In June 2001, the EPA decided to modify the volatile organic compound (VOC) emissions standard for Federal reformulated gasoline (RFG) blended with ethanol. The EPA recognized that ethanol-blended RFG provides additional reductions in carbon monoxide emissions, which in turn reduce ground-level ozone formation. Because the VOC standards are also intended to reduce ground-level ozone formation, the standard for RFG with ethanol could be relaxed by the equivalent of 0.3 pounds per square inch (psi) Reid vapor pressure (Rvp) while maintaining the air quality benefits of the RFG program.

　

The EPA is moving cautiously, so far having granted the VOC waiver only to the Chicago-Milwaukee RFG market, which is the only market that requires RFG to be blended with ethanol. Both cities have had gasoline supply problems, due in part to the difficulty of refining the low-volatility blendstocks needed to blend RFG with ethanol. The EPA expects the VOC adjustment to increase gasoline supply in Chicago and Milwaukee.

　

Extension of the Rvp waiver for ethanol blending with RFG has been suggested before. In order to encourage the use of ethanol, conventional gasoline blended with ethanol is allowed by CAAA90 to have Rvp 1 psi higher than that of conventional gasoline. CAAA90 limited conventional gasoline volatility to 9 psi during the summer months, when ground-level ozone concentrations are most often at unhealthy levels. It also authorized the Administrator of the EPA to impose tighter Rvp standards in current or former nonattainment areas. An Rvp limit of 7.8 psi was imposed on many such areas, mainly those in warmer climates or at higher elevations. CAAA90 allows ethanol blends to exceed the applicable limit by 1 psi, provided that the gasoline blendstock complies with applicable limits and provided that the ethanol blend will not adversely affect emissions from vehicles certified to 1975 or later standards.

　

In February 1994, the EPA considered extending to RFG the 1-psi waiver for ethanol blends when it finalized standards for RFG. It noted that the VOC emission standards adopted for RFG might have the effect of excluding ethanol from the RFG oxygenate market. Forcing ethanol out of the RFG market might have increased dependence on foreign crude oil, which would be contrary to the Nation's energy policy. But the proposed waiver was expected to have little effect on petroleum imports as a result of the loss of energy content per gallon of gasoline that occurs when hydrocarbons are replaced with ethanol.

　

Of greater concern to the EPA was the potential for loss of air quality benefits if ethanol RFG blended under the waiver was mixed with non-ethanol RFG during automobile refueling. The EPA, estimating that such mixing could negate 40 to 50 percent of the VOC performance improvement associated with the RFG program, declined to extend the waiver to RFG at the time. The ethanol waiver decision was revisited after the emergence of supply shortages and price spikes in the Chicago-Milwaukee RFG market in the spring of 2000.

　

In March 2001, the EPA established its Mobile Source Air Toxics (MSAT) regulatory program. Twenty-one substances were placed on the MSAT list for future regulatory action. All MSAT substances are known or suspected to cause cancer or other serious illness. Benzene, formaldehyde, 1,3-butadiene, acetaldehyde, diesel particulate matter, and diesel exhaust organic gases are of the most concern. The EPA did not explicitly tighten emission standards for any of the MSAT substances, but it did put in place a regulation ensuring that future fuels will be at least as clean as today's fuels, according to emissions forecast from the EPA's Complex Model.

　

The new rule sets an allowable level of emissions (as predicted by the Complex Model) for each refiner's gasolines that is equal to the average predicted emissions of its output between 1998 and 2000. By 2020, the MSAT program is expected to reduce highway emissions of benzene formaldehyde, 1,3-butadiene, and acetaldehyde by 67 to 76 percent relative to 1990 levels. Diesel particulate matter is projected to be reduced by 90 percent relative to 1990 levels.

　

One goal of the new rule is to prevent "backsliding" on airborne benzene. Benzene is emitted by evaporation of gasoline from vehicle fuel tanks and by incomplete combustion of gasoline. The RFG program gave refiners a choice of two benzene standards: an average of 0.95 percent by volume with an upper limit of 1.3 percent by volume, or an upper limit of 1.0 percent by volume with no average requirement. Benzene in conventional gasoline was regulated indirectly by the RFG program's anti-dumping toxic standards. Toxic standards for each refiner were set to the average emissions (as predicted by the Complex Model) for each batch of gasoline produced by that refiner in 1990. Under the new rule, conventional gasoline could average 1.3 percent benzene by volume.

　

In practice, refiners overcomplied with their limits. The new MSAT regulations aim to maintain current overcompliance levels of benzene in gasoline while forcing improvements in other emissions. Accordingly, refiners are now limited by the average emissions, as predicted by the Cbmplex Model, of conventional gasoline and RFG that each produced between 1998 and 2000. A default baseline will also be available for refiners that did not produce gasoline for the U.S. market for 12 consecutive months between 1998 and 2000.

　

The Low-Emission Vehicle Program (LEVP) was originally passed into legislation in 1990 in the State of California. It began as the implementation of a voluntary opt-in pilot program under the purview of CAAA90, which included a provision that other States could opt in to the California program and achieve lower emissions levels than required by CAAA90. Both New York and Massachusetts chose to opt in to the LEVP, implementing the same mandates as California.

