A large industry association commissioned MathPro Inc. to conduct a technical and economic analysis of the effects of the proposed renewable fuels standard (RFS) on the refining economics of U.S. gasoline supply.

The analysis addressed refining operations and gasoline production in six regions – PADD 1, PADD 2, PADD 3, PADDs 4 & 5 (ex California), California, and an “off-shore” sector denoting sources of U.S. gasoline imports – in both summer and winter gasoline seasons.

The Reference case incorporated a national ban on MTBE blending and a repeal of the federal oxygen requirement in reformulated gasoline.

In addition, the analysis reflected the likely effects on gasoline demand, quality, and production costs of new regulatory programs taking effect before 2011, including:

• The 8-hour ozone standard (which will increase calls for low-RVP gasolines and RFG);
• The Tier 2 sulfur control program (which will increase refining costs and octane values); and
• The Mobile Sources Air Toxics (MSAT) program (which will increase refining costs).

The analysis contemplated that an RFS would include a credit trading program that would allow refiners to comply with an RFS through some combination of physical ethanol blending and the use of ethanol credits.

For each mandate volume, the analysis produced estimates of:

• Total national costs incurred;
• Gasoline production costs incurred (including ethanol purchases), by region and nation-wide;
• Changes in refinery inputs: crude oil, gasoline blendstocks, natural gas, and purchased power;
• Changes in net energy requirements;
• Regional distribution of ethanol use in gasoline blending; and
• Changes in the cost of gasoline production, by region.

The client organization made public some results drawn from the analysis, in connection with the Congressional debate over energy legislation in 2002.