Corn Fed

Senate panel approves ethanol increase; opponents cite studies that point to gas price hike

Published in CSP Daily News

WASHINGTON -- Over the objections of oil companies, a Senate committee on Wednesday approved a requirement that refiners use more corn-based ethanol and other renewable fuels in gasoline, said the Associated Press.

The legislation would mandate that refiners annually use at least 8 billion gallons of renewable componentsalmost all of it ethanol from cornin gasoline by 2012, doubling ethanol production, a boon to farmers. A House-passed energy bill would require 5 billion gallons.

Supporters of the higher Renewable Fuels Standard ([image-nocss] RFS) argued that such a mandate would replace 5% of the gasoline by volume beginning in 2012 and reduce U.S. need for oil imports. This is about a supply that is domestic, said Senator Jim Talent (R), who offered and won voice vote approval for the ethanol mandate as part of an energy bill being crafted by the Energy & Natural Resources Committee.

Sen. Pete Domenici (R-N.M.), the panel's chairman, said the ethanol mandate will be key to getting energy legislation through the Senate when it takes up the bill, probably in late June.

Talent said ethanol use would reduce refiners' need for imported oil, reduce gasoline costs and help the environment by curtailing toxic emissions and climate-changing carbon dioxide. There's no question that ethanol helps the environment, he said.

But the oil industry said expanding the mandate from 5 billion to 8 billion gallons will require ethanol use in regions where it is not economical and increase fuel costs while providing negligible reductions in oil imports.

The ethanol industry countered that 8 billion gallons of ethanol would replace 2 billion barrels of crude oil and trigger $6 billion in new investment in ethanol production.

Sen. Dianne Feinstein (D-Calif.), cited a report by the Energy Information Administration (EIA) that said an 8 billion-gallon ethanol requirement would add 2.4 cents a gallon to the price of gasoline. ( Click here to view the report.)

Supporters of the mandate dismissed the study, saying it was based on oil costing $25 a barrel, when all expectations are that oil prices - now above $50 a barrel - will remain substantially higher than that.

By a 12 to 10 vote, the committee agreed to give California a summertime waiver to the ethanol mandate if needed to meet air quality requirements, although refiners in the state would still be required to use 900 million gallons of ethanol annually.

In response to the vote to increase the RFS to 8 billion gallons of ethanol, the American Petroleum Institute (API) said, We are disappointed in today's vote. If enacted into law as part of a comprehensive energy policy, the 8 billion gallon standard would mean higher energy costs for consumers. We hope that, when the full Senate debates the comprehensive energy legislation, it will return to a more balanced approach by restoring the 5 billion gallon fuel standard that will contribute to air quality and make economic sense for the nation. By contrast, an 8 billion gallon standard would do very little to reduce imports of oil or improve energy security. And, by doubling the amount of ethanol now in the marketplace, the proposal would overtax refineries and transportation systems.

Two studies released by API claim that higher ethanol mandates for gasoline produced in the United States could hurt consumers and the nation's agricultural sector while yielding only smalland costlyreductions in U.S. petroleum use and imports.

Consumers could face increased food costs, and the livestock industry could lose because of increased feed costs, according to a report prepared by economic analysis firm Global Insight Inc. The second study, done by energy economics consultancy MathPro Inc., determined that increasing ethanol use would yield small and costly reductions in U.S. fossil fuel use and U.S. oil and gas imports and could also increase the cost of producing gasoline.

Among the studies' major findings:

Even at the 8-billion gallons per year (bgy) level, fossil fuel imports would be reduced by less than one half of 1% of projected petroleum-based imports in 2012. Higher RFS levels could force U.S. consumers to pay up to $150 for each barrel of imported crude oil replaced at the 6-bgy level in 2012, and up to $190 per barrel at the 8-bgy level, over and above the price of crude oil. High RFS mandates could result in annual national costs of $1.9 billion for 6 bgy and $3.8 billion for 8 bgy.These costs would fall on consumers (through higher costs of gasoline production) and taxpayers (through increased subsidies for ethanol production). A higher RFS would reduce or eliminate refiners' flexibility and require use of ethanol in areas where it is less economical. While corn farmers in a few states would benefit from more ethanol production, consumers and other agricultural sectors, especially livestock producers, could suffer higher food and feed costs. Measured by changes in the Consumer Price Index for All Food, renewable fuel mandates are projected to cost consumers $12.8 billion per year at the 8-bgy level versus $2.9 billion at the 5-bgy level. U.S. agricultural exports would be reduced under higher RFS levels while U.S. imports of most agricultural commodities would increase as ethanol production levels rise, including livestock products. Congress is considering proposals requiring progressively increasing volumes of ethanol in U.S. gasoline with total ethanol reaching 8 bgy in 2012. That number is about double current usage and 60% greater than in last Congress's conference agreement. It is also a third more than the 6-bgy figure approved by the Senate Environment & Public Works Committee in March.

API has supported an RFS that balances the industry's ability to provide consumers with reliable supplies of affordable gasoline with the need to diversify our energy supply, it said. It joined with other stakeholders in support of a 5-bgy RFS in the 108th Congress; however, it opposes a much larger RFS, which would force ethanol into markets outside the Midwest, where the majority of ethanol is produced, complicating logistics and increasing costs to pay for transporting the fuel.

API President Red Cavaney, in a letter to Capitol Hill, urged lawmakers to evaluate both costs and benefits of a higher RFS. Americans have demonstrated again and again that what they want is a reliable and affordable supply of energy, he said. Congress should do no harm in that regard.