Harkin Urges Bush to Stop Undercutting U. S. Ethanol Production

HARKIN URGES BUSH TO STOP UNDERCUTTING U.S. ETHANOL PRODUCTION

Harkin cites President's push to undermine domestic ethanol production and ethanol's role in meeting Clean Air Standards

In a letter to President Bush, Senator Tom Harkin (D-IA) today urged the President to stop undercutting America's renewable fuels industry. In recent weeks, President Bush has praised renewable fuels as a way to wean the United States off its dangerous and costly dependence on foreign oil. Over the same period, he has proposed suspending the ethanol tariff to encourage greater imports of ethanol from Brazil and elsewhere and giving Clean Air waivers for refiners to avoid using cleaner-burning ethanol. These proposals send mixed signals to the biofuels industry and promise to undermine domestic ethanol and biodiesel production. The letter is signed by a group of Democrats including Senators Byron Dorgan (D-ND), Dick Durbin (D-IL), Tim Johnson (D-SD) and Barack Obama (D-IL).

"The President cannot have it both ways. We've now heard the President tout ethanol as a solution to America's energy problems and at the very same time, undercut it by encouraging foreign-subsidized ethanol imports," said Harkin. "We cannot substitute our dependence on foreign oil for dependence on foreign ethanol. America needs to focus on meeting our own energy needs by boosting home grown biofuels production."

Harkin's letter notes two main concerns about President Bush's recent comments relating to ethanol. The President has urged the end of tariffs imposed on foreign ethanol. Since refiners receive tax incentives for blending ethanol, lifting the tariff would, in effect, subsidize foreign production of ethanol, much of which is already subsidized in its country of origin. The President has also proposed waivers for refiners to avoid meeting Clean Air act standards. Since ethanol is used as a fuel additive that helps refiners meet Clean Air Act standards, these waivers would increase air pollutants and undercut the ethanol industry.

"It's unfortunate and misguided the President has chosen to blame the ethanol industry for rising gas prices. The rapidly expanding ethanol industry is adding to our nation's supply of fuel while making our air cleaner," said Harkin. "The President's Clean Air waivers are a lose-lose proposition for America's air quality and our ability to produce energy here at home."

The letter also notes that the President's budget fails to live up to what he signed into law through the energy bill to boost development of biofuels made from traditional sources like corn and soybeans as well as from corn stalks, wood chips, switchgrass and other sources (cellulosic ethanol). The Bush Administration fiscal year 2007 budget provides less than half the amount called for in the energy bill to support this cause.

Text of the letter is below.

May 9, 2006

The Honorable George W. Bush

President of the United States

1600 Pennsylvania Avenue NW

Washington, DC 20500

Dear Mr. President:

We are greatly concerned about your sending mixed messages to the American people, the renewable fuels industry and Congress with respect to the promotion of domestic biofuels. As you know, the country is mired in a gas price crisis, and imports of petroleum are going up, not down. The Energy Information Administration of the U.S. Department of Energy currently projects we will import as much as 70 percent of our petroleum needs by 2030.

This is not the time to call into question the role that home-grown renewable fuels can play in reducing prices at the pump and our dangerous dependence on foreign oil. We welcome your statements in support of ethanol and biofuels, but we disagree with your suggestion to an audience of renewable fuels advocates last month that ethanol is partly responsible for the run-up in gasoline prices. In fact, ethanol makes up a fraction of the cost of a gallon of gasoline, the majority of which is the international price of crude oil, now hovering in the $70-75 per barrel range. In fact, if not for the increasing supply of ethanol in the marketplace, prices would be even higher.

To the extent the phase-out of MTBE may contribute to higher gasoline prices in some cases, that situation developed because the petroleum industry insisted on continuing to use MTBE, despite its known environmental risks, instead of making an orderly transition to ethanol much sooner. Now that those companies have finally realized that Congress is not going to exempt them from liability for MTBE's environmental damages, they are switching to ethanol. That is not the fault of the ethanol industry. Hence we see no justification for waiving air quality standards, as you have suggested, simply because the petroleum industry has thus far favored MTBE and disfavored ethanol.

Last week you called for repealing the tariff on imported ethanol, with the expectation that the United States would thus import more ethanol and bring down gasoline prices. This would be a serious mistake that would undermine a carefully-targeted U.S. tax incentive promoting the growth and development of our domestic renewable fuels industry. All the tariff does is offset the tax credit, so that it only goes to domestically-produced ethanol. Without the tariff, our U.S. tax incentive would help support ethanol production in foreign countries. Our focus must be on building energy security through domestically produced renewable fuels.

In any case, ethanol imports are neither necessary nor a practical response to current gasoline prices. We have sufficient ethanol production here at home, and it is expanding every day. The Renewable Fuels Association estimates that 500 million gallons of additional production capacity will be on line by early July of this year. That is enough to replace MTBE and to supply already existing ethanol markets. Meanwhile, there is no ready supply of foreign ethanol to be shipped to the United States. The other major ethanol producer, Brazil, recently lowered the mandated ethanol content of its national fuel portfolio from 25 percent to 20 percent because it is short of ethanol. Last year, the United States imported only 80 million gallons of ethanol from Caribbean countries, well short of the 270 million they are allowed to ship us tariff-free under the Caribbean Basin Initiative (CBI).

We also welcomed the call in your State of the Union speech earlier this year for increased federal investment to produce greater supplies of domestic ethanol. We want to work with you to make this investment a reality, but your Fiscal Year 2007 (FY07) budget proposes less than half the funding for biomass energy research and development authorized in the energy bill you signed into law last year. What's worse, where your budget does call for increased funding, it comes from reductions in other renewable energy and energy efficiency initiatives. We urge you to reconsider your budget proposal and submit a revised budget request with adequate funding for these initiatives in light of the current energy crisis.

Your Administration's recent actions cannot be reconciled with the stated goals of your energy program. We urge you to abandon your focus on providing incentives to foreign countries to ship ethanol into the United States, to uphold air quality standards and to work with us to expand domestic renewable fuels production.

Sincerely,

Senators Tom Harkin, Byron Dorgan, Dick Durbin, Tim Johnson, Barack Obama (D-IL)

http://harkin.senate.gov/news.cfm?id=255348