Energy Policy Act of 2003

ENERGY POLICY ACT OF 2003

Mr. KYL. Mr. President, at this point I want to talk to the general subject of the two second-degree amendments offered by the Senator from California which will be pending for us to vote on later this afternoon. They both have to do with the requirement under the underlying amendment to impose an ethanol requirement for gasoline throughout the country and to not allow States to opt in or opt out of that mandated ethanol requirement.

One of the amendments by the Senator from California is to allow an opt-in, so that States that believe this will help them deal with their problems of ozone and the environment or other environmental pollution can opt into this program and take advantage of it; but for those States that believe it would be harmful to their environment, they would not have to opt in.
The other amendment would require findings with respect to whether or not it would help the environment.

I want to comment about that because the State of Arizona is one of the States that would be adversely affected by a
requirement to use ethanol. Partly, this is as a result of the fact that the climate in Arizona is very warm, shall we say, particularly in the summertime. Our summer runs essentially from April through October. During that period of time, ethanol does not work well in communities such as Yuma, AZ, and Tucson, AZ, because of the way it interacts with the surrounding hot air, and the product that is produced, the moisture from the tailpipe of the automobile, interacts with the air to in fact produce ozone, which is the very thing we are trying to prevent by the use of oxygenated fuel. As a result, Arizona has used an MTBE substitute oxygenate that doesn't create the same problem ethanol creates in the hot environs of the climates in Yuma or Tucson, AZ.

As you know, MTBE is associated with some environmental damage to aquifers, where MTBE has spilled into them inadvertently and, as a result, MTBE is being phased out.

Arizona receives all of its gasoline from refineries in California. Therefore, decisions California makes pretty well impact on what Arizona has available to it for its vehicle use. This is why, naturally, the points of the Senator from California are exactly the points I make, because they apply to the refineries in her State and the same kinds of climatological requirement that my State of Arizona has with respect to environmental protection.

So let me refer to several points with respect to the ethanol mandate and begin with that point of environmental impact. Ethanol is an extremely volatile fuel. It breaks down very quickly. In fact, it is virtually impossible to transport by pipeline because of this. It has to be transported by truck. Obviously, it is not produced in the West, in States like Arizona. It would have to be trucked in from other places such as the Midwest. This adds to the cost of the fuel, but that is another matter. Ethanol has been used as an additive in gasoline sold in the Phoenix and Tucson areas. But according to the Arizona Department of Environmental Quality, the State agency of the State of Arizona that is responsible for environmental protection in the State of Arizona, this mandate would be very bad for communities, as I said, like Yuma and Tucson, probably causing those areas to violate the 8-hour ozone standard under the Clean Air Act. This would have dramatic effects in Arizona. Those communities would be out of compliance.

There are a whole host of economic negative effects from finding a violation of the ozone standard. How can it be that the use of an oxygenate such as this would create more ozone? Because of the unique climate in Arizona in the summertime where, instead of reducing the amount of ozone particulate, it increases it.

Given the fact that there is no evidence that the use of oxygenates like ethanol would help improve the quality of air in Arizona, it seems to me a finding from the Arizona Department of Environmental Quality that says Arizona communities would likely violate the 8-hour ozone standard by being forced to use ethanol is a very powerful argument for the Governor of the State of Arizona having the option of opting into this program.

Why would the other States force on Arizona a program which our own Department of Environmental Quality says is going to make the air worse, not better—in fact, so much worse it will be in violation of the Clean Air Act? It is not as if the committee and the proponents of the underlying amendment have not understood that the mandate should not apply to all States. In fact, two States are specifically exempted—Hawaii and Alaska—from this mandate.

Why, if it is appropriate to exempt two States, is it not appropriate to at least afford other States the option of submitting themselves to this mandate or not, depending upon whether this mandate would make their air quality worse or better? It seems to me if we are really talking about environmental quality here, rather than a subsidy for the corn industry in the Midwest, then we would be looking at the environmental impact of a mandate of this sort. Since we have already decided that two States should not be required to comply with this mandate, we have already crossed the bridge of saying it is appropriate to exempt some States. Why not allow those States, with their departments of environmental quality having said they would be harmed, the ability to opt out, or the requirement that they opt in, in order for the program to be effective in the State? Why not allow that option for those States? What is so important about this mandate that every single State, except two—and I don't know why these two were exempted—is not at least given the opportunity to exempt itself from the provision?

It seems to me there has to be something else involved here. I suspect it has to do with the desire of the corn producers and the people who transform the corn into an ethanol kind of product to make a buck. But we already provide them a lot of bucks through the subsidy for ethanol that has already been voted on by the Congress, has already been in existence for many years, and which will increase in this bill. I could understand—I would not agree with it—a subsidy to try to produce more of something we think we want to produce. Even though I don't think that is a good idea, I could at least understand the theory that if we want more of something, we are going to have the Government provide a subsidy to produce more of it. I could also understand the alternative, which would be that this is such a good idea that we are going to force people to do it; we are going to mandate it because we in Washington know best, of course, and therefore irrespective of what the environmental quality people in your own State believe, by golly, we know better, so we are going to make them do it.

