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

Senator Feinstein Offers Amendment to Give States Ability to Choose Whether they Participate in the Ethanol Program
May 13, 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, 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 premium.

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 amendment offered by the Majority Leader will only perpetuate the mistake made in 1990 - now we will be mandating 5 billion gallons of ethanol into our fuel supply. This is egregious public policy. Let me go through my concerns about this mandate point by point. I am concerned about this amendment because it:

Mandates Increased Use of Ethanol - Only 2.1 billion gallons of ethanol were produced in 2002. The Ethanol Mandate requires 5 billion gallons by 2012. This fuel additive is not necessary to make clean burning gasoline, yet it will be mandated into our fuel supply. And under the credit trading provisions of the Ethanol Mandate states will be forced to pay for more ethanol whether they use it or not.
Will Drive Up the Price of Gasoline - This mandate can only force gasoline prices up. Even the Council of Economic Advisors and the Federal Trade Commission have advised President Bush that the ethanol mandate 'is costly to both consumers and the government and will provide little environmental benefit.'
Transportation and Infrastructure Problems - Since 99 percent of ethanol production is based in the Midwest, states outside the corn belt have severe infrastructure and ethanol supply problems. This means higher gas prices.
Dangerously High Market Concentration - The ethanol industry is highly concentrated with the largest supplier, Archers Daniels Midland (ADM), controlling 46 percent of the market and the top 7 firms controlling 71 percent of the market, according to the General Accounting Office (GAO). ADM admitted to price fixing in 1996 and its executives went to jail. Last year ADM purchased its largest competitor, Minnesota Corn Processors, which controlled 5 percent of the ethanol market. I believe we are taking a great risk by allowing one firm to control such a large percentage of the ethanol market.
Billions in Subsidies to Ethanol Producers - Under current law, gasoline is taxed by the federal government at 18.4 cents per gallon, yet gasoline blended with ethanol is only taxed at 13.1 cents per gallon. The other 5.3 cents per gallon is credited to ethanol producers instead of funding the Highway Trust Fund. According to the Congressional Research Service, over the past 20 years, this ethanol subsidy has cost the Highway Trust Fund over $11 billion in forgone income.
Under the proposal in the Energy Tax Bill this year, now these ethanol subsidies will be paid - not from the Highway Trust Fund - but from the General Fund, at the expense of taxpayers.

The Congressional Research Service has indicated that the ethanol mandate in the energy bill will cost approximately $7 billion. This means $7 billion is diverted away from the Highway Trust Fund which means either we will have fewer jobs and roads or taxpayers will have to pick up the tab.

This future $7 billion loss is on top of the $11 billion in gas tax revenue that has already been lost by giving ethanol a partial exemption from the fuel tax.
Ethanol Has Mixed Environment and Health Results - Evidence suggests ethanol reduces carbon monoxide (CO) air pollution. However, evidence also suggests that mandating more ethanol will produce more smog in the summer months because ethanol produces Nitrogen Oxide (NOx) emissions. Studies also show ethanol accelerates the ability of toxic gasoline additives like benzene to break apart and seep into groundwater. Recently the EPA disclosed that ethanol plants are emitting many more dangerous toxins than previously thought. I do not believe we should mandate so much use of something we know so little about.
Unprecedented Liability Protection - A 'safe harbor' provision in the Ethanol Mandate will prevent legal redress if ethanol and other fuel additives harm the environment or public health. How will communities afford clean up costs if there is liability protection for ethanol?
Ethanol Already Has A High Tariff to Keep Imports Out - If there is an ethanol shortage in the U.S., states will not be able to import ethanol from countries abroad because of a high 54 cent per gallon tariff on foreign ethanol.
An Ethanol Mandate Will Strain the Fuel Supply - Using ethanol will constrict the overall gasoline supply because mixing MTBE with gasoline produces more fuel than mixing gasoline with ethanol.
Ethanol is Not a Renewable Fuel - According to many scientists and experts including Cornell professor David Pimentel, it takes more energy to make ethanol than we save by using it. We can hardly call ethanol a renewable fuel.
The Ethanol Mandate Will Largely Benefit Producers Not Farmers - Ethanol subsidies pay more money to ethanol producers, like ADM, than farmers.
Bottom Line: A Bad Deal - The Ethanol Mandate reflects a deal worked out behind closed doors between ethanol lobbyists and oil interests that will severely harm consumers. Mandating 5 billion gallons by 2012 is terrible public policy.

