Ethanol Proposal Fires Up a Lobbying Battle

Farm and oil industry lobbyists are waging a battle of facts and figures on the costs of corn-blended ethanol as the U.S. Senate prepares to debate an energy bill that would double its use.

The National Corn Growers Assn. and other backers of a plan to require U.S. refiners to blend 8 billion gallons of ethanol into gasoline a year by 2012 say it will give the oil-addicted economy a homegrown substitute. Gasoline prices should fall as more ethanol is used, they say.

American Petroleum Institute and refiners contend that the plan is a boondoggle benefiting a handful of Midwest farm states. They say an ethanol mandate would drive up pump prices and make corn, as well as groceries, more costly.

On Tuesday, the Senate will wade into the fight between the two powerful lobbies when it takes up energy legislation. The $11-billion package also includes incentives to boost domestic oil, natural gas, coal and nuclear supplies.

The House passed an energy bill this spring that would set a more modest target of 5 billion gallons annually by 2012 for the additive, which makes gasoline burn more cleanly.

The true costs and benefits of corn-distilled ethanol are difficult to pinpoint amid the lobbying hype.

As gasoline prices soared this year to record highs, ethanol prices fell because of an oversupply of corn and new ethanol plants coming on line. Ethanol now is about half the price of gasoline, after a 51-cent-a-gallon federal tax break.

“Given today’s gasoline prices, ethanol can be brought to the market at well below gasoline prices,” said Mark Cooper, an economist at the Consumer Federation of America, which has cast its lot with ethanol producers.

American drivers could save as much as 8 cents a gallon at the pump if oil refiners produced more fuel with a mix of 10% ethanol and 90% gasoline, Cooper said.

The consumer group and farm-state Democrats have accused the oil industry of deliberately keeping gasoline supplies tight and prices high when ethanol is plentiful and could stretch the nation’s fuel supply.

An estimated $6 billion in investment is needed to build enough ethanol plants to produce an extra 4.3 billion gallons of capacity.

Refiners have long fought ethanol’s encroachment into their business, preferring petrochemical-based additives such as MTBE.

The API and the National Petrochemical and Refiners Assn. say the energy bill should boost ethanol to only 5 billion gallons a year. The additive must be trucked, making it more difficult for refiners to handle the blending material.

“It adds a lot of additional costs to consumers on the energy and food side with no corresponding benefits,” Edward Murphy, an API spokesman, said.

The oil industry says an 8-billion-gallon requirement would add as much as $12.8 billion annually to consumers’ grocery bills, as higher corn costs are passed through to cattle and poultry producers. The extra ethanol would not make a dent in America’s oil imports, it says.

A study by the U.S. Energy Information Administration concluded that boosting ethanol use to 8 billion gallons could raise gasoline prices by 3.6 cents a gallon, the oil industry says. That price increase is based on the assumption that cheap additives such as butanes and pentanes must be removed to make room for ethanol, the EIA said.

This year U.S. ethanol plants will produce nearly 4 billion gallons. Most is now sold in the Midwest, but ethanol makers see a growing market as the additive MTBE, which pollutes groundwater supplies, is phased out by many states.

That’s still a drop in the bucket compared with the 38 billion gallons of gasoline that U.S. drivers burn annually.

With farm-state politics and oil industry influence going head to head, it remains far from clear what the ethanol requirement will be in a final energy bill.

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The Week Ahead

Tuesday

* Oil ministers from the Organization of the Petroleum Exporting Countries meet in Vienna to discuss production.

* The Labor Department releases May’s producer price index.

* The Commerce Department reports retail sales for May.

Wednesday

* The Federal Reserve reports industrial output for May.

* The Labor Department releases May’s consumer price index.

* The Commerce Department reports business inventories for April.

Thursday

* The Commerce Department reports housing starts for May.

Friday

* The University of Michigan issues a preliminary report on consumer sentiment for June.