The State of Ethanol

30 governors ask Congress to boost requirement in energy bill to 8 billion gallons a year

Published in CSP Daily News

WASHINGTON -- Corn-based ethanol is being pumped into more gas tanks every year, but farm-state senators and a majority of governors want even more. They say an energy bill Republicans are pushing through the House this week does not go far enough to replace foreign oil with homegrown ethanol, according to the Associated Press.

The legislation would require refiners to use 5 billion gallons of corn-based ethanol a year by 2012, about 20% more than the industry expects to produce this year. But 30 governors, in a recent letter to President Bush and Congress, [image-nocss] urged lawmakers to boost the requirement to 8 billion gallons a year and provide tax breaks and other federal help to spur production from noncorn sources such as grasses, wood chips and garbage.

Rising oil imports are a major risk to the nation's energy, economic and environmental security, the governors wrote, adding that expansion of ethanol would be "the safest and cheapest way to mitigate these risks."

Transportation accounts for more than half of the U.S. thirst for oil, about 56% of which comes from imports; that portion is expected to be well over 60% by 2012.

Bills were introduced in the Senate and House last week calling for refiners to use 8 billion gallons of ethanol as a gasoline additive each year. An attempt is expected to be made to change the energy bill to reflect the higher number when it comes up for House debate today, although prospects of doing so are uncertain.

Almost all ethanol now produced comes from corn. A federal mandate for refiners to more than double its use over the next seven years would be a major boon to farmers. While noncorn ethanol from various biomass sources is widely talked about, a practical and cost-effective process for producing it is still years away, AP said.

A coalition representing farmers, petroleum and environmental interests generally agree on language that would require refiners to use more ethanol as a gasoline additive, replacing a petroleum-based oxygenate, MTBE, which is being phased out because it has been found to contaminate drinking water.

New York, Connecticut and California banned MTBE in early 2004, resulting in a surge in ethanol demand and production. Ethanol production more than doubled during the last five years with dozens of new plants being built. About 4 billion gallons of ethanol are expected to be produced this year, compared with 1.4 billion gallons annually a decade ago, according to the industry.

"We've proven we can grow rapidly. We've proven we can supply the market," said Monte Shaw, a spokesperson for the Renewable Fuels Association, which represents ethanol producers. The group has vowed to push Congress to adopt "the most aggressive" ethanol proposal possible in energy legislation.

Ethanol prices have declined sharply in recent months, largely because of the rapid growth in supply and few new markets. Shaw maintains that refiners are ignoring ethanol and keeping the additive out of some markets where it is readily available. The wholesale price of a gallon of ethanol is now about $1.20, compared with $1.75 in January, according to the National Corn Growers' Association.

A requirement for 8 billion gallons a year has more than 20 sponsors in the Senate and about the same number in the House.

While ethanol has widespread support among both Republicans and Democrats in Congress as well as at the White House, the corn-based fuel also has its detractors, among them lawmakers from California and the Northeast. They have argued a mandate to use ethanol is not needed because refiners can produce gasoline that meets clean-air requirements without it or MTBE. They fear requiring ethanol, which is largely produced in the Midwest, will add to fuel costs where it is not widely produced.

"It's nothing more than a giveaway...nothing more than a welfare program" for farmers, Representative Eliot Engel (D-N.Y.) said as he tried to strip the ethanol mandate of 5 billion gallons from the House energy bill in committee last week. His effort was easily defeated.

Increasing the requirement beyond 5 billion gallons a year may be just as difficult, said AP.

The higher number is opposed by both Majority Leader Tom DeLay (R-Texas) and Rep. Joe Barton (R-Texas). Barton will manage the energy legislation on the House floor. The oil industry also has vowed to vehemently oppose any requirement beyond what is already in the bill.

"It will drive up costs, have minimal effect on petroleum imports, and force ethanol into areas where it is uneconomical to be used," Ed Murphy, director of refining and marketing at the American Petroleum Institute, told AP.

Ethanol's traditional farm-state supporters, however, have been joined by a number of national security advocates who see the domestically produced fuel as a way to curtail the reliance on oil imports. Former CIA Director James Woolsey, for example, has been a big booster of developing ethanol from noncorn sources.

Meanwhile, legislation proposed Tuesday by U.S. Sen. Barack Obama (D-Ill.) would provide a 50% tax credit for the cost to build a new E85 vehicle refueling station up to $30,000, reported the St. Louis Business Journal. The proposed tax credit would be paid for using funds from penalties paid by automakers who violate fuel mileage standards.

Obama said the proposal would encourage the use of more ethanol, provide motorists who drive flexible-fuel vehicles with cheaper gas and reduce the nation's dependence on foreign oil, the report said.

E85, which contains 85% ethanol and 15% gasoline, can be used in flexible-fuel vehicles and is about 50 cents cheaper a gallon than gasoline. Standard vehicles can use up to 10% ethanol and 90% gasoline.

Illinois has about 20 gas stations offering E85 and about 100,000 flexible-fuel vehicles, said the report. The state produces about 840 million gallons of ethanol. Missouri has about 15 stations offering E85. Nationally, there are about 400 E85 stations and 3.5 million flexible-fuel vehicles, the report added.