Since there are high costs for states like California to comply with any mandated federal fuel requirement - and these costs are passed on to drivers at the pump - the ethanol mandate will drive up the price of gasoline.

Instead of imposing a new mandate on our fuel supply, we should be lifting the one that already exists.

On July 27th, 1999, the non-partisan, broad-based U.S. EPA Blue Ribbon Panel on Oxygenates in Gasoline recommended that the two percent oxygenate requirement be ``removed in order to provide flexibility to blend adequate fuel supplies in a cost-effective manner while quickly reducing usage of MTBE and maintaining air quality benefits.'' It is long past the time for Congress to act.

Instead of mandating ethanol into our fuel supply, we should be lifting all mandates or at least allow states a choice. We need to provide flexibility to refiners to allow them to optimize how and what they blend instead of forcing them to blend gasoline with MTBE or ethanol.

California has long sought a waiver of the 2 percent oxygenate requirement. I have written and called former EPA Administrator Browner and the current Administrator Christine Todd Whitman and both former President Clinton and President Bush, urging approval of the waiver for the state. Yet both the Clinton Administration and the Bush Administration have denied California's request.

MTBE, Methyl Tertiary Butyl Ether, has been the oxygenate of choice by many refiners in their effort to comply with the Clean Air Act's reformulated gasoline requirements. Governor Davis has ordered a phase-out of MTBE in our State by the end of this year, but the Federal law requiring two percent oxygenates remains, putting our State in an untenable position. This is because the most likely substitute for MTBE to meet the two percent requirement is ethanol, but it is tremendously costly to blend ethanol from the Midwest into California's special gasoline. 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.

California has developed a gasoline formula that provides flexibility and provides clean air. Refiners use an approach called the 'predictive model,' which guarantees clean-burning RFG gas with oxygenates, with less than two percent oxygenates, and with no oxygenates. As Red Cavaney - President of the American Petroleum Institute - said in March before the Energy Committee, 'Refiners have been saying for years that they can produce gasoline meeting clean-burning fuels and federal reformulated gasoline requirements without the use of oxygenates.... In addition, reformulated blendstocks - the base in which oxygenates are added - typically meet RFG performance requirements before oxygenates are added. These facts demonstrate that oxygenates are not needed.'

I believe that it is egregious to require this nation to use more ethanol than we need in our fuel supply. Mandating 5 billion gallons into our fuel supply is terrible public policy. This amounts to a wealth transfer of billions of dollars from every state in the nation to a handful of ethanol producers. It is families and businesses who will pay the higher costs that result from increased gas prices.

This sweeping policy will have long-term repercussions on our environment, our health, our fuel supply, and the price of gasoline. Since ethanol production is subsidized by the government with a credit from the federal motor fuels tax, a dollar for ethanol firms like ADM means a dollar less to improve our nation's roads and bridges.

The Congressional Research Service has indicated that the ethanol mandate in the energy bill will divert approximately $7 billion away from the Highway Trust Fund. Now if the Energy Tax bill is passed into law this money will no longer come from the Highway Trust Fund - instead it will come from the General Fund and be paid for by taxpayers. This future $7 billion payout is on top of the $11 billion in gas tax revenue that has already been lost by giving ethanol a partial exemption from the fuel tax.

Ethanol is a subsidized product, it is protected from foreign competition by high trade barriers, and now we are going to mandate a market for it? This is unconscionable. Forcing states to use ethanol we do not need and forcing states to pay for ethanol we do not use amounts to a transfer of wealth from all states to the Midwest corn states. And under the credit trading provisions in this bill, if states don't use the ethanol, they have to pay for it anyway.

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. I believe everyone outside of the Midwest will have to grapple with how to bring ethanol to their states since the Midwest controls 99 percent of the production. California has done more analysis than any other state on what it will take to get ethanol to the state, and the bottom line is it cannot happen without raising gas prices.

