SENATE BILL STUDY FOR API TOUTS WRONG SET OF SAVINGS

Bob Tippee

Casual reading of a study commissioned by the American Petroleum Institute on proposed fuels legislation makes costs of an ethanol mandate in gasoline look acceptable.

It's unfortunate that casual reading is all the study will receive from most legislators and reporters.

Senate energy legislation would repeal a requirement that reformulated gasoline contain oxygen, mandate a tripling of the volume of ethanol in gasoline by 2012, and phase out methyl tertiary butyl ether (MTBE).

The study, by MathPro Inc., compares costs estimated for those changes with those of maintaining the oxygen requirement, not mandating ethanol, and leaving MTBE decisions to states, which are banning the substance.

The Senate proposal's main savings against the status quo, MathPro says, would come from repeal of the oxygen mandate. Those savings would offset costs of the requirement that 5 billion gal/year of renewable substance—ethanol—enter the gasoline pool by 2012. MathPro assumes that ethanol in fuel reaches 4.3 billion gal/year in 2011 without a mandate if the oxygen requirement stays in place.

The main cost of the Senate proposal, MathPro says, is the MTBE phasedown, which will happen by state action anyway.

Estimated savings in 2011 against the status quo: 0.2¢/gal in gasoline production costs and 0.1¢/gal in national costs, including outside factors such as ethanol's tax subsidies.

A report summary distributed to the press carries this title: "Senate Fuels Provisions Less Costly Than Status Quo."

That sounds like improvement. But the focus is on replacing one mistake—the oxygen requirement for reformulated gasoline—with another mistake—the ethanol mandate.

Why not just repeal the original mistake and avoid a new one?

MathPro looked at that option, too, and found even greater savings against the status quo: 0.5¢/gal in gasoline production costs and 1¢/gal in national costs.

So repeal of the oxygen requirement with no ethanol mandate outperforms the Senate bill in savings against the status quo by factors of 2.5 in gasoline production costs and 10 in national costs.

That's the set of savings that the summary should have highlighted. It reflects the policy option API should be supporting.

(Online Sept. 20, 2002; author's e-mail: bobt@ogjonline.com)

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