Regional Issues Fuel Senate Ethanol Debate

Like it or not, ethanol is coming to the nation’s gas tanks, courtesy of the U.S. Congress.

A measure requiring the corn-based fuel to be added to the gasoline supply is expected to survive a challenge in the Senate this week, despite objections from lawmakers representing coastal states. They say that transporting ethanol from the Corn Belt to the East and West coasts could drive up prices at the pump and that the plan serves no purpose other than to curry favor in some politically important Midwestern states.

But the provision, part of the overall energy bill now before the Senate, is supported by President Bush as well as by Senate Republican and Democratic leaders. They contend that it will help fight smog, reduce U.S. dependence on foreign oil and prop up struggling farmers. And, they say, ethanol will not cause a price increase at the pump.

The measure -- which stands to give the ethanol industry its biggest boost since Congress approved a tax break for the fuel in 1978 -- would double the amount of renewable fuel that would have to be added to the nation’s gasoline supply to 5 billion gallons by 2012, or about 3% of the gasoline supply. An energy bill approved by the House would set a similar standard of 5 billion gallons to be met by 2015.

Besides ethanol, the measure seeks to promote the use of other renewable resources such as biodiesel, produced from the oil of crops such as soybeans, and fuel derived from agricultural waste.

The measure has evoked strong emotions not only in farm states, where it has been billed as a “rural economic stimulus package,” but also on the West Coast, which has the nation’s highest and most volatile gasoline prices. In addition to touching off a regional fight, the provision has divided the oil industry.

Although California already has started adding ethanol to its gasoline in advance of a Jan. 1 state ban on MTBE, a smog-fighting fuel additive blamed for fouling water supplies, state officials are closely watching the congressional action, noting that requiring ethanol use nationwide could create increased competition for the fuel. If supplies become scarce, or problems emerge in shipping ethanol from the Midwest to the East and West coasts, gasoline prices could rise, they say.

“The prices that we pay are responsive to conditions elsewhere in the country,”’ said William L. Rukeyser, assistant secretary for communications for the California Environmental Protection Agency.

Leading the opposition to the ethanol measure, Sen. Dianne Feinstein (D-Calif.) calls it “unnecessary” and a “new hidden gas tax.”

In a preview of this week’s debate, she recently complained about spending $50 to fill up her Jeep Cherokee with gas in San Francisco -- “and it wasn’t premium” -- and argued against Congress doing anything that could increase gas prices more. She also decried the legislation as a “wealth transfer” of billions of dollars from many states to ethanol-producing states.

Ethanol proponents accuse critics of exaggerating the problems, contending that rising gasoline prices earlier this year were not the result of increased ethanol use. They note that the ethanol suppliers have been ramping up production to meet the new demand. And, they say, the legislation allows federal officials to waive the ethanol mandate if supplies become tight.

California is on track to use more than 850 million gallons of ethanol this year -- more than eight times the amount used in 2001, according to the California Energy Commission. That would represent 6% of the state’s gasoline supply. Monte Shaw, a spokesman for the Renewable Fuels Assn., said that the legislation “essentially has no impact on California refiners because they’re already doing it.”

Some critics of the ethanol mandate predict it could add 10 cents per gallon to the price of gasoline on both coasts. They point to a recent Department of Energy report suggesting that gas prices rose higher and faster in California this year than pump prices elsewhere, in part because of the state’s transition from MTBE to ethanol.

But Edward Murphy, general manager for refining and marketing at the American Petroleum Institute, said a federal study suggested that the increase would be a penny per gallon at most. He said the price could actually drop because of the additional flexibility given refiners under the legislation.

Feinstein, nonetheless, plans to push this week for an amendment that would give governors the option of deciding whether to add ethanol to gasoline. It is expected to be the first of several measures designed to weaken the ethanol provision.

The Senate measure would repeal a 1990 amendment to the federal Clean Air Act, which California officials have warned could force the state to use even more ethanol in place of MTBE, or methyl tertiary butyl ether.

Feinstein faces long odds.

“We’ll win those votes,” said Jon Doggett, vice president of public policy for the National Corn Growers Assn.

Last year, the ethanol measure received 69 votes in the Senate, but it died when House-Senate negotiators deadlocked on other issues. This year, the ethanol provision could be the glue that holds together the energy bill, said Troy Bredenkamp, director of congressional relations for the American Farm Bureau.

Not only does the Senate have many farm-state members, but the bill comes up as four senators seeking the Democratic presidential nomination are stumping for votes in ethanol-producing Iowa, home of the first party caucuses in the Democratic race in January.

“Ethanol has become much more than just a corn subsidy,” said Keith Ashdown, vice president of policy for Taxpayers for Common Sense, a Washington-based budget watchdog group. “It has become a political litmus test for any potential presidential candidate to garner support from Midwestern states.”

Making Feinstein’s battle tougher, aides to California Gov. Gray Davis have called the ethanol mandate an improvement over existing law.

Taking a similar view, the American Petroleum Institute’s Murphy said the legislation is “much better than the inflexible mandate we’re going to have if the bill doesn’t pass.”

Under existing law -- if MTBE is phased out -- ethanol would have to be added to every gallon of gasoline in the nation’s smoggiest regions. Under the Senate measure, California refiners would be required to use 725 million gallons by 2012, but the legislation establishes a credit-trading system that would allow companies that exceed the standard to sell credits to companies that do not.

But Feinstein said the credit-trading provision forces refiners -- and, in turn, consumers -- to pay for ethanol whether they use it or not.

And Bob Slaughter, president of the National Petrochemical and Refiners Assn., said that his usual industry allies shouldn’t support the measure just because they see it as the lesser of two evils. He contended it is wrong to “trade one mistake for another.”

He also argues against “new subsidies” for ethanol, noting that the fuel already benefits from a lower tax than gasoline. “How many times do people have to pay for this product before enough is enough?” he said.

Ethanol proponents hope to overcome objections from the highway lobby by taking $2 billion to $4 billion a year that now goes to fund federal programs -- ranging from defense to Head Start -- and shifting it to the highway fund in order to make up for the lower gas tax revenue resulting from increased ethanol use.

Feinstein, meanwhile, contends that ethanol isn’t needed to produce gasoline that meets federal clean-air standards. But ethanol proponents contend the measure is not only good for the environment but can reduce imports by an estimated 1.6 billion barrels over the next decade and boost farm income by $1.3 billion a year.

Sen. Christopher S. Bond (R-Mo.) added that increased ethanol use can even make the nation’s energy supply “less vulnerable to acts of terrorism.”