Bush's Call to Lower Ethanol Tariffs Fuels Dissent

Farm-state lawmakers say they're prepared to fight vigorously any attempt to remove the 54-cent tariff on imported ethanol even though demand for the additive is growing as refiners use more of it in gasoline.

President Bush made clear his desire to boost ethanol supplies — and to try to generate more imports — at a meeting on energy with a bipartisan group of lawmakers this week.

Energy Secretary Samuel Bodman said that while the administration "will continue to consider" ways to boost imports, including removing the tariff, "it's largely a congressional matter."

"The president has encouraged Congress to examine all alternatives for increasing the available supplies of ethanol, and we will continue to do that," Bodman said.

Oil companies have attributed part of the recent increase in gasoline prices — as much as 8 cents a gallon, according to some estimates — to refiners shifting from MTBE as a gas additive to corn-based ethanol.

MTBE, or methyl tertiary butyl ether, has been found to contaminate water supplies, which prompted a rash of lawsuits. Congress last summer required a ramping up of ethanol use to 4 billion gallons this year and 7.5 billion gallons by 2012.

The sudden switch caused some ethanol supply concerns from refiners — and, in turn, more talk about finding ways to increase imports, which totaled 135 million gallons last year.

"Congress can bring down prices by cutting the tax on imported ethanol," Rep. John Shadegg, R-Ariz., maintains. He has introduced a bill that would suspend the 54-cent import tax for the rest of the year.

Congress seems in no mood to tamper with the tax, which is strongly supported by farm-state lawmakers, including some of the most powerful on Capitol Hill.

"It's a step in the wrong direction," Sen. Charles Grassley, R-Iowa, said Friday. He is chairman of the Finance Committee, which would consider any change in the tariff. "It would send a signal that we're backing away from our own efforts to seek energy independence."

The panel's top Democrat, Sen. Max Baucus, D-Mont., also said that a change in the tax would be a mistake. House Speaker Dennis Hastert, R-Ill., whose state has the biggest ethanol producer, Archer Daniels Midland, also opposes a tax change.

If the administration tries to move on its own, says Sen. Byron Dorgan, D-N.D., whose state is another center of ethanol production, "they would run into a big fight in Congress."

Sen. Pete Domenici, R-N.M., said that at the White House and in some corners of Congress "there's positive sentiment" for finding ways to get more ethanol imports but "nothing precise."

A leading producer of ethanol is Brazil, which presumably would be the source of more supply. But Brazil has its own gasoline supply concerns and it's not certain how much additional fuel it would be able to provide.

Many energy experts also believe that the ethanol concerns are temporary and that the problems have had less to do with a shortage of the additive than other factors associated with the switch.

It "required changes all along the supply chain, different suppliers, different transportation, and different locations for blending. Normally, a change like that is done over several years," says energy consultant Daniel Yergin of Cambridge Energy Research.

Yergin predicted that the transition — and any resulting price impact — of the ethanol shift is likely to be over before the heavy summer driving season sets in.

"Right now we don't seem to be having any problems," said Charles Drevna, executive vice president of the National Petrochemical and Refiners Association. He said the group hasn't taken a position on the ethanol import tax.

The ethanol industry says there's plenty of the fuel and that more is on the way with new plants to come on line this year.

"We don't need increased imports," said Matt Hartwig, a spokesman for the Renewable Fuels Association, which represents the ethanol producers.

Hartwig said that nearly 5 billion gallons of ethanol will be produced this year and that the industry capacity is expected to approach 6 billion barrels by the end of the year, more than enough to meet refinery demands.