I am particularly concerned about the limited number of suppliers in the ethanol market. This high market concentration will leave consumers vulnerable to price spikes as it did when electricity and natural gas prices soared in the West because a few out-of-state generating firms dominated the market. If we have learned anything from the recent Western Energy Crisis, it is that when there is not ample supply and adequate competition in the market, prices soar and consumers pay.

Archers Daniels Midland is the dominant producer in the highly concentrated ethanol market. And last year ADM purchased its largest competitor - Minnesota Corn Processors. Now ADM controls 46 percent of the ethanol market - and that is only what is produced. The company has an even greater control over how ethanol is distributed and marketed. Keep in mind that ADM is already an admitted price fixing firm and three of its executives have served prison time for colluding with competitors. In 1996, ADM pleaded guilty and paid a $100 million fine for conspiring to set the price of lysine, an animal feed additive. Giving firms like ADM a guaranteed ethanol market does not amount to sound public policy.

I am also concerned about the long-term effects of mandating such a large amount of ethanol in our gasoline supply. What effect will this have on our environment? What are the health risks of ethanol? Well, the scientific evidence is mixed and I believe it is bad public policy to mandate this amount of ethanol before scientific and health experts can fully investigate the impact of ethanol on the air we breathe and the water we drink. This is exactly the mistake we made with MTBE and now we have learned that MTBE may be a human carcinogen.

Ethanol is often made out to be an ideal 'renewable fuel' giving off fewer emissions. Yet, on balance, ethanol can be a cause of more air pollution because it produces smog in the summer months. Smog is a powerful respiratory irritant that affects large segments of the population. It has an especially pernicious effect on the elderly, children, and individuals with existing respiratory problems such as asthma. Earlier this month, the American Lung Association named California the smoggiest state by listing nine counties and six metropolitan areas in California as having the worst conditions.

A 1999 report from the National Academy of Sciences found, 'the use of commonly available oxygenates [like ethanol] in [Reformulated Gasoline] has little impact on improving ozone air quality and has some disadvantages. Moreover, some data suggest that oxygenates can lead to higher Nitrogen Oxide (NOx) emissions.' Nitrogen Oxides are known to cause smog. The American Lung Association report also noted that half of Americans are living in counties with unhealthy smog levels. Why would we want to take the chance of increasing these unhealthy smog levels by mandating billions of unnecessary gallons of ethanol into our fuel supply?

Thus, ethanol can be both good and bad for air quality. To me it would make sense to maximize the advantages of ethanol, while minimizing the disadvantages. This is exactly why states should have flexibility to decide what goes into their gasoline in order to meet clean air standards, and ethanol should not be mandated -- certainly not at this level. And if we are mandating it, why exempt manufacturers and refiners from their legal responsibility to provide a safe product?

Evidence also suggests that ethanol accelerates the ability of toxins found in gasoline to seep into our groundwater supplies. The EPA Blue Ribbon Panel on Oxygenates found ethanol 'may retard biodegradation and increase movement of benzene and other hydrocarbons around leaking tanks.'

And according to a report by the State of California entitled 'Health and Environmental Assessment of the Use of Ethanol as a Fuel Oxygenate,' there are valid questions about the impact of ethanol on ground and surface water. An analysis in the report found there will be a 20 percent increase in public drinking water wells contaminated with benzene if a significant amount of ethanol is used. Benzene is a known human carcinogen.

At a hearing held on the House side last year, Professor Gordon Rausser of UC Berkeley commented on the potential harm of ethanol on groundwater. Professor Rausser testified:

'when gasoline that contains ethanol is released into groundwater, the resulting benzene plumes can be longer and more persistent than plumes resulting from releases of conventional gasoline. Research suggests that the presence of ethanol in gasoline will delay the degradation of benzene and will lengthen the benzene plumes by between 25% and 100%.'

This evidence on the potential harm of ethanol is extraordinarily troubling. Mr. President, every state in this nation will use more and more ethanol in the future without this ethanol mandate. This is inevitable as we replace MTBE. But this mandate goes too far and it is simply not needed. For these reasons I cannot support the amendment offered by the Majority Leader."

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