EPA Mandate Could Make Or Break Ethanol Industry

THE Environmental Protection Agency (EPA) will make a decision soon that will ripen or wither the ethanol industry indefinitely.

``The stakes here are considerable,'' says John Urbanchuk, vice president of AUS Consultants in suburban Philadelphia.

Under the Clean Air Act Amendments of 1990, a new formula of gasoline containing more oxygen must be sold in the nine smoggiest cities in the United States beginning January 1995. (These include Los Angeles, New York, Houston, Baltimore, Chicago, Milwaukee, Philadelpia, San Diego, and Hartford, Conn.) Other cities that exceed the federal ozone standard may opt in. If they all do, then reformulated gasoline would account for 55 percent of national consumption. Enough cities have joined already to ensure that one in three drivers will buy reformulated gasoline.

Refiners must add an oxygenate to turn their usual brew into reformulated gasoline. Some of the choices are methanol, made from natural gas; MTBE, a methanol derivative; ethanol, which in the US is made from corn; and ETBE, an ethanol derivative. Oil companies say they would like to be free to choose the most economical additive for each market and for each season. But the EPA has proposed a rule that would mandate a 30 percent share of the oxygenate market for renewable fuels, meaning ethanol and ETBE.

In announcing the proposed mandate last December, EPA Administrator Carol Browner bragged that it would bring jobs and investment to farmers and reduce US dependence on oil imports, while protecting the environment.

Agriculture Secretary Mike Espy commented that the proposal demonstrates President Clinton's ``strong commitment to support'' ethanol and ETBE.

The EPA will decide this summer whether to modify the rule or adopt it as is, says spokeswoman Martha Casey.

Among the markets for corn, only the ethanol industry will increase its demand this year - despite the higher price that resulted from last year's flood-diminished harvest, agriculture officials say. AUS Consultants pegs the ethanol-related demand at 544 million bushels, nearly 9 percent of the harvest.

If the mandate is adopted, the ethanol market will rise to 700 million bushels by 2000, according to a forecast prepared by AUS Consultants for the ethanol lobby.

But if not, ethanol will ``lose considerable market share,'' Mr. Urbanchuk says. David Morris, vice president of the Institute for Local Self-Reliance in Minneapolis, goes so far as to predict ``the stagnation and disappearance of the ethanol industry.''

Plenty of folks would like the mandate dropped. Charles DiBona, president of the American Petroleum Institute, calls it a ``special-interest giveaway'' and says the EPA has admitted lacking statutory authority under the Clean Air Act to adopt such a mandate.

The Environmental Defense Fund (EDF) says any savings of fossil fuels from the use of ethanol are canceled out by the fuel consumed to grow and process corn into ethanol. But Mr. Morris says the EDF looked at obsolete data. Farms and ethanol processors use much less energy than 10 years ago. Today, the average farm and processor get a combined 25 percent more energy out of ethanol than they put in to growing and processing corn, while state-of-the-art practices yield 100 percent more.

Last month, 51 US Senators and 113 congressmen urged Ms. Browner to kill the mandate. They noted that the ethanol lobby already receives $550 million a year from taxpayers. The mandate would take an additional $340 million a year from the Treasury and the Highway Trust fund by the EPA's own estimate, they wrote.

Morris argues that the ``$45 billion'' in US military spending related to Middle East oil is a subsidy to the oil industry, amounting to 45 cents per gallon of gasoline. ``We're not defending the Middle East to allow us access to sand,'' he says. If the EPA does guarantee market share to ethanol, that product's subsidy could be lowered, he adds.

The US Department of Agriculture also found that demand from ethanol would cause corn prices to rise 3 to 5 cents for each 100 million of increased corn demand. Subsidies to corn farmers could fall $500 million to $600 million more a year than the subsidies to ethanol producers.