Phase 3 Cleaner-Burning Gasoline

This page last reviewed March 25, 2009

At its December 9, 1999 meeting, the California Air Resources Board (ARB) adopted new gasoline requirements, known as the Phase 3 cleaner-burning gasoline regulation. The intent of the regulation is to eliminate the use of the additive MTBE (methyl tertiary butyl ether) in California while retaining all the air-quality benefits of the state's current cleaner-burning gasoline, which has been used since 1996. This fact sheet provides an overview of the proposed Phase 3 regulation.
Phase 1 and Phase 2 Gasoline
California has achieved significant improvements in air quality in the past decade through the use of cleaner gasoline. The Phase 1 gasoline regulation, which took effect in 1992, banned leaded gasoline and required refiners to take relatively simple steps to make gasoline evaporate less readily. The Phase 2 regulation took effect in 1996 and required extensive changes to gasoline. Phase 2 fuel, also known as Cleaner-Burning Gasoline, reduced smog-forming emissions from motor vehicles by 15 percent and reduced toxic air emissions from gasoline use by 40 percent. Phase 2 gasoline reduced smog-forming emissions by 300 tons per day -- comparable to removing 3.5 million motor vehicles from California's roads. A companion fact sheet, "Cleaner-Burning Gasoline: An Update," contains more information about Phase 2 gasoline.
MTBE: An Environmental Risk to California
Although no state or federal regulation requires the use of MTBE, refiners have added MTBE to most California gasoline since 1996 to help them meet both state and federal requirements. During this time, MTBE became a public concern because it contaminates groundwater (along with other gasoline components) when underground fuel tanks leak. MTBE moves faster in water than other fuel components and, in small amounts, renders drinking water unusable.
Following a comprehensive MTBE study by the University of California, Governor Gray Davis in March 1999 determined that MTBE presents an environmental risk to California and ordered that it be eliminated from California gasoline by the end of 2002. The Governor directed ARB to develop a Phase 3 gasoline regulation by December 1999. More information on the Governor's order and MTBE is available in a companion fact sheet, "Cleaner-Burning Gasoline Without MTBE."
Phase 3 Requirements
The proposed Phase 3 regulation prohibits the addition of MTBE to California gasoline after December 31, 2002. This will necessarily require refiners to make changes to their gasoline formulations. To give refiners suitable options for making non-MTBE gasoline and to preserve the same air-quality benefits as current fuel, the Phase 3 proposal modifies seven of the eight specifications for Phase 2 gasoline. The Phase 3 regulation also adds a ninth specification for driveability.
One modification reduces the allowable amount of sulfur in gasoline. The sulfur reductions would enable the catalytic converters in motor vehicles to work more effectively and reduce tailpipe emissions. The Phase 3 rule would also reduce levels of benzene, a known human carcinogen, in gasoline. At the same time, the Phase 3 regulation would relax two standards for distillation temperatures (which control how cleanly gasoline burns inside the engine). Relaxation of the two standards would better enable refiners to replace MTBE with other gasoline components. The new sulfur, benzene and distillation temperature standards collectively would improve the ability of refiners to make non-MTBE gasoline while ensuring motor vehicle emissions do not increase.
Other proposed changes involve adding flexibility to the existing standard for aromatic hydrocarbons, and to the standard that controls gasoline's tendency to evaporate. The current standard for olefin content in gasoline would not change. In addition, a new "driveability index" requirement would ensure Phase 3 gasoline remains compatible with emission-control systems in late-model motor vehicles.
Cost and Supply of Phase 3 Gasoline
To make Phase 2 gasoline, California's oil companies configured their refineries to rely on the use of MTBE (which was the most cost-effective option at that time). The total cost of Phase 2 refinery modifications was about $4.5 billion. The Phase 3 regulation gives refiners three years to make further plant modifications to produce non-MTBE gasoline. ARB staff estimates these plant modifications would cost approximately $1 billion.
ARB staff estimates that Phase 3 requirements would add about four to seven cents per gallon to gasoline production costs in 2003, the first year of Phase 3 gasoline. After 2003, these added production costs should decrease to two to six cents per gallon as the cost of gasoline components stabilize and new refining equipment reaches peak efficiency. Production costs are only one of many factors that determine gasoline prices, so it is impossible to predict what gasoline prices will actually be in 2003 and beyond.
