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Posted on  

June 6, 2003

Senate gives ethanol a boost for use with gasoline

Associated Press

WASHINGTON -- Virtually every driver in the country could be pumping gasoline containing corn-produced ethanol by 2012 under a plan approved Thursday by the Senate.

The proposal, incorporated into a broader energy bill, would dramatically change how refiners blend gasoline and how they meet federal clean air requirements. It would require a doubling of ethanol use, to at least 5 billion gallons a year, in what would be a boon to corn farmers.

The ethanol additive is made mainly in the Midwest from corn, although it can come from other grains and biomass. Under the new mandate, it would have to be used by refiners in every state except Alaska and Hawaii.

The bipartisan measure, approved 67-29, also would ban use of MTBE, a gasoline additive that is made from methanol, a derivative of natural gas, and that is found to contaminate drinking water supplies.

Houston is a center for the production of MTBE with companies such as Lyondell Chemical. Lyondell derives about one-quarter of its total revenue from the gasoline additive.

If the law phasing out MTBE is enacted, Lyondell would prefer converting its plants to produce an alternate called ETBE rather than another blending component called iso-octane. About 42 percent of ETBE is ethanol.

But to do that profitably, the companies need to get the same tax break offered to ethanol makers, they said.

Consequently, Lyondell and other companies in the Oxygenated Fuels Association have been lobbying for a break on the federal excise taxes on the ethanol that would be used in ETBE. They basically want "equitable tax treatment," a spokesman said recently.

Under the ethanol plan approved Thursday in the Senate, refiners would have more freedom to blend fuel because of the lifting of a federal requirement that gasoline contain at least 2 percent oxygen in areas with air pollution problems. Although the oxygen rule has been credited with achieving significant reductions in automobile tailpipe pollution, refiners say they can produce cleaner gasoline without it.

Opponents said expanding ethanol's use could lead to gasoline shortages and price surges in regions where there are no ethanol plants. The ethanol industry says it does not anticipate any problems meeting the increased demand, which would be phased in over eight years.

A proposal by Sen. Dianne Feinstein, D-Calif., a leading foe of the ethanol mandate, would have given states the final say in whether to require ethanol use. The plan failed by a 2-to-1 margin. A proposal by Sen. Chuck Schumer, D-N.Y., to exempt the far West and Northeast lost 59-26.

The new motor fuel requirements -- reflecting a compromise developed by interests representing farmers, major oil companies and environmentalists -- were inserted in a broad energy bill that the Senate hopes to approve soon.

The House called for a similar expansion of ethanol production in an energy bill it passed in April. But the House rejected a ban on the petroleum-based MTBE, contending that market forces -- and action by states -- will phase out use of the fuel anyway. The Senate ethanol provision must be reconciled with the House version.

At least 17 states already have taken action to ban or dramatically reduce use of MTBE, which like ethanol is designed to help reduce automobile pollution.

Ethanol supporters said the corn-based fuel will help achieve greater energy independence by displacing as much as 250,000 barrels of oil a day by 2012.

"It increases fuel supply, stimulates economic growth and spurs development of domestic ethanol fuels," said Sen. Kit Bond, R-Mo.

As the Senate began debating the motor fuel measures this week, the ethanol industry produced a report, commissioned by the National Association of Corn Growers, that estimated the doubling of ethanol use would add $1.3 billion a year to farmers' income and create 214,000 jobs, while lowering gasoline costs.

Opponents argued that refineries in California and the Northeast -- far from ethanol production plants in the Midwest -- may have trouble getting the additive, leading to supply problems. Exempting the Northeast and far West would resolve the matters, according to some Democrats from those regions.

The ethanol industry says it will meet future demand, citing rapid growth in ethanol production capacity in recent years. Last year 2.3 billion gallons of ethanol were produced from corn; it is expected that production will increase to 2.7 billion gallons this year.



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