Bush Backs Suspension Of Ethanol Tariff

President George W. Bush says ???it makes sense??? to temporarily suspend an import duty on ethanol from Brazil and other countries to boost supplies of the gasoline additive and help lower prices at the pump for consumers.

???Dropping the tariff will enable the export of ethanol to our markets, which would particularly help on our coasts,??? the President said in an interview with CNBC on May 5.

Oil companies have attributed part of the recent rise in gasoline prices to refiners suddenly switching from methyl tert-butyl ether (MTBE) to corn-based ethanol as an octane enhancer. MTBE is being phased out because it has been found to contaminate groundwater, and Congress has refused to shield refiners from liability lawsuits. The only remaining approved oxygenate is ethanol.

Legislation to suspend the 54-cents-per-gal tariff on imported ethanol for the rest of the year was introduced in the House by Rep. John Shadegg (R-Ariz.) on April 26. ???With MTBE being phased out, almost every gallon of gasoline sold in the U.S. is going to require ethanol. But right now our domestic ethanol supply is inadequate to meet this increased demand,??? Shadegg said. ???As the cost of ethanol rises, so do gasoline prices.???

Sens. Dianne Feinstein (D-Calif.) and Jon Kyl (R-Ariz.) introduced a similar measure in the Senate on May 8. ???If our refineries are going to be forced to use ethanol, they should have the choice to buy it from the cheapest seller. They should not be constrained by protectionist barriers,??? Feinstein declared.

However, any attempt to remove the tariff will face vigorous opposition from farm-state lawmakers, including some of the most powerful leaders on Capitol Hill.

???There???s no shortage of ethanol, and ethanol is a tiny fraction of the cost of gasoline,??? Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) remarked in a May 5 statement on the Senate floor. ???Blaming ethanol for the costs at the pump ignores the fact that crude is at near record highs and our country is still suffering from a strained domestic refining industry.???

Total U.S. ethanol consumption in 2005 was approximately 3.9 billion gal, with imports accounting for 180 million gal, or about 5%. Sen. John R. Thune (R-S.D.) noted in a statement that Brazil is the world???s only other major ethanol producer. ???Brazil simply doesn???t have enough ethanol to export at significant levels right now,??? Thune said.

???Removing the tariff on imported ethanol would do nothing to reduce prices at the pump,??? added Robert Dinneen, president of the Renewable Fuels Association (RFA), an industry trade association. ???Doing so would be the equivalent of asking American taxpayers to subsidize already heavily supported Brazilian ethanol production at a time when Brazil???s supply of ethanol is tight and U.S. supplies are more than sufficient.???

According to RFA, the U.S. ethanol industry will produce nearly 5 billion gal this year, and the industry???s combined capacity will approach 6 billion gal by the end of 2006, more than enough to meet refinery demands.