The conversion to Phase 3 gasoline is occurring at a time when the importation of gasoline into California from out-of-state refineries has become a regular occurrence. Traditionally, California refineries have produced nearly all gasoline used in the state. However, gasoline consumption in California has been growing by 1.5 percent a year and will soon outstrip the production capacity of the state's refineries. The California Energy Commission estimates that gasoline imports into California will be routine by 2003 with or without a Phase 3 regulation. ARB staff estimates that the elimination of MTBE and other Phase 3 requirements will further increase, by 10 to 20 percent, the amount of California gasoline that is produced out of state.
A greater reliance on imported gasoline could help protect California from the types of gasoline price spikes that occurred following refinery outages in 1996 and 1999. Those price spikes partially reflected the time needed to arrange for importation of Phase 2 gasoline from out-of-state refineries. As California becomes a regular importer of gasoline, out-of-state refineries will be routinely producing Phase 3 gasoline for sale in California, and they should be able to respond more quickly to supply disruptions stemming from refinery outages.
Air-Quality Benefits
ARB staff structured the proposed Phase 3 regulation to retain all air-quality benefits from the use of Phase 2 gasoline, as required by state law. The proposed sulfur standard is needed to ensure that smog-forming hydrocarbon emissions do not increase. As a side benefit, the sulfur standard reduces vehicular emissions of nitrogen oxides, another smog-forming pollutant, by about 2 percent (a total reduction of 19 tons per day) and the toxicity of motor vehicle emissions by about 7 percent below levels achieved by Phase 2 gasoline.
The low-sulfur standard is a cost-effective way to fulfill the regulation's goal of eliminating MTBE use while retaining the substantial benefits of Phase 2 gasoline.
The Use of Ethanol in Phase 3 Gasoline
Like MTBE, ethanol is a fuel additive that helps gasoline burn more cleanly. Ethanol can be made from corn, agricultural waste and other organic sources. Ethanol use in California is expected to increase sharply once MTBE is discontinued, but the actual future level of ethanol use is uncertain at this time.
Federal law currently requires the use of oxygenated additives such as MTBE and ethanol in gasoline in Southern California and the greater Sacramento area, which consume about 70 percent of the state's gasoline. If this law remains in effect, Phase 3 gasoline in those areas would have to contain ethanol. In the rest of the state, refiners would be able to choose whether or not to add ethanol to gasoline.
California currently is seeking federal action that would make the use of ethanol optional throughout the state. Ethanol use would likely become commonplace even if it were not legally required. However, the elimination of an ethanol requirement would give refiners additional options for making Phase 3 gasoline, and that would tend to have a positive effect on gasoline prices and supplies. It is not clear at this time whether the federal government will remove the requirement.
The Governor's MTBE order also directed ARB, the State Water Resources Control Board and the Office of Environmental Health Hazard Assessment to complete a health and environmental assessment of ethanol by the end of 1999. Draft analyses have found no significant risks stemming from ethanol's use in gasoline.
Trace MTBE Levels
The Phase 3 regulation would prohibit the intentional use of MTBE in gasoline after December 31, 2002. However, California gasoline for some time after 2002 could pick up trace levels of MTBE from tanks, pipes and other structures that contained earlier fuels. Phase 3 gasoline imported from states or countries where MTBE is used could also contain trace MTBE levels. The Phase 3 regulation sets increasingly strict limits for residual MTBE that phase in between 2003 and 2005. The proposed 2005 limit is less than one-half of one percent of typical MTBE levels in current California gasoline. This type of "de minimis" standard is not unique; California also has a standard regulating trace amounts of allowable lead in unleaded gasoline.
Cleaner-Burning Gasoline Remains Crucial for California
Cleaner-burning gasoline remains one of the cornerstones of California's effort to attain healthful air quality. Cleaner-burning gasoline reduces emissions from older vehicles and enables emission-control systems in late-model vehicles to work at very high efficiency. Late-model vehicles are as much as 85 percent cleaner than automobiles in the early 1990s. Without cleaner-burning gasoline, the emission control systems in these vehicles cannot perform as designed. The continued introduction of these clean, low-emission vehicles over the next decade must take place in order for California to meet its air-quality goals. The Phase 3 regulation is designed to eliminate the use of MTBE while ensuring California still realizes the important benefits from the use of cleaner-burning gasoline.

Proposed Regulation