Durbin Asks President to Abandon Call for Brazilian Ethanol Imports

DURBIN ASKS PRESIDENT TO ABANDON CALL FOR BRAZILIAN ETHANOL IMPORTS

U.S. Senator Dick Durbin (D-IL), along with four other members of the Senate, sent a letter, late last night, to the President, urging him to abandon his call for ethanol imports, promote the developing U.S. ethanol industry and work to expand domestic renewable fuels production. Additional signatories to the letter included Senators Tom Harkin (D-IA), Barack Obama (D-IL), Tim Johnson (D-SD) and Byron Dorgan (D-ND). Yesterday, Durbin also sent a letter to fellow Senators, urging them to join him in opposing the President's proposal to lift the tariff on ethanol imports and stressing the need to commit to home-grown ethanol production.

"If we allow the Administration to lift the tariff on Brazilian ethanol, and increase imports, we may find ourselves as dependent on foreign ethanol as we are on foreign oil," said Durbin. "Illinois is currently the nation's leading source of clean-burning ethanol, and second in the nation in corn production. The 4,800 jobs created by Illinois' $1 billion dollar investment in ethanol is only the beginning of opportunities for businesses and farmers across the nation. The President's proposal to lift tariffs threatens to cut American ethanol development short and jeopardize our country's quest for energy independence."

Both the letter to the President and Durbin's letter to his colleagues point out that the President has attempted to justify the proposal to lift ethanol tariffs with the unsupported claim that home-grown ethanol has played a significant role in recent gas price increases. Durbin notes this claim is disputed by the President's own Administration. The Energy Information Agency (EIA), the statistical agency of the U.S. Department of Energy, recently held a press conference regarding their 2006 Short-Term Energy Outlook report, where "EIA Administrator, Guy Caruso, stated that the MTBE phase-out accounts for only 'a few pennies' of the cost of gasoline".

Text of both letters appears 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,

Dick Durbin (D-IL)
Barack Obama (D-IL)
Byron Dorgan (D-ND)
Tom Harkin (D-IA)
Tim Johnson(D-SD)

May 9, 2006

The Role of Ethanol in the Rising Cost of Gasoline: Supplies Are Meeting Demand

Dear Colleague:

During the past few weeks, various media outlets have reported that ethanol shortages caused by the phase-out of Methyl Tertiary Butyl Ether (MTBE) are responsible for the rising cost of gasoline. Recently, President Bush called on Congress to lift the tariff on imported ethanol. I would like to share with you the shortcomings in this approach to the issue.

One of the most contentious proposals discussed during debate on last year's Energy bill was a safe harbor provision that would have protected manufacturers and distributors of fuels containing the oxygenate MTBE from product liability claims. I was proud of the fact that the Senate stood firm in opposing efforts to shield producers and distributors of this groundwater contaminant from liabilities. While Congress did not ban the use of MTBE, most refiners reacted to Congressional action on the safe harbor provision by discontinuing the production and use of MTBE and developing plans to replace MTBE with ethanol.

Many have claimed that the transition from MTBE to ethanol has created an ethanol shortage that is the root cause of soaring gas prices. While the transition from MTBE to ethanol has resulted in localized price increases and supply disruptions due to differences in the way ethanol is distributed and stored, currently there is no shortage of ethanol. According to a February 2006 Department of Energy (DoE) Energy Information Agency (EIA) report, the transition from MTBE to ethanol will create demand for 130,000 barrels per day (bpd) of ethanol. The most recent EIA ethanol production statistics show that in February 2006, production of ethanol reached a level of 302,000 bpd and that the United States had a 25-day supply of the fuel. In addition, CEOs of major oil companies and refiners, including Rex Tillerson of Exxon-Mobil and William Klesse of Valero, have stated that there is sufficient ethanol to meet demand.

It is important to note that oil companies and refiners are responsible for these temporary supply disruptions and localized price increases. These companies voluntarily phased-out MTBE before they acted to secure supplies of ethanol to replace their troubled product. It was shortsightedness on the part of oil companies, not shortages of ethanol production that caused these temporary price increases.

The EIA and energy industry analysts report that the voluntary switch from MTBE to ethanol accounts for only a few cents per gallon in the increased price of gasoline. The April 11, 2006 EIA "Short-Term Energy Outlook" reports that, "While ethanol supplies are expected to remain tight this summer, sufficient new ethanol production capacity is under construction to replace MTBE and resume previous levels of discretionary ethanol blending in conventional gasoline in 2007. The phase-out of MTBE is projected to increase slightly the average price of all gasoline." In a press conference discussing the report, EIA Administrator Guy Caruso stated that the MTBE phase-out accounts for only "a few pennies" of the cost of gasoline. In the next year, ethanol capacity is expected to increase by 2.3 billion gallons, or 35%, due to construction of 35 new ethanol plants and nine plant expansions, which should prevent future supply disruptions.

Even though the Department of Energy (DoE) and CEOs of major oil companies agree that there is sufficient ethanol to meet demand, some are calling for Congress to lift the tariff on imported ethanol. While I am open to working with my colleagues on measures to provide relief to parts of the country experiencing supply disruptions due to the transition away from MTBE, I would like to explain why now is not the time to lift the tariff on ethanol.

First, in light of production statistics, it is not necessary to ramp up the amount of ethanol we bring into the United States. Second, while Brazil's ethanol industry is a global model for energy independence, that nation is not prepared to export significant amounts of ethanol to the United States at the current moment. With significant domestic demand for ethanol and rising global demand for sugar pushing up the price of cane, Brazil does not have enough ethanol to export significant quantities to the United States. In fact, Brazil recently reduced its mandated level of ethanol in gasoline from 25 to 20% due to tight supplies. In addition, under the Caribbean Basin Initiative (CBI), up to 7% of our domestic ethanol market, or 240 million gallons, may be imported duty-free. However, ethanol imports have never come near the 7% cap, reaching 3%, or 100 million gallons, in 2005. Therefore, lifting the tariff on ethanol would bring little new ethanol into the U.S. market in 2006.

In addition, it is a stated goal of the United States to use more renewable fuels and become more energy independent. By passing an aggressive Renewable Fuels Standard (RFS) in the 2005 Energy bill, the Congress sent a clear signal to farmers and venture capitalists alike that the United States was ready to make a sincere commitment to developing a home-grown, renewable source of energy to reduce our reliance on foreign oil and the despotic regimes that produce it. Brazil's pursuit of a similar "Pro-Alcohol" program following the OPEC oil crises of the 1970s led that nation to provide subsidized loans and tax incentives to producers, mandate a national fuel blending requirement of 25%, and levy a 20% ad valorem protective duty against ethanol imports. In 30 years, Brazil has gone from being a nation reliant on foreign oil to one that is a net exporter of energy. Lifting our tariff on imported ethanol now, when ethanol accounts for less than 3% of all transportation fuel used in the United States, would dramatically undermine our stated commitment to home-grown renewable energy, and promote the ethanol industries of our trade partners.

Last, the development of a domestic ethanol industry means significant wealth-development and job-creation for rural communities around the country. In Illinois alone, investment by the ethanol industry exceeds $1 billion and has generated 800 jobs in plant operations and 4,000 jobs in secondary industries. Nationwide, 21 states have at least one ethanol plant, and as industry and science continue to unlock the secrets of cellulosic ethanol, rural communities all across the country will build ethanol facilities and benefit from the development of this home-grown fuel.

I look forward to working with you to facilitate the growth of one of the most promising alternatives to foreign sources of energy.

Sincerely,

Richard J. Durbin
U.S. Senator

http://durbin.senate.gov/record.cfm?id=255384&&