Date: Sat, 18 Jun 1994 23:06:51 -0400 (EDT) From: Competitive Enterprise Institute Subject: CEI LIST - EPA'S ERRANT ETHANOL EXCESSES To: Jeff Chan EPA'S ERRANT ETHANOL EXCESSES by Jonathan H. Adler, CEI's associate director of environmental studies appeared in *The Washington Times*, 6/8/94 There are few things upon which the Sierra Club and the American Petroleum Institute agree. The oil industry and the environmental community regularly square off on proposals to tax energy, allow domestic oil exploration and support the development of alternative fuels. There is one issue, however, where the Sierra Club and API are on the same page. Both are opposed to the Environmental Protection Agency's proposal to give the ethanol industry a guaranteed share of the EPA's reformulated gasoline program under the Clean Air Act Amendments of 1990. The EPA proposal was issued several months ago to placate an agricultural lobby concerned that ethanol, a corn-based fuel, would be unable to compete with other fuel additives uses to create reformulated gasoline. Under current law, only reformulated gasoline can be sold in the nation's smoggiest cities in order to reduce vehicular emissions of hydrocarbons and other smog-forming emissions. To meet the standards, reformulated gasoline must attain a prescribed oxygen content.Adding ethanol is one way to accomplish this. Ethanol, however, is significantly more expensive than the dominant oxygenate, methyl tertiary butyl ether, known as MTBE. In a competitive market, ethanol would not stand a chance. Thus the EPA proposed guaranteeing ethanol 30 percent of the oxygenate market. This proposal will cost consumers between $48 and $350 million per year. In proposing the regulation, the EPA put forth an assortment of justifications, none of which pass muster with the programs critics. API executive vice president William O'Keefe says he knows of "no proposal so lacking in logic and social benefits as this one." The Sierra Club has been no more moderate in its criticism. "This proposal is illegal and it's bad policy," A. Blakeman Early of the Sierra Club told the National Journal. In Early's view, "It's not the role of the Clean Air Act to make mandatory markets for ethanol." Apparently this is also the view of the U.S. Senate, as over 50 Senators have gone on record opposing the EPA proposal. Yet the list of the ethanol proposal's critics do not end there. The EPA has claimed that the ethanol proposal would reduce greenhouse gas emissions, energy demand, and the importation of foreign oil. However, a recent report published by Resources for the Future casts serious doubts on EPA's claims. The report concluded that there are "unsubsidized, lower-cost, domestically produced" oxygenates that can "produce environmental benefits indistinguishable from those" of ethanol. A second study, commissioned by the Department of Energy, concluded that the proposal would increase energy use and greenhouse gas emissions. The Energy Department reportedly wanted to submit this analysis during the rule-making procedure, yet the EPA refused due to political considerations. In recent testimony before the Senate Energy Committee, even EPA deputy administrator Robert Sussman acknowledged that the EPA's assertion of environmental benefits were overblown. With regard to greenhouse gas emissions, Sussman testified that "the net impact will be neither positive nor negative." Interestingly enough, by encouraging increased demand for agricultural products, the proposal could have environmental impacts that would require additional EPA regulation under current laws. Yet the EPA failed to assess any of these impacts when drafting the ethanol proposal. The agricultural lobby has sought to defend the proposal by launching a scare campaign against methanol (with an "m"), the feedstock from which MTBE is produced. Under the guise of organizations entitled Agriculture for Clean Air and Fuels for the Future, ethanol advocates are attacking methanol as a poison that threatens the lives of thousands of consumers. To be sure, methanol, like gasoline itself, is not recommended for drinking, but that is rarely the use to which fuel is put. Gasoline vapors, similarly, are not recommended for breathing either. The campaign against methanol is not designed to make gasoline safer, but rather to protect a regulatory subsidy to a small sector of the American economy. In response to the flurry of criticism the proposal has generated, the EPA has hinted that it might delay the implementation of the proposal to mitigate any potential oxygenate supply disruptions that it might cause. Yet this will not placate the ethanol rules critics -- with good reason. Doing a bad thing gradually is scarcely better than doing a bad thing all at once. If the EPA does not back down, API and others expect to see the EPA in court. A final decision on the rule is expected in the next few weeks. If the EPA proposal stands, it will represent the victory of politics over rationality. The EPA's decision to award ethanol with a guaranteed portion of the reformulated gasoline oxygenate market cannot be justified on economic or environmental grounds - - one issue on which oil companies and environmentalists agree. It is not the role of the federal government to pick winners and losers in the marketplace. That is the role of consumers. If ethanol can compete with MTBE and other additives for a share of the market, so be it. But if it fails, the EPA should not step in to lend ethanol producers a hand. _______ __________ ___________ / | / | | | |__________ | | | | \ | | \ _______ |__________ ___________ COMPETITIVE ENTERPRISE INSTITUTE 1001 Connecticut Ave. NW #1250 Washington, DC 20036 202-331-1010, fax 202-331-0640 Permission to copy granted as long as these lines are left intact. To subscribe to the cei list, send a message to cei@digex.com. "The Virtual Hand: CEI's guide to the information superhighway" is available for $5. CEI's monthly newsletter, "CEI UpDate," is free to contributors of $25.