United States Senator Dianne Feinstein

- GAO report reveals extreme concentration in ethanol marketplace -
March 5, 2002

Washington, DC - A new study by the General Accounting Office today revealed that the ethanol marketplace is so highly concentrated that federal mandates for ethanol use in gasoline could leave California open to price spikes and supply disruption.

The study by the GAO, requested last August by Senator Dianne Feinstein (D-Calif.), found that Archer Daniels Midland Company has a 41 percent share of the ethanol market and the top eight firms combined have a 71 percent share of the market.

California used about 60 million gallons of ethanol in 2000. But after the Bush Administration refused to grant the State a waiver from oxygenate requirements, California may need to consume an average of 880 million gallons of ethanol in 2003. The State only has the capacity to produce 10 million gallons so the remainder will need to be imported.

"If we have learned anything from the energy crisis and the Enron debacle, it's that it would be a terrible mistake to place California at the mercy of a giant, out-of-state corporation that controls 41 percent of the ethanol market and has already pleaded guilty in federal court in 1996 to price fixing and criminal antitrust charges," Senator Feinstein said. (In 1996, Archer Daniels Midland Company (U.S. vs Archer Daniels Midland Company, 96-CR-00540) agreed to pay $100 million in fines for participating from 1992 through 1995 in a conspiracy to fix the prices of its lysine and ciric acid products. And in 1998, three company executives were found individually guilty of the price-fixing charges.)

The Clean Air Act requires that 2 percent of the gasoline sold in California contain an oxygenate such as ethanol or MTBE (methyl tertiary butyl ether). Most gasoline refiners have used MTBE to meet that mandate. However, MTBE has been shown to cause cancer in animals and is suspected of causing cancer in humans. Furthermore, it has already contaminated groundwater at more than 10,000 sites in California.

"Governor Davis rightly ordered the phase-out of MTBE," Senator Feinstein said. "The State has demonstrated to the Environmental Protection Agency that the Clean Air requirements can be met most of the year without the 2 percent requirement, but the ethanol lobby has been able to convince the White House to oppose a waiver for California. At the same time, the ethanol lobby is supporting legislation contained in the Energy Bill before the Senate to increase the federal mandate on the amount of ethanol required in gasoline."

Under the Energy Bill, MTBE would be phased out and states will no longer be required to add 2 percent oxygenates to their gasoline to meet Clean Air Act requirements. But in exchange, 5 billion gallons of ethanol would be required to be used annually nationwide by 2012, up from the 1.7 billion used today.

"The GAO analysis has found an extreme concentration of the ethanol marketplace, which could impact prices and supply in California in a number of ways," Senator Feinstein said.

Other states ban MTBE, (or Congress mandates additional ethanol in gasoline) thereby driving up demand for ethanol;
Plants under construction do not come on line in time or some new plants are not built;
Imports do not make up for a supply shortage because of a high U.S. tariff on foreign ethanol;
California does not build the infrastructure fast enough to store ethanol reserves;
There is insufficient transportation infrastructure to ship large amounts of ethanol to California;
Refiners require more ethanol to achieve the same result as MTBE (it is not a one gallon for one gallon tradeoff.); and
Projections of ethanol supplies and capacity are unreliable.

"I am currently studying the Energy Bill and am in discussions with Governor Davis about it," Senator Feinstein said. "The bottom line is that California is going to be forced to use ethanol that it does not need to meet Clean Air Act standards."



	Ethanol Mandates Could Lead to Price Spikes and Shortages of Gasoline - GAO report reveals extreme concentration in ethanol marketplace - March 5, 2002 Washington, DC - A new study by the General Accounting Office today revealed that the ethanol marketplace is so highly concentrated that federal mandates for ethanol use in gasoline could leave California open to price spikes and supply disruption. The study by the GAO, requested last August by Senator Dianne Feinstein (D-Calif.), found that Archer Daniels Midland Company has a 41 percent share of the ethanol market and the top eight firms combined have a 71 percent share of the market. California used about 60 million gallons of ethanol in 2000. But after the Bush Administration refused to grant the State a waiver from oxygenate requirements, California may need to consume an average of 880 million gallons of ethanol in 2003. The State only has the capacity to produce 10 million gallons so the remainder will need to be imported. "If we have learned anything from the energy crisis and the Enron debacle, it's that it would be a terrible mistake to place California at the mercy of a giant, out-of-state corporation that controls 41 percent of the ethanol market and has already pleaded guilty in federal court in 1996 to price fixing and criminal antitrust charges," Senator Feinstein said. (In 1996, Archer Daniels Midland Company (U.S. vs Archer Daniels Midland Company, 96-CR-00540) agreed to pay $100 million in fines for participating from 1992 through 1995 in a conspiracy to fix the prices of its lysine and ciric acid products. And in 1998, three company executives were found individually guilty of the price-fixing charges.) The Clean Air Act requires that 2 percent of the gasoline sold in California contain an oxygenate such as ethanol or MTBE (methyl tertiary butyl ether). Most gasoline refiners have used MTBE to meet that mandate. However, MTBE has been shown to cause cancer in animals and is suspected of causing cancer in humans. Furthermore, it has already contaminated groundwater at more than 10,000 sites in California. "Governor Davis rightly ordered the phase-out of MTBE," Senator Feinstein said. "The State has demonstrated to the Environmental Protection Agency that the Clean Air requirements can be met most of the year without the 2 percent requirement, but the ethanol lobby has been able to convince the White House to oppose a waiver for California. At the same time, the ethanol lobby is supporting legislation contained in the Energy Bill before the Senate to increase the federal mandate on the amount of ethanol required in gasoline." Under the Energy Bill, MTBE would be phased out and states will no longer be required to add 2 percent oxygenates to their gasoline to meet Clean Air Act requirements. But in exchange, 5 billion gallons of ethanol would be required to be used annually nationwide by 2012, up from the 1.7 billion used today. "The GAO analysis has found an extreme concentration of the ethanol marketplace, which could impact prices and supply in California in a number of ways," Senator Feinstein said. Price spikes or supply shortages, according to the GAO, could occur if: Other states ban MTBE, (or Congress mandates additional ethanol in gasoline) thereby driving up demand for ethanol; Plants under construction do not come on line in time or some new plants are not built; Imports do not make up for a supply shortage because of a high U.S. tariff on foreign ethanol; California does not build the infrastructure fast enough to store ethanol reserves; There is insufficient transportation infrastructure to ship large amounts of ethanol to California; Refiners require more ethanol to achieve the same result as MTBE (it is not a one gallon for one gallon tradeoff.); and Projections of ethanol supplies and capacity are unreliable. "I am currently studying the Energy Bill and am in discussions with Governor Davis about it," Senator Feinstein said. "The bottom line is that California is going to be forced to use ethanol that it does not need to meet Clean Air Act standards." ###