Senator Feinstein Offers Amendment to Give States Ability to Choose Whether they Participate in the Ethanol Program

Senator Feinstein Offers Amendment to Give States Ability to Choose Whether they Participate in the Ethanol Program
June 3, 2003

Washington, DC - U.S. Senator Dianne Feinstein (D-Calif.) today offered an amendment to the Senate Energy bill that would give States the ability to choose whether they participate in a program to encourage the use of ethanol in gasoline.

Under the provisions currently contained in the energy bill, the United States would be required to use 5 billion gallons of ethanol by the year 2012. This mandate could cause shortages and higher prices for gasoline in California, New York and other states.

In a speech given on the Senate Floor, Senator Feinstein discussed her amendment and described why she opposes the ethanol mandate. The following is the prepared text of Senator Feinstein's statement:

"Mr. President, I am offering a second-degree amendment to the pending first degree ethanol mandate amendment that would require the Governor of each state to opt-in to the ethanol mandate. Senators Nickles, McCain, Kyl, Gregg, Wyden, Leahy, Schumer, Reed, and Sununu are co-sponsors of this amendment and I would like to thank them for their support.

Mr. President, the pending first degree ethanol mandate amendment mandates 5 billion gallons of ethanol into our fuel supply by 2012, yet it exempts Alaska and Hawaii from this nationwide mandate. I strongly believe that every state should have this choice. In the Environment and Public Works Committee, Senator Murkowski offered an amendment to the ethanol mandate to exempt Alaska and Hawaii from the requirement because:

Alaska and Hawaii are a great distance from the Midwest, where 99 percent of the ethanol is produced in the U.S.; and
Families and businesses in Alaska and Hawaii would have to pay exorbitant costs for ethanol to be shipped to these states and blended into their gasoline.

I have the same concerns about increased fuel costs to families and businesses in California if the ethanol mandate becomes law. I am sure other Senators up and down the East and West Coasts have the same concerns I do. Because moisture causes ethanol to separate from gasoline, the fuel additive cannot be shipped through traditional gasoline pipelines. Ethanol needs to be transported separately by truck, boat, or rail and blended into gasoline after arrival. Unfortunately, this makes the one to three week delivery time from the Midwest to either coast dependent upon good weather conditions as well as available ships, trucks, and trains equipped to handle large amounts of ethanol.

According to Steve Larson, former Executive Director of the California Energy Commission, 'the adequacy of logistics to deliver large volumes of ethanol to [California] on a consistent basis is uncertain.' In sum, it will be extremely costly to ship large amounts of ethanol to California and other states.

I believe every state outside the Midwest will have to grapple with how to bring ethanol to their states since the Midwest controls 99 percent of the production. Last year the General Accounting Office indicated how unequal the effects of the mandate will be across the nation. As the GAO reported, 'Ethanol imports from other regions are vital. However, any potential price spike could be exacerbated if it takes too long for supplies from out-of-state (primarily the Midwest where virtually all the production capacity is located).'

Mr. President, on the issue of increased costs, let me quote from a Wall Street Journal editorial that ran last year, 'If consumers think the federal gas tax is ugly, this new ethanol tax will give them shudders. Moving ethanol to places outside the Midwest involves big shipping fees or building new capacity. Refiners also face costs in adding ethanol to their products. According to independent consultant Hart Downstream Energy Services, the mandate would cost consumers an extra annual $8.4 billion at the pump the first five years. New York and California would see gas prices rise by 7 to 10 cents a gallon.'

Therefore, any shortfall in supply, either because of manipulation or raw market forces, will be exacerbated on the West and East Coasts, which will be reliant on ethanol coming from another region of the U.S. Aren't we just asking for trouble by mandating ethanol nationwide if it is produced almost entirely in one region?

Since Alaska and Hawaii have an exemption in the ethanol mandate, why not give other states the opportunity to choose whether they want to comply with the ethanol mandate or not? Why not give this choice to California, Oregon, Washington, Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, Georgia, and Florida.

These are states that are far from the Midwest, but where families and businesses will have to pay more for gasoline under the ethanol mandate.

The mandate forces ethanol into our fuel supply nationwide and under the credit trading provisions in the mandate, if states don't use the ethanol, they have to pay for it anyway. Forcing states to use ethanol they do not need and forcing states to pay for ethanol they do not use amounts to a transfer of wealth from all states to the Midwest corn states. Remember ethanol is not needed to achieve cleaner air.

For California the ethanol mandate will force more ethanol into our fuel supply than we need to achieve clean air. In fact, this bill forces California to use over 2.5 billion gallons of ethanol over eight years that it does not need. If the Ethanol Mandate is so great, then Governors will want to include their states. In fact, I believe most states in the Midwest will opt-in to the ethanol mandate because that is where 99 percent of the ethanol is produced.

Mr. President, this year we saw retail gasoline prices across the United States rise at a pace not seen since the 1991 Gulf War. Average U.S. retail prices rose from $1.44 to $1.73 per gallon over the first ten weeks of this year.

At the same time, California gasoline prices rose even more precipitously, from $1.58 a gallon on January 1st, to a record setting $2.15 a gallon on March 17^th. On a recent weekend when I was home in San Francisco I paid $50 for a tank of gasoline and it wasn't even premium.

Since the middle of March gasoline prices have decreased - largely due to the decrease in the price of crude oil since the war in Iraq ended - but California gasoline still sells for around $1.80 today in the state, on average.

One reason prices are so high is that the 1990 Clean Air Act required states to use fuel additives called oxygenates that we no longer need to achieve cleaner air. The ethanol amendment offered by the Majority Leader will only be trading one bad mandate for another. Now we will be mandating 5 billion gallons of ethanol into our fuel supply.

Since there are high costs for states like California to comply with any mandated federal requirement - and these costs are passed on to drivers at the pump - the ethanol mandate amounts to a new hidden gas tax.

Instead of mandating 5 billion gallons of ethanol into our fuel supply, we should be lifting all mandates or at least allow the Governor of a State to opt into this mandate if they really want to. We need to provide flexibility to refiners for them to optimize how and what they blend instead of forcing them to blend gasoline with MTBE or ethanol.

Without eliminating these mandates, we can expect disruptions and price spikes during the peak driving months of this summer - on top of the high prices motorists are already paying.

As Bob Slaughter, President of the National Petrochemical and Refiners Association, wrote in a letter to all Senators last week, 'Forcing ethanol's use throughout the nation will reduce flexibility in the nation's gasoline manufacturing and distribution system, raise environmental concerns in ozone control areas, and result in increased costs. And this is in addition to the fact that the product is uneconomic without the very significant federal subsidies - a total of roughly $10 billion - it has received for 25 years.'

Proponents of the ethanol mandate argue that gas price increases will be minimal, but their projections do not take into consideration the real world infrastructure constraints and concentration in the market that can lead to price spikes.

The second-degree amendment I have offered will require the Governor of a state to opt-in to the ethanol mandate. If the amendment offered by the Majority Leader is so great, then Governors will want to include their states. The Senators from Alaska and Hawaii have worked to allow their states to be exempted from this egregious mandate - I believe each and every state should have this choice.

I urge my colleagues to support this amendment. Thank you and I yield the Floor."

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