Maureen Lorenzetti
OGJ Online
WASHINGTON, DC, Feb. 11 -- Industry and ethanol interests are seeking a compromise on how Congress should update the US reformulated gasoline program, said stakeholders and congressional sources Monday.
Senate Majority Leader Tom Daschle (D-SD) said he will begin debate on a comprehensive energy bill later this week, although congressional sources do not expect controversial provisions like RFG to be seriously considered until later this month. A pending proposal introduced by Daschle and Senate Energy and Natural Resources Chairman Jeff Bingaman (D-NM) includes an RFG provision that allows states to eliminate the 2 wt % oxygen mandate refiners now must follow in urban areas that violate US ground-level ozone levels.
Daschle instead wants a "renewable fuels standard" that would require fuel suppliers to boost the level of ethanol and biodiesel from today's 1.8 billion gal level to 5 billion gal by 2012. To support that legislation, ethanol supporters are pointing to a Department of Energy-funded study that concluded "no major infrastructure barriers exist" for producing and using more than 5 billion gal of ethanol across the country each year.
The oil industry in the past has argued there is not enough ethanol production or infrastructure to support an RFS program.
But some environmental groups and congressional sources suggest major oil companies -- represented by the American Petroleum Institute -- appear ready to embrace the ethanol industry's 5 billion gal/year RFS standard. In return, ethanol interests would agree to more flexibility on a methyl tertiary butyl ether ban, and they would support a nationwide RFS program that allows for expanded credit trading.
Ethanol groups also would not stand in the way of industry efforts to get broad liability relief for past and future groundwater problems associated with MTBE, sources said. Industry maintains they only put large amounts of MTBE in the gasoline pool because of oxygen mandates made under the 1990 Clean Air Act Amendments.
No official deal has yet been struck between the stakeholders, however, according to API and the Renewable Fuels Association, which represents ethanol producers.
A spokesman for RFA said, "It would be premature to say a deal has been reached until all the pieces are in place. No two pieces are settled while we work on others."
A spokesman for the National Petrochemical & Refiners Association said that his group continues to oppose ethanol mandates and MTBE bans and is not part of any deal between industry and ethanol interests.
Meanwhile, one API official present at the talks between ethanol groups and industry said, "We expect discussions to continue on several issues. There's no deal yet."
And an official statement from the association said "API continues to support the use of renewable fuels as one component of a comprehensive, long-term national energy plan. Our dialogue with leaders from both parties is an ongoing one and covers not only the long-term role for renewable fuels but also other strategies to help the nation achieve energy security. These include energy production, conservation, environmental protection and energy efficiency. The US oil and natural gas industry remains committed to providing American consumers with a continued supply of clean and affordable fuels."
But congressional and environmental sources speaking on condition of anonymity insist a deal is close. One complication is a concern by environmentalists and automakers that a possible oil-ethanol coalition may support a clean fuel recipe that does not necessarily address air pollution interests.
Automakers, for example, want a new distillation index cap on fuels that could further limit the use of aromatics and sulfur, and give refiners a narrower set of choices to meet clean fuel specifications. Automakers say a DI index is needed to ensure the fuel does not interfere with new air emission controls. Manufacturers also maintain no oxygen standard is needed to keep fuels clean.
Environmental groups meanwhile say more ethanol use could make fuel more volatile and therefore boost pollution nationwide. They also are worried that no DI standard may encourage refiners to use more aromatics which are toxic and also create air pollution. Refiners say a DI index is not cost-effective and is not sound science.
Deal or no deal, it is still uncertain whether an RFG proposal will make it through Congress, say congressional sources and sources close to the negotiations. Ongoing hearings over the financial collapse of energy marketer Enron Corp. and lower energy prices have dimmed interest in a comprehensive energy bill. But that does not necessarily mean Congress may not still pursue narrow legislative "fixes" that have bipartisan support, industry and government officials said.
The Republican-led House passed a comprehensive energy bill last August, but it largely sidesteps the RFG issue. It does however have another controversial portion: a plan to lease a portion of the coastal plain of the Arctic National Wildlife Refuge. Congressional leaders in the Democratic-led Senate say they have enough votes to ensure the issue is not voted on directly. But with the House and Senate still at odds on what a comprehensive energy bill should look like, the chances a bill may pass this year are fading.
Meanwhile, Senate leaders are still grappling with other controversial issues that will likely be amended onto the Daschle proposal. These include a plan to dramatically increase fuel efficiency standards for automakers and tax legislation. The House bill provides expanded tax incentives for marginal oil production. But according to the Independent Petroleum Association of Mountain States, the Bush administration has largely backed away from supporting tax measures for marginal wells, Section 29 tax credits, and expensing geological and geophysical costs because of budget constraints.
