Conclusion

Many of the transportation fuel changes being proposed in H.R. 4 are directed at environmental and other goals and require changes from the way in which the market operates today. The proposed changes affect the entire supply chain. Of the issues explored for Sen. Bingaman, the proposed Federal MTBE ban has the largest impact on supply, price and price volatility. MSAT, in combination with an MTBE ban, exacerbates the supply losses, particularly in the Northeast. Many of H.R. 4’s changes would result in an increased use of ethanol in the long term. While large increases in ethanol production will be required during the next few years due to State MTBE bans or the RFS proposal, needed construction is already underway to meet these requirements. The largest transition issue associated with increased ethanol volumes probably derives from the changes needed to transport the product. RFS requirements by themselves, however, seem to present relatively small supply and price effects in the early years of the program analyzed for these issues. In general, the changes in H.R. 4 would tend to increase the number of distinct fuels in the supply system, on top of the increasing number of fuels resulting from State initiatives such as State MTBE bans and early low sulfur gasoline programs, adding to the potential for price volatility on a local or regional basis.