Ethanol advocates lobby Californians
Copyright 2000, San Jose Mercury News, Calif.
Monday, March 27, 2000
By Paul Rogers, San Jose Mercury News, Calif.
Illustrating how the fight over California's lucrative gasoline market is boiling down to oil companies vs. corn farmers, and Midwest vs. West, the nation's ethanol makers brought their case to the Bay Area last week and argued their product is the best replacement for the controversial gasoline additive MTBE.
With billions of dollars at stake, several hundred Midwestern corn farmers, ethanol plant owners and the governor of Iowa said that mandating ethanol in California's gasoline would not raise prices between 6 cents and 7 cents a gallon in the Golden State. That is the conclusion of the California Energy Commission, a finding that would translate into $1 billion a year in added costs for California drivers.
The ethanol lobby also called for Congress to require ethanol, a corn-based alcohol, in the gasoline of California and 15 other states with smog problems. Currently those areas are required under the 1990 Clean Air Act to use cleaner-burning fuels that are made with MTBE, ethanol or other additives.
The decision by the U.S. Environmental Protection Agency this week to begin a phase-out of MTBE was topic No.1 for the ethanol industry, as it met for an annual convention at San Francisco's Fairmont Hotel.
"This has turned into an opportunity for agriculture in the Midwest," said Martin Andreas, senior vice president of Archer Daniels Midland, the Illinois-based agribusiness giant that owns America's four largest ethanol manufacturing plants.
"We're ready to do business. Let the games begin."
Gov. Gray Davis and Sen. Dianne Feinstein oppose any federal rule, however, that would force California to use MTBE, ethanol or other "oxygenates," chemicals designed to make gas burn cleaner. They are seeking a waiver for California from the current oxygenate mandate in the Clean Air Act.
Oil companies and the California Air Resources Board say gas can be made to meet state and federal smog standards without ethanol. It isn't necessary, critics contend, and would simply be a political payoff to farm states in an election year if Congress mandates it.
"The ethanol industry's arguments are completely bogus," said Dave Fogarty, a spokesman for the Western States Petroleum Association. "Here in the Bay Area refiners already produce gasoline without MTBE or ethanol that meets California standards. And that's twice as clean as the federal standard."
In most parts of the nation, oil refiners have chosen MTBE over ethanol to meet the federal oxygenate rule because MTBE is a byproduct of oil refining, and is cheaper. But it has caused major water pollution. As many as 9,000 community water wells in 31 states may be contaminated by MTBE, a clear liquid that smells like turpentine.
Davis has ordered it phased out in California by Dec. 31, 2002, and the Clinton administration this week began a nationwide program to phase it out over the next several years.
How big is the California prize?
There are 20.5 million drivers statewide.
Californians consumed 14.5 billion gallons of gasoline last year. Not only is that more than any other state, it is more than any other nation in the world other than the United States as a whole.
Now ethanol makers are locked in a titanic struggle to persuade Congress to swap ethanol for MTBE.
"There has never been a better time for the production and expansion of ethanol," said Iowa Gov. Tom Vilsack. "This has to become a crusade."
Requiring ethanol, however, is opposed by nearly all of California's elected officials from both parties.
At the convention Thursday, Winston Hickox, secretary of the California EPA, reiterated the Davis administration's view that oil companies should have the option of using ethanol, but should not be forced to use it if they can continue to meet clean air rules without it.
The fear, he said, is shortages — and further gas prices spikes — if Midwestern farmers can't ramp up production fast enough to meet California needs."There would be a huge impact in demand," said Hickox. "It could have an impact in price. It's only reasonable for us to be skeptical."
Currently, California produces about 5 million gallons of ethanol a year, mostly from a small plant in Rancho Cucamonga that converts beer industry waste into ethanol.
Demand, however, would jump more than 100-fold, to 558 million gallons a year, Hickox said, if the same provision of the Clean Air Act that now requires 2 percent of gasoline by weight contain oxygenates, such as MTBE or ethanol, were altered to require just ethanol.
The industry March 23 released a report claiming it could meet demand by more than doubling production by 2004 with $1.9 billion spent on new plants.
"Ethanol can easily replace MTBE in gasoline," said Eric Vaughn, president of the Renewable Fuels Association, the ethanol trade group. "MTBE is contaminating our water supplies and should be phased out."
Vaughn disputed a report by the California Energy Commission last year that said requiring ethanol in California gas would increase prices 6 cents to 7 cents a gallon. It was done when oil was cheaper, so the numbers are outdated, he said.
But Claudia Chandler, a spokeswoman for the commission, said it stands by the data.
"If anything the cost of transporting ethanol would be bumped up a notch by an increase in the price of oil," Chandler said.
A 1997 study by the General Accounting Office found that ethanol subsidies cost American taxpayers $7.1 billion since 1979 while returning few environmental benefits or reduced reliance on foreign oil.
Andreas, of Archer Daniels Midland, predicted that Congress will not vote on the contentious issue until next year, because of election-year politicking.