, leading to situations where adjacent or nearby areas may have significantly different standards. These various fuel formulations are often referred to as "boutique fuels." In this system, supply disruptions can result if fuel from one area cannot be used to supply another area.

Because of potential supply concerns, there is interest in simplifying (harmonizing) the system so that regional or national standards are consistent. However, the competing goals of air quality, supply stability, and costs make harmonizing the system a complex process.

Adding to these complications are concerns over methyl tertiary butyl ether (MTBE), a common gasoline additive that has been detected in groundwater in numerous states. At least 25 states have passed legislation to ban or limit the use of MTBE.

On August 8, 2005, President Bush signed the Energy Policy Act of 2005 (P.L. 109-58). Among other provisions, P.L. 109-58 addressed several boutique fuels issues. As a result of P.L. 109-58, a key component of the federal reformulated gasoline (RFG) program was eliminated May 6, 2006. This requirement, which gasoline suppliers asserted was a de facto MTBE requirement, was used by gasoline suppliers as a defense against liability for MTBE contamination. Therefore, while P.L. 109-58 actually gives the industry more flexibility, the industry moved quickly to eliminate MTBE from the gasoline supply in spring 2006. This increased pressure on already tight refining capacity. The loss in volume and energy from eliminating MTBE increased demand for gasoline, as well as ethanol. Exacerbating the supply problem was the fact that the industry was making the transition from winter gasoline to more stringent summertime air quality specifications, which adds competition for the highest-quality gasoline components. These pressures, along with historically high crude oil prices, led to historically high gasoline prices. Further, some localized areas faced short-term supply disruptions as refineries made the transition.

This report discusses how gasoline composition is regulated and explains the various federal and state gasoline standards. Next, the report presents some of the key issues with the federal RFG program. Some of the problems associated with boutique fuels are discussed, as well as some of the potential effects of harmonization. Finally, congressional actions in the 109th Congress related to boutique fuels, RFG, and harmonization, including the passage of P.L. 109-58, are discussed.

This report will be updated as events warrant.