Giannini Foundation of Agricultural Economics

In the early 1990s, oxygenated gasoline was hailed as a partial solution to the nation’s air quality problems. Although the large-scale use of methyl tertiary butyl ether (MTBE) as a gasoline oxygenate successfully improved air quality, it adversely impacted water quality and dramatically exposed leaking underground storage tanks. However, removing MTBE from gasoline could impose significant societal costs—in terms of both gasoline production costs and prices and possible air and water quality impacts. The analysis conducted for this report is based on a comprehensive and internally consistent cost-benefit framework and includes several cost categories largely neglected in prior MTBE analyses, including: (1) the cost to taxpayers of increased ethanol consumption; (2) increases in the cost of oil imports; (3) the effects of changes in gasoline prices on gasoline consumption and thus on automobile emissions; and (4) the potential effect of MTBE substitutes on water quality.