Bush Rejects State's Ethanol Waiver

TIMES STAFF WRITERS

The Bush administration announced Tuesday it has rejected California's request for a waiver from a clean air rule, drawing an angry response from Gov. Gray Davis, who said the decision could raise gasoline prices.

The decision, announced by Environmental Protection Agency administrator Christie Whitman, could force California to begin using ethanol as a gasoline additive as it phases out an additive that has polluted ground water across the state.

"We cannot grant a waiver for California since there is no clear evidence that a waiver will help California to reduce harmful levels of air pollutants," Whitman said in a statement. Federal law requires such evidence before a waiver can be granted, she said.

The responses to the decision underscored the complexity and intensity of the debate over how California is forced to formulate its gasoline. Davis said the decision means "significantly higher gasoline prices at the pump and calls into question whether California will have an adequate gas supply." Federal lawmakers from California expressed outrage in a meeting with Vice President Dick Cheney.

State officials, oil refiners and many environmentalists insisted that clean air standards can be satisfied without adding ethanol to the mix.

The Bush administration was heavily lobbied by lawmakers from ethanol-producing states, such as Illinois, Iowa, Minnesota and South Dakota, to deny the waiver.

The Washington-based Clean Air Trust accused the White House of "playing politics" with the issue.

"Once again, the views of EPA's professional staff have been thrown in the trash in favor of political considerations," said Frank O'Donnell, the environmental group's executive director.

Midwestern corn growers and farm-state lawmakers, on the other hand, were clearly pleased, saying the decision would create a new and substantial market for ethanol.

California requested a waiver from a provision of the Clean Air Act that requires the nation's smoggiest regions to add an oxygenate to gasoline to make it burn cleaner. Seventy percent of the gas sold in California is subject to the rule.

This gasoline is currently reformulated with methyl tertiary butyl ether, or MTBE, which has been blamed for polluting ground water throughout the state. For that reason, Davis had ordered the additive phased out by December 2002, leaving ethanol as the only practical alternative as an oxygenate additive without the waiver.

Supply Shortage Fears Spark Price Hike Talk

Davis administration officials warned of fuel price spikes of as much as 50 cents per gallon if supply shortages develop. Davis predicted that refineries will have to retool to start using ethanol, and pump prices could rise by as much as $450 million per year in California.

"It's unequivocally going to mean higher prices," said Edward Murphy, the American Petroleum Institute's general manager for refining and marketing, although he could not say by how much.

"This doesn't bode well in terms of prices," said California Environmental Protection Agency Director Winston Hickox. "This doesn't bode well in terms of air quality."

The ethanol industry contends it can meet California's demand with no threat of supply shortages or price spikes.

"Sure, if California needs all of its ethanol by Friday, I'm in big trouble," said Loren Tusa, president of the Minnesota Corn Growers Assn. "But we have three years to ramp up to the scale they need."

Hickox said the state will take up to three months to decide what steps to take next. He said he may recommend that the governor delay the planned phaseout of MTBE.

"I can't imagine that we're going to back away totally" from the MTBE phaseout, Hickox said. But he indicated the ban might be delayed. "The time frames are open for consideration."

"If left to the merits of a technical discussion, it would seem that California would have been allowed to have more flexibility," said Dan Greenbaum, president of the Health Effects Institute and chairman of an EPA panel that studied gasoline oxygenates during the Clinton administration. "But decisions about fuel supplies are never purely technical."

Members of the California congressional delegation expressed outrage over the decision, airing their grievances in public comments and in a private meeting with Cheney at the Capitol.

According to one participant, Rep. William M. Thomas (R-Bakersfield) told Cheney: "Don't crucify us on a cross of corn."

Sen. Dianne Feinstein (D-Calif.) said President Bush had "doomed the state to choosing between price hikes at the pump and continued pollution of our ground water."

"Here was an issue where we had bipartisan support, and still the Bush administration gave California the back of its hand," Rep. Henry A. Waxman (D-Los Angeles) added.

Waxman said the state's delegation asked Cheney to reconsider the decision. "We didn't get a response."

Industry officials say it will take about 580 million gallons of ethanol--an amount equal to about one-third of current U.S. production--to meet California's demand, a potential $1-billion boon to the farmers.

Most likely, the state will import the volatile substance from Midwestern corn-producing states, although it could attempt to produce some ethanol from rice straw or other waste in California.

Hickox warned that ethanol could become an actively traded commodity subject to price gyrations and supply fluctuations.

"That ought to sound familiar," he said, warning that gasoline prices and shortages could soon mirror the crisis now surrounding electricity.

Federal EPA officials declined to make available the "extensive" analysis they said they made of California's request.

Robert Brenner, acting assistant administrator for the EPA office of air and radiation, said the agency compared gasoline made with ethanol and gas made without it. "What we found was that you can't really say with any confidence that the gasoline without oxygenates would be cleaner."

Brenner said the Clean Air Act does not permit the agency to consider pump prices in ruling on a waiver request.

Tuesday's action is unlikely to end the ethanol debate.

Feinstein, among others, pledged to press ahead with legislation that would allow refiners to produce reformulated gasoline containing neither MTBE nor ethanol as long as they can meet federal clean air standards.

Ultimately, a compromise could be reached that would allow California to use less ethanol but establish a national standard for ethanol use in fuel.

Oil Firms Say They Can Make Clean Gas

Oil companies, which supported California's request, contend they can make gasoline that meets clean air standards without using MTBE or ethanol.

California officials and oil industry lobbyists had been hearing for weeks that the Bush administration planned to turn down the state's request. Hickox said he had hoped to make a final plea to EPA chief Whitman, but she did not return his calls during the last two weeks.

In addition to the ethanol industry, MTBE producers mounted a major lobbying effort against California's ban.

A Canadian MTBE producer has sued the U.S. government in Canada, claiming that Davis' MTBE phaseout order violated the North American Free Trade Agreement.

In the suit, the company alleges that Davis banned MTBE after Archer Daniels Midland, the nation's leading ethanol producer, gave him campaign contributions--$135,000 during his 1998 campaign and $50,000 in 1999.

Davis, however, has said he based his decision on a study commissioned by former Gov. Pete Wilson and conducted by researchers at UC Davis pointing to health hazards from MTBE.

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Simon reported from Washington and Morain from Sacramento.

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