(KFWB/AP) -- The Environmental Protection Agency (EPA) says California must continue to use ethanol or other gasoline additives to protect air quality, despite state arguments that an additive isn't needed and will increase fuel costs.

Senate Democrats in Washington D.C. are planning a hearing on the EPA's action, although it's unlikely the decision will be reversed given the strong farm-state support in the U.S. Congress for the ethanol industry.

EPA Administrator Christie Whitman said there was significant uncertainty over the air quality impact of an ethanol waiver. There is "no clear evidence that a waiver will help California to reduce harmful levels of air pollution," she said.

She said she is prevented by the Clean Air Act from granting the waiver unless there is "clear evidence that a waiver will help California to reduce harmful levels of air pollution."

White House officials over the weekend signaled that the administration would require California to continue to use an oxygenate and indicated an EPA decision would be announced this week.

Farming interests and their supporters in Congress have lobbied against a waiver, viewing the California market as key to expansion of the ethanol industry.

California Gov. Gray Davis has argued that the federal oxygenate mandate will impede the state's ability to shift away from the use of MTBE, another gasoline additive, that has been found to contaminate groundwater. California is set to ban MTBE use beginning in 2003.

The oxygen molecule in MTBE helps gas burn more completely and thus more cleanly. But the oxygen molecule also makes MTBE very water soluble. It leaks from underground gasoline storage tanks -- mostly below gas stations -- and seeps down to underground aquifers, contaminating drinking water supplies.

"The administration is concerned about the risks of MTBE in drinking water in California and other states," Whitman said in a statement. But she said both water and air quality need to be protected, and removal of the oxygenate requirement could compromise air quality.

MTBE's health risks are unclear, but at high doses it may cause cancer. At small doses, it makes water smell like paint thinner and taste bad.

Ethanol, primarily produced from corn, is the only additive that can be substituted for MTBE.

However, the oil industry and California air pollution control officials maintain that refiners can produce blends of gasoline without using an oxygenate and still meet the state's stringent air pollution requirements.

William Rukeyser, a spokesman for the California Environmental Protection Agency, said state officials are convinced ethanol-free gasoline will not jeopardize air quality.

At the same time, he said, there are concerns that the ethanol industry will not be able to supply the 580 million gallons of ethanol that would be needed annually to replace MTBE.

"We doubt that much will be available," Rukeyser said recently, adding that shortages could cause gasoline prices to increase. State officials have estimated the ethanol requirements could add about 5 cents to the price of a gallon of gasoline, even if there are adequate supplies of the additive.

The ethanol industry insists that it can meet California's demand.

"Because ethanol has twice the oxygen content of MTBE, refiners only need to blend half as much ethanol to meet the oxygen requirement," said Bob Dineen, vice president of the Renewable Fuels Association, which represents the ethanol producers.

The ethanol industry produces about 2 billion gallons of the additive annually, most of it in the Midwest. The industry estimates by the end of 2003 production will reach 3.5 billion gallons.

Ethanol has strong support in Congress. Among its advocates are Senate Majority Leader Tom Daschle of South Dakota and Sen. Tom Harkin, D-Iowa, the new chairman of the Agriculture Committee.

Nevertheless, Sen. Jeff Bingaman, D-N.M., the new chairman of the Senate Energy and Natural Resources Committee, is planning a hearing next week to examine the EPA decision more closely, particularly its impact on California gasoline supplies and prices.

-- PHO (owennos@bigfoot.com), June 12, 2001