Ethanol Future Is Subject of Industry Concern

30 April 2001 00:00  [Source: ICB Americas]

By Glenn Hess

Although about a dozen bills have been introduced in Congress to expand the use of ethanol through a variety of tax incentives, grants and modifications to the Clean Air Act, California's request to opt out of the federal reformulated gasoline program has the industry concerned about the renewable fuel's future.

The reformulated gasoline (RFG) program mandates that about 70 percent of California's gasoline contain at least a 2 percent oxygenate blend to make it burn cleaner.

Methyl tertiary butyl ether (MTBE) had been the state's oxygenate of choice, but Governor Gray Davis ordered a phaseout of MTBE by the end of 2002 after it was found to contaminate groundwater.

The phaseout was welcomed by farmers, as corn-derived ethanol is the second most widely used oxygenate after MTBE. But while the ethanol industry viewed the move as an opportunity to expand production, Davis maintained that many California refineries have the ability to produce gasoline that provides the required emissions reductions without using any oxygenate.

Inaction by the Clinton administration on Gov. Davis' 1999 RFG waiver request now requires a decision by President George W. Bush. Sources say White House officials have been meeting with California and oil industry representatives in an attempt to work out a compromise.

California argues that the waiver is necessary because adequate supplies of ethanol will not be available to replace MTBE.

But Bob Dinneen, vice-president of the Renewable Fuels Association (RFA), says the ethanol industry is experiencing a "dramatic expansion." Production capacity, he said, grew 15 percent in 2000 and growth is projected to exceed 20 percent this year.

Last month, the RFA urged President Bush to deny California's waiver request, asserting "the US ethanol industry will absolutely meet California's oxygenate demand...without increasing consumer gasoline prices."

In a letter to the White House, the industry group stated that because ethanol has double the oxygen content of MTBE, it can replace MTBE with only half the volume. "Thus, about 580 million gallons of ethanol will be needed to supply all of California's oxygenate needs," RFA said.

The ethanol industry's capacity now exceeds 2 billion gallons, according to the trade group. In addition, it says new plants and expansions totaling 320 million gallons of capacity are scheduled for completion this year, and construction will begin on another 1.13 billion gallons over the next two years.

The Bush administration's only choice will be to grant or reject California's waiver request, notes Jon Doggett, senior director of congressional relations at the American Farm Bureau Federation. "There's no middle ground on this issue."

But a waiver could establish a bad precedent, he added. "This situation has the potential to open up the Clean Air Act for further review. That's a real Pandora's box."

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