Prevailing environmental regulations focus on only one environmental medium at a time, such as air pollution without addressing the potential for simultaneously occurring deleterious effects on other environmental media such as water and land. For example, the federal Clean Air Act Amendments of 1990 (CAAA) mandate the use of oxygenated gasoline to reduce carbon monoxide and ground level ozone. However, gasoline oxygenates such as methyl tertiary-butyl ether (MTBE) and ethanol generate other air emissions and have adverse impacts on water and land. Extensive contamination of water reservoirs and aquifers has occurred in many parts of the United States where MTBE has been used. California has 10,000 groundwater sites and 56 surface waterways with MTBE contamination affecting public water supplies for cities including San Diego, Santa Monica, and South Lake Tahoe (California Dept. of Heath Services 2003).
The CAAA oxygenate requirement is a product standard for oxygen content in gasoline. After adding MTBE to comply with the CAAA standard, California conducted a full environmental impact assessment. It was discovered that MTBE is highly soluble and transfers easily to groundwater and surface water bodies, either as a result of gasoline leaks or spills. Former California Governor Davis's decision to ban MTBE by 2004 did not mean California accepted ethanol as a replacement for MTBE. Rather, Davis sued the federal government to waive the oxygenate product standard. With the waiver, California refineries could meet the air quality standards with flexibility and nonoxygenated gasoline as they have proven they can do (U.S. 9th Circuit Court of Appeals 2003). The federal ninth circuit court of appeals has ruled in favor of Governor Davis, forcing the U.S. Environmental Protection Agency (EPA) to consider granting the waiver to California (U.S. 9th Circuit Court of Appeals 2003).
The analysis examines the economic and environmental impacts of different fuels introduced for air quality through a least cost approach. The study also examines the cost of the oxygenate standard. The analysis involves valuing nonmarket environmental externalities to air, land, and water to include all components in the cost minimization decision of fuel supply balancing air, water, and land quality. Inefficiencies of having a product standard will be shown through the environmental valuation and cost comparison. The results from this analysis are directly applicable to places facing similar pressures as California. New York and 12 other states aim to end use of MTBE and seek a waiver from the federal CAAA product standard on oxygenates. Internationally this topic is gaining momentum. Poland seeks a waiver from the future European Union regulation of oxygenated gasoline by 2005.
Suggestions for considering multiple environmental media simultaneously in environmental regulations stem from qualitative position papers on how a broader view might constitute pollution prevention (Davies and Mazurek 1995; Fontaine 1993; Guruswamy 1991; Loehr 1989; McGuigan and Wisniewski 1995; Morell 1989; National Academy of Public Administration 1995). However, a formal model and numerical analysis have been missing from the discussion. This article will provide those fundamental elements applied to the timely topic of fuel choice. The cost minimization model is applied to analyzing California's attempt to produce fuel that meets federal regulations. Specifically, a comparison of fuel blends is conducted with a quantitative measure of all costs of the federal oxygenate standard as an air quality goal. The analysis acknowledges the fact that all blends accomplish the same air pollution reduction benefits (Koshland et al. 1998). Then, the study focuses on costs related to other air pollutants and other environmental media impacts. The cost comparison considers alternative fuel blends as changes from nonoxygenated gasoline. …