Environmental Science & Policy 3 (2000) 173 – 188 Cost – benefit analysis of methyl tert-butyl ether and alternative gasoline formulations L. Fernandez a, *, A.A. Keller b, a Departments of Enironmental Science and Economics, Uniersity of California, Rierside, Rierside, CA 92501, USA b Bren School of Enironmental Science and Management, Uniersity of California, Santa Barbara, Santa Barbara, CA 93106 -5131, USA Abstract This paper presents a cost – benefit analysis of the 1990 Clean Air Act Amendments (CAAA) requiring the addition of oxygen content in gasoline, using California as a case study. The valuation and comparison of costs and benefits for several fuel blends (with and without oxygen content) provides a framework to investigate cross-media (air, water, soil) tradeoffs. We use known valuation methods such as the travel cost method to derive recreational value, the averting expenditures approach and cost of illness approach to derive public health costs, and market price method to quantify increases in fuel price and fuel efficiency costs in order to compare the alternatives. We use data from California to evaluate the current fuel blend with methyl tert-butyl ether (MTBE), a fuel blend with ethanol (ethyl alcohol), and a fuel blend without oxygenated compounds. The most expensive option to meet the 1990 CAAA is the current reformulated gasoline blend with MTBE, which results in a net cost to California’s economy of between $0.9 and 2.7 billion dollars annually. The cost of treating groundwater contaminated with MTBE is a major cost factor. Our assessment indicates that the non-oxygenated gasoline formulation is the most cost-effective, particularly in the long-term, once refiners are able to implement modifications to their installations or negotiate long-term supply contracts for these additives. Several strategies are identified to transition out of using the current gasoline blend with MTBE. © 2000 Elsevier Science Ltd. All rights reserved. Keywords: Cost – benefit analysis; Methyl tert-butyl ether; Ethanol; Oxygenates; Non-oxygenated; Air and water policy; Environmental valuation www.elsevier.nl/locate/envsci 1. Introduction The introduction of gasoline additives to address air pollution, mandated by the 1990 Clean Air Act (CAA) Amendments, has not been carefully evaluated in terms of costs and benefits of the policy decision until our study. The widespread water contamination in Califor- nia and elsewhere that resulted from using methyl tert-butyl ether (MTBE), a gasoline additive, has em- phasized the need for conducting comprehensive analy- ses of costs and benefits of fuel blends that have tradeoffs or cross-media effects on air, water, and land. The reauthorization of the CAA of 1990 introduced a requirement for oxygen content in gasoline in the inter- est of improving air quality through reductions in emis- sions of carbon monoxide and reactive organic gases. To meet the oxygen content requirement, gasoline man- ufacturers have used MTBE, ethanol and other addi- tives, denominated oxygenates since they contain oxygen. The statewide introduction of reformulated gasoline in the State of California to meet the CAA Amendments resulted in widespread use of MTBE, without a full environmental impact assessment. MTBE comprises about 11–15% by volume of the reformu- lated gasoline used in California since 1996. The cost – benefit analysis (CBA) of fuel alternatives presented here represents a new approach to analyzing cross-media impacts of major regulations. Previous CBA studies that have been done in this area do not specifically focus on alternatives meeting cross-media objectives. For example, a recent study focused on the costs and benefits of the CAA of 1970 (USEPA, 1997); this study only considers the impact of reducing criteria air pollutants, without addressing specific policies to achieve them, such as modifications to fuel formula- tions, new vehicle technologies, or emission control technologies on fixed sources. There is no evaluation of * Corresponding author. E-mail addresses: linda.fernandez@ucr.edu (L. Fernandez), keller@bren.ucsb.edu (A.A. Keller). 1462-9011/00/$ - see front matter © 2000 Elsevier Science Ltd. All rights reserved. PII:S1462-9011(00)00084-8