Bush Ready to Deny California Waiver

June 12, 2001

The Bush administration reportedly is ready to deny California's request for a waiver from the clean octane provisions of the Clean Air Act. The action could come this week. The Renewable Fuels Association (RFA) said the decision "will preserve the positive air quality benefits of oxygenates in gasoline and help keep California gasoline prices from rising higher."

"The pending decision will finally remove the uncertainty hovering over the future of California's gasoline market," said Bob Dinneen, vice president of the RFA. "The ethanol industry is ready to supply the California oxygen market. With this decision, proposed ethanol plants across the country that have been on hold for the 25 months this decision has been pending are being given the green light to begin construction."

The ethanol industry is currently on track to supply nearly 150 million gallons of ethanol to California this year to companies that have voluntarily ceased blending MTBE prior to the state's official phase-out deadline of Dec. 31, 2002. It will take roughly 580 million gallons of ethanol to meet California's entire demand for reformulated gasoline (RFG) oxygenates in 2003.

"Because ethanol has twice the oxygen content of MTBE, refiners only need to blend half as much ethanol to meet the oxygen requirement," said Dinneen. "In other words, you can replace roughly 18 cents of MTBE with only 7 cents of ethanol. That's great news for California consumers."

The ethanol industry can currently produce more than 2 billion gallons per year. With 34 existing ethanol plants undergoing expansions, eight new plants under construction, and more than 40 additional plants scheduled to break ground soon, the ethanol industry expects to have an additional 300 million gallons of production capacity on line by the end of this year. By the end of 2003, U.S. annual ethanol production capacity is expected to increase by 1.5 billion gallons per year to reach 3.5 billions gallons.

"President Bush is making the right decision to stand up for clean air, low prices, and domestic renewable fuels," said Dinneen. "His decision is rooted in sound science and upholds the letter and spirit of the Clean Air Act. This action validates the technical analyses of the RFA and National Corn Growers Association that demonstrate the pollution reduction benefits of ethanol. Clearly, the California position that ethanol exacerbates emissions is technically bankrupt. This decision reaffirms what EPA and state officials have been saying for the past 20 years - that ethanol helps reduce air pollution. With the benefits of the oxygenate standard once again reaffirmed, all parties should move forward in California to ensure a smooth transition from MTBE to ethanol. There is no reason to put California consumers at risk with further delays."

Without oxygenates like ethanol, California's air quality would worsen. Non-oxygenated gasoline would increase carbon monoxide emissions and carbon dioxide emissions (a leading greenhouse gas). Further, increased amounts of aromatics would be utilized, such as toluene which increases exhaust emissions of benzene - a known human carcinogen.

Facing widespread water contamination from MTBE, California is phasing out its use by Dec.31, 2002. However, California also petitioned the federal EPA to waive the Clean Air Act requirement that RFG contain at least two percent oxygen by weight. This clean octane provision is enormously successful in reducing harmful emissions and also prevents gasoline from containing higher quantities of other harmful octane enhancers such as benzene. The RFA argued in technical submissions over two years the waiver was unnecessary because MTBE could be replaced with ethanol - preserving RFG's air quality benefits but not threatening precious water supplies.

The National Corn Growers Association (NCGA) called the decision "a milestone victory for the ethanol industry and for corn producers." NCGA claims the decision "is an unequivocal validation of the technical arguments it has provided to the EPA during the last 18 months."

With demand for ethanol in California approximately 580 million gallons annually, about 230 million bushels of corn will be used to produce the ethanol needed by California motorists. That amount of corn grind will boost corn prices by 10 to 15 cents per bushel, increasing the value of the nation's corn crop by as much as $1 billion, says NCGA.

Tim Hume, NCGA President-elect and a Walsh, CO, farmer, said: "The administration's denial of the waiver sends a clear message: The oxygen requirement is working and is necessary for clean air. Corn growers have received the 'green light' they have been waiting for, and are ready to make the investments needed to expand ethanol production."