　

The LEVP was an emissions-based policy, setting sales mandates for three categories of low-emission vehicles according to their relative emissions of air pollutants: low-emission vehicles (LEVs), ultra-lowemission vehicles (ULEVs), and zero-emission vehicles (ZEVs). The only vehicles certified as ZEVS by the California Air Resources Board (CARB) were dedicated electric vehicles [6].

　

The LEVP was originally scheduled to begin in 1998, with a requirement that 2 percent of the State's vehicle sales be ZEVs, increasing to 5 percent in 2001 and 10 percent in 2003. On November 5, 1998, the CARB amended the original LEVP to include ZEV credits for advanced technology vehicles. According to the CARB, qualifying advanced technology vehicles must be capable of achieving "extremely low levels of emissions on the order of the power plant emissions that occur from charging battery-powered electric vehicles, and some that demonstrate other ZEV-like characteristics such as inherent durability and partial zero-emission range" [7]. There are three components in calculating the ZEV credit, which vary by vehicle technology: (1) a baseline ZEV allowance, (2) a zero-emission vehicle-miles traveled (VMT) allowance, and (3) a low fuel-cycle emission allowance.

　

Further modifications proposed for the ZEV man-date in September 2000 were finalized in January 2001 [8]. The proposal was designed to maintain progress toward the 2003 goal while recognizing technology and cost limitations on ZEV product offerings. The CARB proposal removed ZEV sales requirements before 2003 but maintained the 2003 required ZEV sales goal of 10 percent and required a gradual increase of ZEV sales to 16 percent by 2018. The number of vehicles included in the estimation of required ZEV sales was also increased, to include small light-duty trucks.

　

The proposal also provides manufacturers flexibility in meeting the goal through increased vehicle credits and greater allowances for partial ZEVs (PZEVs) and advanced technology ZEVS (AT-PZEVs). ZEVS will earn 1.25 credits per vehicle before 2006, and PZEVs will receive a phase-in multiplier credit of 4,2, and 1.3 per vehicle for 2004, 2005, and 2006, respectively. Extra credits will also be allowed for ZEVs with extended range and/or reduced fueling times.

　

The baseline PZEV allowance potentially can provide up to 0.2 credit if the advanced technology vehicle meets the following standards: (1) superultra-low-emission vehicle (SULEV) standards, which approximate the emissions from power plants associated with recharging electric vehicles; (2) on-board diagnostics (OBD) requirements for indicators on the dashboard that light up when vehicles are out of emissions compliance levels; (3) a 150,000 mile warranty on emission control equipment; and (4) evaporative emissions requirements in California, which prevent emissions during refueling. The modifications allow a maximum of 6 percentage points of the ZEV mandate sales requirement to be met by PZEVs.

　

The AT-PZEV allowance will allow a maximum 0.6 credit if the vehicle is capable of some all-electric operation (to a range of at least 20 miles), or if the vehicle has ZEV-like equipment on board, such as regenerative braking, advanced batteries, or an advanced electric drive train. AT-PZEVs can satisfy up to 50 percent of the pure ZEV sales requirement. The remaining mandated ZEV sales must be electric vehicles or hydrogen fuel cell vehicles.

　

An emission allowance was also made for vehicle fuels with low fuel-cycle emission used in advanced technology vehicles. A maximum of 0.2 credit is provided for vehicles that use fuels which emit no more than 0.01 gram of nonmethane organic gases per mile, based on the grams per gallon and the fuel efficiency of the vehicle.

　

AEO2002 assumes that Massachusetts, New York, Maine, and Vermont will also adopt the California LEVP mandates.

　

Comprehensive energy-related legislation has been proposed in both the House and the Senate. H.R. 4, Securing America's Energy Future Act of 2001 (Tauzin), which largely parallels the National Energy Policy Plan (NEPP) [9], was passed in the House of Representatives in August 2001. The proposed Republican bill in the Senate, S. 388, the National Energy Security Act of 2001 (Murkowski), is similar to H.R. 4; however, the principal Senate bill, S. 597, the Comprehensive and Balanced Energy Policy Act of 2001 (Bingaman), differs from the NEPP and H.R. 4 in several respects. Perhaps the most notable difference is that the NEPP and H.R. 4 permit oil and natural gas drilling in Alaska's Arctic National Wildlife Refuge (ANWR), whereas S. 597 does not. Neither proposal requires changes to vehicle fuel economy standards, although H.R. 4 requires the Secretary of Transportation to prescribe standards for light trucks manufactured from 2004 to 2010.

　

While S. 597 and H.R. 4 have dozens of provisions that are similar, they differ greatly in emphasis. H.R. 4 contains numerous tax incentives for energy production; S. 597 does not. Also, S. 597 contains numerous provisions on electricity deregulation that do not appear in H.R. 4. As of mid-November 2001, it appeared unlikely that there would be a vote on the Senate bill before the end of 2001. Consequently, the AEO2002 forecasts do not include any of the provisions of the proposed legislation. A number of the proposals contained in S. 597, H.R. 4, and the NEPP, as described in the summaries of the bills and in the NEPP, are listed below. Many of the NEPP proposals would require new legislation, and others would depend on budget authority.