Ethanol Plan Preserved in Senate Energy Bill

The Senate stuck by a plan to require nationwide use of ethanol (search) in gasoline, although opponents argued that the additive will increase gasoline prices in regions outside the Farm Belt where most ethanol is produced.

An amendment by Sen. Charles Schumer (search), D-N.Y., that would have kept the measure out of a broad energy bill was rejected 69-28 Wednesday.

Negotiations on details of a final version of the ethanol provisions, which require refiners to use 8 billion gallons of ethethanol a year, were continuing. The measure was expected to be approved later Wednesday as part of a broad energy bill that Senate leaders hoped to complete in the next few weeks.

Schumer called the mandate "nothing less than an ethanol tax levied on every driver" and a "boondoggle" for farmers and ethanol producers in the Midwest at a cost to motorists in the Northeast and West. He argued ethanol should not be required in areas where the additive is not needed to meet clean air requirements.

Nevertheless, the ethanol provision has wide political support among both Republicans and Democrats as well as at the White House, and is viewed as essential to get a majority of senators to support the energy legislation.

President Bush, in a speech Wednesday reiterating his call for Congress to send him an energy bill by Aug. 1, voiced his support for the ethanol requirement. "It makes sense to promote ethanol as an alternative to foreign sources of oil," Bush said.

Senate Majority Leader Bill Frist of Tennessee also promoted more use of ethanol, almost all of which currently is made from corn, for reducing dependence on foreign oil.

The ethanol industry claims that the use of 8 billion gallons of ethanol a year will allow refiners to use 2 billion fewer barrels of oil. The oil industry disputes that claim, saying the ethanol mandate would have negligible impact on oil imports.

The ethanol industry was expected to produce about 4 billion gallons of corn-based ethanol this year. It has long been used as an oxygenate in gasoline to reduce air pollution and has been in wider demand since several states, including California and New York, have banned the use of a rival oxygenate, MTBE (search), because of its harm to water supplies.

Senators from New York and California have argued that refiners in their states should not be required to use the additive because they can meet clean air requirements without it. The provision envisions a 10 percent blend in gasoline.

The price impact of ethanol is unclear.

The Environmental Protection Agency estimates the added cost could be as much as 4 to 8 cents a gallon, a figure disputed by the ethanol industry.

The price of ethanol has declined over the past six months, causing downward pressure on gasoline prices, Sen. Ben Nelson, D-Neb., argued in support of the ethanol mandate.

Meanwhile, a Senate committee was considering a package of energy tax breaks that would give up to $2,400 to buyers of hybrid motor vehicles (search), subsidize the purchase of more efficient appliances and help pay for the development of clean coal technologies.

The $16 billion in tax incentives is double what was proposed in the House and would commit about $6 billion over 10 years to energy efficiency, conservation and promotion of alternative fuels. The House agreed to about $8 billion in tax incentives, with less than $500 million for efficiency and conservation, in the energy bill it passed in April.

The Senate Finance Committee was expected to clear the tax proposals, tentatively agreed to Tuesday, in a formal vote Thursday so they can be rolled into a broader energy bill that the Senate will debate over the next few weeks.