Senate Gives Ethanol an Added Boost

For years, Congress has showered tax breaks on ethanol, portraying the fuel that is derived mostly from corn as a homegrown alternative to oil imports.

But even the Corn Belt could not have imagined its good fortune Wednesday as the Senate voted to double the amount of ethanol, to 8 billion gallons, that must be added to the nation’s gasoline supply by 2012.

“The Senate is poised to make ethanol a cornerstone of America’s energy policy,” said Sen. John Thune, a Republican from ethanol-producing South Dakota.

The provision was added on a 70-26 vote to a far-ranging energy bill moving through the Senate. It is widely regarded as critical to getting Congress to adopt a new national energy policy, a priority of President Bush’s.

But opponents of the provision, including a number of East and West Coast senators and the oil industry’s trade association, the American Petroleum Institute, contend that it could increase gas prices because of the cost of transporting ethanol from the Midwest.

Sen. Charles E. Schumer (D-N.Y.) called the mandate “nothing less than an ethanol gas tax” that would be levied on every motorist in the country.

“There is no sound public policy reason for mandating the use of ethanol -- other than the political might of the ethanol lobby,” he said.

The 8-billion-gallon requirement is higher than any amount that has previously come before Congress, and would give the industry its biggest boost since a tax break for the fuel was first approved in 1978.

Ethanol, a high-octane fuel made from corn or other renewable products, is typically blended with gasoline at a rate of 10% ethanol to 90% gasoline for use in standard combustion engines. The use of such reformulated gasoline -- which proponents say burns more efficiently -- is required as a clean-air measure in areas with high levels of ozone or carbon monoxide.

About 30% of gasoline consumed in the United States last year was an ethanol blend, according to the American Coalition for Ethanol, a trade association that supports increased ethanol use.

The provision adopted by the Senate on Wednesday was eagerly sought by Democratic and Republican farm-state lawmakers, underscoring that energy policy was often shaped by regional politics rather than party affiliation. The ethanol coalition, based in Sioux Falls, S.D., cheered the vote as the “strongest display of support for ethanol to date in the U.S. Senate.”

Bush applauded efforts to boost the ethanol requirement, saying it was a key element of a broader strategy to reduce the nation’s dependence on foreign oil. “We’re pretty good about growing corn here in America, and we’ve got a lot of good corn growers,” he told industry officials at an energy efficiency conference in Washington.

Bush said he looked forward to the day when a future president would say, “Show me the crop report,” instead of asking, “How many barrels of crude oil are we importing?”

Although he did not endorse a specific amount, Bush said it was important for Congress to approve a renewable fuel standard requiring a minimum amount of ethanol and biodiesel, which can come from soybeans as well as recycled waste products such as cooking grease.

The president prodded the Senate to set aside partisan politics and pass an energy bill quickly, saying the public’s patience, not to mention his own, was wearing thin.

“My advice is, they ought to keep this in mind: Summer is here, temperatures are rising, and tempers will really rise if Congress doesn’t pass an energy bill,” Bush said.

Bush’s call for action reflected a more confrontational approach than his past public comments on presidential priorities that stalled in Congress.

Sen. Tom Harkin (D-Iowa) called the ethanol mandate something “we’ve been waiting for for a long time,” and warned that if the provision was stripped out during House-Senate negotiations on a final bill, “there won’t be an energy bill, period.”

The energy bill passed by the House in April would require that 5 billion gallons of renewable fuel be added to gasoline by 2012, virtually assuring that an ethanol mandate of some amount would be in the final version of the legislation.

The Senate vote came after the National Corn Growers Assn. urged its members to send gas receipts to senators with messages written on the back asserting that increased ethanol use would help to prevent spikes in gas prices.

But what effect increased ethanol use would have on gas prices is disputed.

Some have suggested that increased ethanol use would lower gas prices, mainly because ethanol is so plentiful now that the price is cheaper than gas.

However, said Edward Murphy of the American Petroleum Institute, “if there was an opportunity for people to increase their market share right now by adding ethanol to gasoline and undercutting your competition by a fraction of a cent a gallon, people would be banging at the door to do it.”

He added that when the government required industry “to use a production process they wouldn’t otherwise use, you’re going to get higher cost.” He also contended that the ethanol mandate would have a negligible effect on imports.

So eager are farm-state lawmakers for increased ethanol use that Sen. Ben Nelson (D-Neb.), who helped settle a Senate fight over using filibusters to block judicial nominees, has begun trying to find a solution to the major sticking point that doomed energy legislation in 2003. That dispute is over whether the government should give legal protections to producers of methyl tertiary butyl ether, or MTBE, a fuel additive blamed for fouling groundwater sources from California to New Hampshire.

Under the Senate measure, the amount of ethanol that would have to be added to gasoline would gradually increase to 8 billion gallons by 2012. Thereafter, ethanol use would grow in proportion to the percentage of ethanol in the gas supply in 2012. The United States is projected to use about 4 billion gallons of ethanol this year.

Oil companies could choose the regions where they would add ethanol to gas by buying credits from refiners that exceeded their ethanol requirement.

The bill includes a provision, sought by Sen. Dianne Feinstein of California, that would exempt California from having to use ethanol during the hot summer months when, state officials say, its use could increase emissions. But Feinstein and her California Democratic colleague, Sen. Barbara Boxer, voted against the ethanol mandate.

California has repeatedly sought a waiver from the mandated use of ethanol or similar substances, saying the state’s stringent gasoline standards reduce emissions without requiring such additives. But the requests for waivers have repeatedly been denied, and the state, under existing federal law, expects to use nearly 1 billion gallons of ethanol this year.

Jerry Martin, spokesman for the California Air Resources Board, said the state could live with a nationwide mandate of 6 billion gallons -- or 650 million gallons in California. Feinstein spokesman Howard Gantman said that if the state was forced to use 880 million gallons, oil companies in California would probably be forced to buy credits from companies that use more than their required amount, a cost they would most likely pass onto consumers.

Sen. John McCain (R-Ariz.) also complained about additional government support for the ethanol industry. “How much is enough?” he asked after voting against the measure.

The Senate is expected to approve the energy bill within the next couple of weeks. A conference committee would then work out differences between it and the House bill passed in April.