Energy bill likely to include renewable fuel mandate, analyst says

A renewable fuel mandate may prove to be the most difficult aspect of negotiating a final US energy bill, according to Prudential Securities analyst James Lucier.

By OGJ editors

HOUSTON, Aug. 21 -- A renewable fuel mandate may prove to be the most difficult aspect of negotiating a final US energy bill, according to Prudential Securities analyst James Lucier. The energy bill, however, will probably be passed during the September-October time period, Lucier noted, adding that it would likely include a renewable fuel mandate.

"We think Congress is likely to pass an energy bill this fall, and if it does, an ethanol mandate is very likely to be part of it," he said. Congressional leaders in late June officially began talks designed to reconcile disparities between the House and Senate energy bills (OGJ Online, July 1, 2002).

Lucier explained that the Senate-passed legislation—in anticipation that methyl tertiary butyl ether would be replaced by ethanol as a motor fuel oxygenate additive—contains a wide-ranging mandate to increase ethanol production to 5 billion gal/year by 2012, nearly triple its present level. The Senate bill also includes "strong legislation in favor of renewable fuels," Lucier noted, adding, "The House bill is silent on the issue of ethanol, but House members are willing to make a deal."

The issue, said Lucier, is not a partisan one: "Rather, Republicans and Democrats alike from the states of California and New York oppose an ethanol mandate and would probably opt to waive all oxygenate use if permitted," he said. "They see the ethanol mandate as a subsidy for Midwestern farmers of dubious environmental benefit that will only raise the cost of gasoline in their states."

Lucier continued, "Midwestern farm states, by contrast, are unabashed supporters of the ethanol mandate, as it is clearly in their economic interest. The Bush White House assigns great importance to the Midwestern farm state constituency, making it a strong ethanol supporter as well.

"Meanwhile, legislators from Texas and Louisiana whose constituents include MTBE producers will most likely oppose any attempt to end the mandate on oxygenates," he said, adding that they will likely resist a ban on MTBE production and that "they will resent lopsided incentives in favor of ethanol, but at a minimum they will likely attempt to insist on liability protection for MTBE producers."

Lucier concluded, "During this tight election year, in which control of both the House and Senate is in play, ethanol could well be the deciding factor."

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