API sees new Congress considering omnibus energy reform as a top priority

US congressional lawmakers still want to pass a sweeping energy reform bill that streamlines federal clean fuel rules and imposes a fuel ethanol mandate, according to oil and farm interests.

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Dec. 2 -- US congressional lawmakers still want to pass a sweeping energy reform bill that streamlines federal clean fuel rules and imposes a fuel ethanol mandate, according to oil and farm interests.
"These issues did not go away, and this particular challenge will be a key driver of an energy bill," predicted Red Cavaney, president of the American Petroleum Institute.
"The fuels agreement and ethanol continue to enjoy strong bipartisan, bicameral support," said Bob Dineen, president of the Renewable Fuels Association.

After 2 years of debate, Congress last month killed a sweeping energy reform bill before adjourning for the year.
A House energy bill passed in August 2001 largely mirrored a White House energy blueprint published the previous May, although one key difference between President George W. Bush's plan and the Republican-led House was over energy tax incentives. The president's energy plan did not advocate new tax incentives, while the House bill called for about $8 billion over 10 years for domestic drilling. A Senate bill, passed in April 2002, included about $4 billion for domestic production over the same period. It also included incentives for the construction of an Alaskan natural gas pipeline to the Lower 48 but did not address possible leasing of a portion of the Arctic National Wildlife Refuge (ANWR), as the House bill did.

Ethanol deals
The Senate's energy reform bill also included a plan brokered by integrated oil companies, Northeast states, some environmental groups, and agricultural interests to update clean-fuel rules.
For states, the Senate bill included a flexible MTBE (methyl tertiary butyl ether) phase-out plan to address concerns over groundwater contamination. Major oil companies, meanwhile, won the stipulation that the current 2 wt % oxygen requirement in federal reformulated gasoline be eliminated.
Agricultural interests also got a guarantee that the fuel ethanol market would be protected through a renewable fuels mandate. That mandate would triple the ethanol market to 5 billion gal by 2012 and included a bank-and-trade credits program. Ethanol producers also negotiated a "safe harbor" provision designed to shield them from the kind of lawsuits MTBE producers are facing (OGJ, Oct. 14, 2002, p. 20).

Although the Senate proposal had broad acceptance among many key stakeholders, some groups, most notably MTBE producers, refiners, and some environmental groups. had serious problems with the provision.
"The requirement for reformulated gasoline (RFG) needs to be reconsidered," said petrochemical consultants DeWitt & Co. in a Nov. 27 note to clients. "The previous bill called for the elimination of the oxygenate requirement (to relieve market hurdles over problems with ethanol's summer volatility), but it was silent on what this means in practice. With the coming 8-hr ozone standard, many more regions in the country will become noncompliant. What is to be done with them? Also what do we do about carbon monoxide noncompliance, which is presently hidden in the ozone areas? Oxygen may be moot for RFG, but it certainly is pivotal in reducing CO (carbon monoxide) emissions," DeWitt said.

For the future, refiners and MTBE producers want their own product liability protections, a consideration that House lawmakers made once already when the energy bill was still alive last session. Some environmental and consumer groups are expected to urge Congress to remove those safe harbor provisions, but lawmakers are not expected to listen.
Refiners, meanwhile, are already urging lawmakers to consider the idea of holding hearings first before rushing through an ethanol mandate and MTBE ban; that combination will create a need for extra blending stocks such as alkylate or iso-octane that are now in limited supply, MTBE supporters say.

Uncertain times ahead
API, however, says there is no time to waste on the issue.
In a yearend briefing with reporters, API's Cavaney said that there is only so much the Environmental Protection Agency can do administratively to retool the RFG program.
"States can opt out of RFG but not out of the emissions," he said. "This has got to be solved legislatively. That's why we are reasonably sure another energy bill will move."

A recent API analysis shows that current and anticipated state MTBE bans could put undue pressures on fuel delivery systems in the coming years, creating temporary fuel shortages and price spikes.
"We're caught with two public policy issues that are on a collision course," Cavaney said, referring to looming MTBE bans in California and the Northeast. Without the kind of updated RFG rules called for under the Senate bill, over half of the estimated 159,000 b/d of ethanol production (2.7 billion gal/year) will have to be shipped to either coast. Currently, the Midwest uses nearly all of that capacity, according to API. Without that ethanol volume, Midwest refiners will have to look to replace those missing octane barrels, triggering new logistical problems, API predicts.
If Congress fails to update RFG rules, for example, California will require 843 million gal/year of ethanol, compared with the 252 million gal that would have been required under HR 4, API officials said.
Similarly, New York state will require 184 million gal of ethanol, compared with the 92 million gal that would have been needed under the proposed legislation.
Therefore, having an ethanol deal that includes a credit and trading system would mean a minimal impact on consumers, Cavaney said.

To ensure the consumer is protected, Cavaney said API remains committed to its earlier agreement made with the fuel ethanol industry that later was adopted into the Senate energy reform bill. That, however, does not mean API won't be open to small revisions when the new Congress reconsiders an energy bill.
"Our interests are for consumers. We don't have any view that there will be something that will drive each other away from the table. [But] slight changes are possible," Cavaney said.

API also wants to see the RFG proposal as part of broader energy legislation. Cavaney rejected criticisms from some energy analysts that Congress does not have the patience or political will to consider energy policy as part of a comprehensive bill.
"Energy strategy should hang together; it's all connected," Cavaney said. "You can't just fix one piece."
Outside of RFG, API said it is looking forward to working with legislators on public land access issues, including possible leasing of ANWR.
"ANWR needs a full and fair debate," Cavaney said. The API president, however, downplayed any new expectations his members may have now that the Senate has switched back to Republican control. "The Senate is still critical, and we still need 60 votes," he said, referring to the supermajority needed to cut off debate.

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