What is a little hard for me to understand is why we still need the subsidies if we are going to have this mandate. The purpose of the subsidies was to try to encourage this production, but we do not need the subsidies if people are going to be required to use ethanol. It is a mandate. We do not need the incentive or the encouragement anymore.

Clearly, this is about special interest money influence, and I will be that specific because the environmental benefits, especially to an area such as mine, have not been demonstrated. At least the point is made by an agency of my State that it would actually degrade the air quality of some parts of the State—in fact, pull them out of compliance with the Clean Air Act, and yet the mandate would be imposed at the same time we continue to provide this subsidy. Something is drastically amiss here.

There is an old phrase, "Follow the money," so maybe that is what we should do here. Let's take a look at the money part of this issue.

Currently, refiners use approximately 1.7 billion gallons of ethanol annually, and the underlying provision would increase that to 5 billion gallons annually by the year 2012.

There is no question that gasoline prices would increase, based on data from the Energy Information Administration. It has been estimated that the increase in gas prices caused by this mandate could be between $6.7 billion and $8 billion a year. So that is the price we as a country, as consumers of this product, will be paying simply to enrich the people who produce the product.

Arizonans will, according to this estimate, be paying on average 7.6 cents more per gallon of gas. Is that fair, Mr. President?
I speak very plainly about the subsidies to the ethanol industry. According to the Congressional Research Service—this is an unbiased source—the ethanol and corn industries have received more than $29 billion in subsidies since 1996 and could receive another $26 billion more over the next 5 years.

CBO, another unbiased source, has a different estimate for a different time period. They have estimated, based on a review of S. 791, the basis of the underlying amendment we are debating, $2.3 billion just between the years 2004 and 2008.

We also know there is an impact on the highway trust fund because every gallon of gas containing ethanol—10-percent blend—gets a 5.3-cent subsidy in the form of reduced gas taxes. This amounts to a 53-cent-per-gallon ethanol subsidy to the industry at the expense of the highway trust fund, and the Energy Information Administration has estimated that this will reduce the annual gasoline excise tax collections by an average of $892 million between the years 2006 and 2020.

Again, my State is a donor State already. Arizonans send $1 in taxes to the Federal Government and for highway transportation-related needs receives in return only 90.5 cents. So to the extent total revenues to the fund are reduced, the Arizona highway program will obviously be significantly impacted.

There are a lot of general points that I could discuss. There are disputes between authorities on the subject of whether or not it takes more to produce a gallon of ethanol than the gallon actually contains in terms of Btu content; in other words, do you actually have a net loss in net energy value. There are disputes about that. Some experts say about 29 percent more energy is used to produce a gallon of ethanol than the energy in a gallon of ethanol. The National Corn Growers Association, not exactly an unbiased source, disagrees with that. I do not know where the truth lies. Clearly, it seems to me the science is at best in dispute.

In any event, we would all have to agree that taking into account all costs, not just the energy cost, that clearly it costs a great deal to produce a gallon of ethanol or they would not need the subsidy which Congress has generously provided for its production.

I have already talked about the environmental benefits being questionable. It is not just my own State environmental agency but also a National Research Council report found that oxygenates have little or no impact on ozone formation, and there are a lot of refineries that claim they can actually produce similar environmental gains without the use of oxygenates. In fact, that is what we are going to have to do in Arizona because we cannot use MTBE, and we would hope not to have to use the ethanol, as a result of which we would have to find a different blend and would be committed to doing that.

It seems to me the ethanol industry, which enjoys this 5.2-cent-per-gallon exemption on the ethanol blend, or gasohol, from the 18.4-cents-per-gallon Federal excise tax on motor fuels, with the resulting mandate that the Congress is going to impose for the increase in the number of gallons used, would no longer need to be supported by this subsidy, which, as I said, works out to be 52 to 53 cents per gallon for pure ethanol.

The General Accounting Office estimates the tax exemption has deprived the highway trust fund—a slightly different number than I gave before—of between $7.5 billion and $11 billion over the 22 years it has been in place. This is a very costly subsidy and would be a very costly mandate.

Because the underlying amendment is costly, is not necessary, is contradictory with the subsidies that are already provided, and because the amendment of the Senator from California would simply provide the opportunity for States that would be adversely affected by this mandate to deal with their pollution problems in some other way—remember, they still have to comply with the Clean Air Act; nobody is exempting anybody from the Clean Air Act; they simply have to find a different way to comply—it seems to me it would be appropriate for us to support the amendment of the Senator from California and allow States to tailor their blends to the unique situation in their particular States.

Everybody would still have to meet the Clean Air Act but we could each do so in a way that best suits our individual purposes. For that reason, I hope my colleagues will support the amendment of the Senator from California.