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The Environmental Protection Agency on Tuesday ordered California to continue using gasoline additives to reduce air pollution, providing a boost to the ethanol industry and raising concern about California gas prices. 

California officials have argued the additives no longer are needed to meet the state’s stringent air pollution requirements and could expose California’s gasoline market to price manipulation and shortages if ethanol supplies fall short. 

“Their decision means significantly higher gasoline prices at the pump and calls into question whether California will have an adequate gas supply,” said California Gov. Gray Davis in Sacramento. ”(It) does nothing to improve air quality.” 

Davis, who already has been in a tug of war with the Bush administration over electricity prices, had asked the White House for a waiver of a 1970 Clean Air Act requirement that gasoline contain an oxygenate to help fight air pollution. 

But EPA Administrator Christie Whitman said she had no choice other than to reject the waiver, saying that California had not “met the test” of demonstrating that the waiver would not reduce air quality. She disagreed that the use of ethanol would necessarily boost gasoline prices. 

The waiver was viewed as critical by California officials because the state is phasing out the use of an existing additive, MTBE, which has been found to pollute groundwater. The only replacement is corn-based ethanol, currently manufactured mostly in the Midwest. 

The decision could have impact elsewhere as at least eight other states have prohibited, or are in the process of banning, MTBE. If a waiver had been granted to California, many of those states – including much of the Northeast – likely would have asked for an exemption as well. 

Winston Hickox, head of the California EPA, said that the MTBE ban, to be imposed in California at the end of 2002, may now have to be postponed. “The time frame is now open to consideration,” he said at a news conference in Sacramento. 

Hickox also raised concern that there will be enough ethanol to meet the state’s needs. 

“Does that ring any bells?” Hickox asked, alluding to California’s current battle with high electricity costs because of shortages from mostly outside power suppliers. 

California officials have argued – with the support of the oil industry – that a new generation of gasoline, “RFG III,” already meets the state’s clean air requirements without an additive. 

“RFG III would be less expensive to produce than gasoline with ethanol, and ... California air would be cleaner than it would with ethanol,” said William Rukeyser, a spokesman for the California EPA. 

He said the federal EPA’s own blue-ribbon panel, which several years ago urged a phaseout of MTBE as an additive because of concern about water pollution, “validated what we’re saying about RFG III gasoline.” 

Farming interests and their supporters in Congress have lobbied against a waiver, viewing the California market as key to expansion of the ethanol industry. 

The industry has dismissed concerns that it won’t be able to meet California’s demand for ethanol. 

“Because ethanol has twice the oxygen content of MTBE, refiners only need to blend half as much ethanol to meet the oxygen requirement,” said Bob Dineen, vice president of the Renewable Fuels Association. 

The ethanol industry produces about 2 billion gallons of the additive annually, most of it in the Midwest. The industry estimates production will reach 3.5 billion gallons by the end of 2003. 

On the Net: 

Environmental Protection Agency: http://www.epa.gov/ 

California EPA: http://www.calepa.ca.gov/ 

Renewable Fuels Association: http://www.ethanolRFA.org/ 

Q: How will the decision affect gas prices? 

A: The Davis administration says requiring the state to import about 450 gallons of ethanol a year will increase gasoline prices 2 to 3 cents a gallon. That’s if everything goes right. If we have supply problems or gas shortage, officials warn gas prices could spike as much as 50 cents a gallon higher. State Energy Commission officials say refineries will have to retool to use ethanol, which will increase operating costs. California will use half the national supply of ethanol, which also reduces a car’s gas mileage. 

Q: Why does California have to add ethanol to gasoline? 

A: California has banned MTBE, which adds oxygen to help fuel burn more cleanly but taints the water supply. Based on studies by UC Berkeley and the California EPA, Gov. Gray Davis scheduled to phase it out by 2002. Ethanol is the only possible replacement. However, the California EPA and Air Resource Board determined the oxygen requirement makes no sense in California because we already have cleaner burning gas. 

Q: How does Bush gain politically by denying the waiver? 

A: Bush is aggressively courting Iowa, a major supplier of corn, looking ahead to the 2002 elections and to his own re-election campaign in 2004. He lost the state by fewer than 5,000 votes to Democrat Al Gore in November. 

Farm groups and their ethanol-producing partners have lobbied intensely against the waiver, reminding administration officials that corn-producing states in the Midwest generally supported Bush last year. 

One of the biggest ethanol producers, Archer Daniels Midland, contributed more than $500,000 to Republicans during the past two years, including $100,000 to Bush’s inauguration 

Q: What will the ethanol do to the air? 

A: Officials at the Air Resources Board say ethanol actually results in greater nitrogen oxygen emissions, which means more smog as well as greater toxic emissions. When you add ethanol, you add an ingredient to smog. 

Q: Why are gas prices going down in so many other parts of the country but not in California? 

A: California EPA officials say one reason is California’s high clean-air standards, which raise gasoline prices. California is essentially a separate market, an energy island on which all the gas produced here is consumed here. According to the Energy Commission, California’s gas prices were on average 30 percent higher than the rest of the country for the week ending June 11. Nationally, prices fell by 3 cents, but went up 1.5 cents here. In addition, wholesale and spot-market prices are going down. There’s every indication that California gas prices should be going down, and it’s a very good question to ask oil companies and dealers why they are not, Energy Commission officials said.