Bone of Contention at Ethanol Hearing

Most witnesses at “California Gasoline Markets: From MTBE to Ethanol,” a U.S. House Government Reform Subcommittee on Energy Policy field hearing testified that the transition from MTBE (methyl tertiary-butyl ether) to ethanol was going smoothly in the state of California.

Diamond Bar, California – August 13, 2003 [] However, Congressman Doug Ose (R-California), who has been labeled by the Renewable Fuels Association (RFA) as “a long-time critic of ethanol,” held to a divergent opinion, said the association. Ose has been accused by the RFA of attempting to blame California gasoline price volatility on ethanol to arouse opposition to the proposed federal renewable fuels standard (RFS). Ose, who convened the hearing said, “If [RFS] becomes law, every American living outside the ethanol-producing centers in the Midwest could experience the gasoline price increases that California has seen due to ethanol.” Representatives of the California Energy Commission (CEC), U.S. Energy Information Administration (EIA), and the Western States Petroleum Association (WSPA) countered Ose’s contention. EIA Administrator Guy Caruso testified that: “When the influence of crude oil prices is removed from the California price surge, the spike is not larger than the price spikes that have occurred historically [before ethanol was used in the state].” “Overall, the transition to MTBE-free gasoline is proceeding well, said CEC Chairman William Keese. “The use of ethanol was not a primary cause of the price spike in early 2003.” “There was some concern by government agencies and others that segregation of the marketplace into gasoline blended with ethanol and gasoline blended with MTBE during a transition phase might, by itself, lead to market tightness and prices spikes,” said WSPA President Joseph Sparano, who spoke representing petroleum companies. “That concern has thus far not really materializedýIt seems clear from this information that no individual factor, including the transition from MTBE blended to ethanol-blended gasoline, should be singled out as the cause of last spring’s spike in retail prices.” On the other hand, Bob Gregory, Vice President of Valero Energy Corporation, a major MTBE producer and one of only two oil companies in California still exclusively using MTBE, maintained, “Banning or reducing the use of MTBE will be bad for California and the nation” and “will contribute to a gasoline crisis.” Gregory also opposed enacting an RFS. The Renewable Fuels Association (RFA) took the opportunity to highlight the positive role ethanol plays in keeping down California gasoline prices as the state phases out the water-polluting gasoline additive MTBE. At the hearing, the RFA released California wholesale gasoline market information countering anti-ethanol contentions. “Ethanol-blended gasoline has been consistently less expensive than MTBE-blended gasoline in the California spot (wholesale) market; and that’s a fact,” said Bob Dinneen, RFA president. “Despite the facts, some try to place the blame for high gas prices on ethanol. That math just doesn’t add up. Due to California’s unique gasoline regulations and lack of adequate in-state refining capacity, California gas prices respond quickly and severely to any unexpected refinery outages. As in years past, we’re seeing that scenario play out again this year. It is clear, however, that this recurring price volatility is completely unrelated to the switch to ethanol.”

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