Boon or Boondoggle?

Senate approves ethanol provision

Published in CSP Daily News

WASHINGTON -- The Senate on Wednesday endorsed a broad expansion of the use of ethanol in gasoline, despite claims that it would force up gasoline prices by up to 8 cents a gallon outside the Farm Belt and reduce fuel economy, said the Associated Press.

A provision that, beginning in 2012, requires refineries across the country to use a total of 8 billion gallons of ethanol a yeardouble today's productionwas approved, 70 to 26, and put into a wide-ranging energy bill the Senate is expected to complete in the next two weeks.

The [image-nocss] energy bill passed by the House in April would require 5 billion gallons of renewable fuel to be added to gasoline by 2012, virtually assuring that an ethanol mandate of some amount will be in the final bill, which President Bush is expected to sign.

An attempt by Senator Charles E. Schumer (D-N.Y.) to strip away the ethanol provision failed, 69 to 28. Schumer described the requirement for nationwide use of ethanol in gasoline as nothing less than an ethanol tax levied on every driver and a boondoggle to benefit farmers at the expense of motorists.

Opponents, mainly from the West and Northeast, said ethanol should not be required in states where it is not needed to reduce air pollution and is not readily available. Most ethanol is produced in the Midwest. Supporters of the measure said ethanolmade almost exclusively from cornwould reduce demand for foreign oil and boost U.S. energy security.

We must take steps to reduce our dependence on foreign countries, said Majority Leader Bill Frist (R-Tenn.). Farm-state senatorsboth Democrats and Republicanssaid ethanol-blended gasoline would allow homegrown energy to replace some imported crude oil.

The ethanol industry claims that 8 billion gallons of ethanol, used at up to a 10% blend, would allow refiners to use 2 billion barrels less crude oil a year. The oil industry, however, maintains ethanol would have a negligible impact on oil imports.

In a speech Wednesday, Bush said, It makes sense to promote ethanol as an alternative to foreign sources of oil. He reiterated his call for Congress to send him an energy bill by August 1. [ Click here to read the full text of remarks by President Bush to the 16th Annual Energy Efficiency Forum.]

Sen. Dianne Feinstein (D-Calif.), said the ethanol mandate would mean refiners in her state would be forced to use ethanol or purchase costly credits under a credit-trading system. Either choice will mean California consumers pay more at the pump, she said.

Feinstein also disputed claims that ethanol would reduce oil imports. Because ethanol has a lower energy content than gasoline, more blended gasoline will be needed to travel the same distances, resulting in an estimated 3% reduction in fuel economy, she said.

Ethanol receives a 51-cent-a-gallon tax credit, so doubling its use would reduce government revenue, Feinstein added.

The ethanol industry is expected to produce about 4 billion gallons of corn-based ethanol this year, or about 3% of gasoline by volume.

The price impact of ethanol at the pump is unclear. The federal Environmental Protection Agency (EPA) estimates the added cost could be as much as 4 to 8 cents a gallon, which the ethanol industry disputes. The price of ethanol has declined over the past six months, causing downward pressure on gasoline prices, Sen. Ben Nelson (D-Neb.) argued in support of the ethanol mandate.

The Renewable Fuels Association, which represents ethanol producers, says ethanol-blended gasoline has been cheaper than or comparable to other gasoline in California and New York. Ethanol use has risen in those stated since the additive methyl tertiary butyl ether (MTBE) was banned last year.