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Senate Panel Examines Elimination of MTBE

Last year's energy bill gave the needed incentive to boost ethanol production across the country. Now legislators are looking at whether there is enough ethanol to replace methyl tertiary butyl ether in domestic gas supplies.

The Senate Environment and Public Works Committee held a hearing Wednesday morning to discuss short-term solutions to potential fuel shortages from a switch to more ethanol in the fuel supply.

The energy legislation terminated the Environmental Protection Agency's requirement that gas in high-traffic areas include 2% oxygen to alleviate air pollution. Ethanol and MTBE have been the two main additives used to meet the requirement, which is now scheduled to end in May.

A consequence of the Energy Policy Act appears to be a much more rapid elimination of MTBE than analysts anticipated.  Because Congress chose not to provide liability protection for refiners and producers of MTBE, virtually every major refiner has decided to eliminate the use of MTBE by the time the federal RFG oxygenate requirement is officially repealed (May 5, 2006).  While state legislative actions to prohibit the sale of MTBE had already greatly reduced the volume of MTBE used in reformulated gasoline, there is still approximately 2 billion gallons of MTBE sold in the Mid-Atlantic, Northeast and Texas. This volume will likely be replaced by ethanol.

In testimony, Renewable Fuels Association President Bob Dinneen says the ethanol industry is ready to meet the increased demand. Dinneen says the industry expects more than 2 billion gallons of new production capacity to be in operation within the next 12 to 18 months.  

Reducing tariffs an option

According to a Congress staffer, importing more ethanol and lifting import tariffs on it is one of a few options the panel will consider. Aides cautioned they are still gathering facts and not pushing any specific proposals.

Dinneen testified that several refiners have contracted with Brazilian and/or Caribbean ethanol suppliers for product. Approximately 130 million gallons of ethanol were imported last year and he says that figure is expected to increase in 2006.

Many analysts suggest some of the gap could be filled by ethanol imported from Brazil, where ethanol is widely produced from sugar cane. But Brazilian ethanol imports incur a 2.5% ad valorem tariff, plus a 54-cent-per-gallon duty.

Senate Agriculture Committee Chairman Saxby Chambliss says lifting tariffs to encourage imports of ethanol is not something Congress has had to consider up to this point, "but we haven't been using as much [ethanol] as we're going to be using this summer or this year either."

Chambliss says he thinks competition in any area is good for whatever the industry might be. "If we have competition in the ethanol industry it has the potential to make our ethanol blenders more efficient and more productive," he explains.

He says if the tariff drop does benefit the energy community while at the same time benefiting farmers Congress would be "foolish not to consider it," he says. "But whether we will do it I have no idea."