Introduction

On June 17, 2002, Senator Jeff Bingaman, Chairman of the Senate Committee on Energy and Natural Resources, requested that the Energy Information Administration (EIA) provide analyses of eight issues related to the Senate-passed fuels provisions of H.R. 4, the Energy Policy Act of 2002. In response, EIA prepared a series of analyses discussing the market impacts of each of these issues. Because of the rapid delivery time requested by Sen. Bingaman, each requested issue related to the Senate-passed bill was analyzed separately, without analyzing the interactions among the various provisions. In addition to the Senate-passed provisions, assumptions about State actions, such as their implementation and timing of methyl tertiary butyl ether (MTBE) bans can influence the results. Discussions about some of these interactions have been included in order to explain the interconnected nature of these issues.

The impacts of the proposed H.R. 4 changes discussed in the analyses provided to Sen. Bingaman focus on three areas: supply, price, and price volatility. If meeting a proposed change results in a reduction of production capability, then actions to fill the “lost” volumes will generally be more costly than their current alternatives and result in higher prices to consumers. Supply losses in the short term can translate into transition problems that lead to price volatility during a changeover. Changes in distribution and storage infrastructure add costs and become part of the transition issue. Factors that increase the difficulty of any fuel transition include the magnitude of the change required, the cost of new or additional components, and regulatory and market uncertainties.