The MTBE Flap
From the December 1999 issue of The Free Market
Volume 17 Number 12
News item: "The Clinton administration has decided to phase out the controversial fuel additive MTBE, citing risks to public health and the environment."
Once again, the federal government is scrambling to make good on its own past mistakes. And private industries are facing massive costs, and potentially massive lawsuits, because of their attempt to keep up with federal regulators' changing whims. The controversy over Methyl tert-Butyl Ether (MTBE) shows once again that government’s heavy-handed approach to environmental problems guarantees not solutions, but a continuing mess for which government will again posit itself as a solution—a clear example of Ludwig von Mises's theory of intervention.
MTBE is what’s known as an oxyfuel. It is now being found in drinking water supplies from California to Maine, and places in-between. But this is not the result of some sinister chemical industry plot to contaminate our precious bodily fluids. MTBE was a creation of government mandates—an attempt to cope in the most sensible and affordable way possible with legal requirements for areas with federally defined low air quality to use oxygenated fuels. These fuels add less of certain pollutants to the air as they burn.
Of course, they also add more of certain other pollutants. Trying to achieve environmental goods requires balancing conflicting wants, something government regulators aren’t apt to remind us. So now, years after federal mandates created a market for MTBE, an EPA advisory council has recommended that the substance not be used any more.
Earlier this year, California announced a ban on MTBE, originally intended to go into effect in 2002, but now with a looser, non-specific deadline. There are political fears in a state with bad memories of $1.90 per gallon gasoline because of lack of supply flexibility due to air regulations, of the hike in gas prices the ban will cause.
In announcing the results of their advisory panel, EPA didn’t stress its own culpability in the presence of MTBE in water—being a bureaucrat means never having to say you are sorry. And since the EPA has never officially held that MTBE is a carcinogen—fears of its cancer-causing effects are based on animal studies where the substance was inhaled in large quantities or injected directly into the stomach, with no clear relevance to exposure to humans through drinking water in minuscule amounts—it is unclear exactly what the health risk is, except that the stuff is relatively new and smells very bad.
Even after announcing MTBE might be dangerous, and with a flurry of bills in Congress whose end result will almost certainly be an end to the substance’s use, the feds still have the nerve to refuse to allow New Hampshire to waive out of the air quality requirements forcing them to use MTBE-spiked gas. The notion that states might be able to deal with their own air quality using their own judgment is anathema to the EPA. Unfortunately, MTBE or no, federal air quality mandates still remain. So if California and other states can’t use MTBE, a petroleum industry by-product, they’ll have to turn to its major oxy-fuel competitor, ethanol. Ethanol, a corn by-product that will need to be shipped from the Midwest to users elsewhere, is politically favored, especially with the influence that the state of Iowa has on presidential elections.
There's a reason that the market chose to rely on MTBE in reaction to government mandates, even beyond the shipping costs. Ethanol also evaporates faster, adding more smog-forming chemicals into the air. It can’t be shipped well by pipeline, requiring expensive sealed truck fleets to transport it. It needs to be blended with gas at special stations. Gas will cost us all a lot more after an ethanol switch.
There are also potentially huge up-front switching costs—the California Energy Commission concludes capital costs for the switch to refiners in California alone will be as much as $1.1 billion. One Texas consulting firm predicted national refinery costs of $5.7 billion to switch to ethanol. They also predict the death of small refiners, loss of huge investments in MTBE (made at government mandate), higher gas prices (estimates range from 4 to 10 cents a gallon extra), and lower air quality to boot.
But what of the environmental benefits of the MTBE ban? This is so obvious it would take a government agency not to realize it. MTBE is not getting into our water alone. If MTBE is in our water, whether from leaking underground tanks or gasoline spills, gasoline is in the water, too. Despite attempts to prove a thin, possible link between MTBE and cancer, we already know gas in your drinking water is a bad thing—we didn’t need any new expert federal commission to tell us that. Fortunately, no one would dream of banning gasoline because it can accidentally contaminate water supplies. (Not yet, anyway.)
Gasoline is so vital to our civilization at our current technological level that any problems it creates are to be coped with, not solved through a blanket ban. Banning MTBE won't make it a bit safer to have gasoline in your water. Certainly, everyone involved should try their hardest to keep gas out of our water—and those responsible for any such leakage should have to clean it up, in a proper legal liability system. (This should not include having to pay billions in class action suits based on speculations and fears about phantom cancers and illnesses, fears ginned up and given credence by EPA's decision.) The MTBE ban may make Gov. Davis of California or the EPA look alert and concerned, but it does nothing to make drinking water safer–whether or not MTBE turns out to be a severe human health hazard.
The MTBE controversy is a vivid example of two overarching problems with government environmental regulations. MTBE is in our gas to begin with because of government oxygenated fuel mandates. Those mandates impose universal costs (oxygenated gas costs more, and tends to be worse on car engines than regular gas) to solve what's really a particular problem.
Government overreaching is why we had MTBE to begin with. And it’s on its way out because of another problem with government environmental policy: an exaggerated, over- broad response to a possibly nonexistent risk, aimed at the new for being the new. Gasoline almost seems "natural" to us now, we are so used to it; MTBE is a "chemical additive," and thus easy to demonize.
Both the reason we have MTBE and the reason we want to get rid of it show us the very real hazards of government policies that try to do too much with heavy-handed commands and bans rather than letting concerned parties use markets and targeted liability law to find efficient solutions.