California eyeing Brazilian _ not Midwestern_ ethanol

By KEVIN DIAZ Minneapolis-St. Paul Star Tribune August 08, 2001

WASHINGTON - California once seemed on the verge of becoming a billion-dollar market for Midwestern corn ethanol.

But in a fit of political pique, the state is now threatening to take its business to Brazil. California officials are eyeing Brazil's huge sugarcane crop as an ethanol source at least in part as a payback to Midwestern corn interests, which pushed hard to force open the California market.

In talks that have reverberated throughout Congress and to ethanol plants across the Midwest, the Brazilian exporters have been meeting in recent weeks with the administration of California Gov. Gray Davis and oil-industry buyers.

Davis administration officials have been trumpeting the talks to gain leverage with Midwestern corn interests, which oppose California's bid for a waiver from federal clean air fuel oxygenate requirements.

Because a non-ethanol oxygenate known as MTBE has been found to produce groundwater contamination, the federal mandate will leave California reliant solely on ethanol after 2003, when it bans MTBE.

U.S. ethanol industry representatives scoff at the Brazilian threat, noting that Brazilian ethanol faces high transportation costs and a 54-cent-a-gallon tariff in the United States. The Brazilians, however, could partly circumvent the tariff by refining their cane somewhere in the Caribbean Basin, such as Costa Rica or Aruba.

Bill Rukeyser of the California Environmental Protection Agency (Cal/EPA) said Brazil could supply as much as 200 million gallons of ethanol, satisfying about a third of California's annual need.

Among those who have been involved in the talks are representatives of BP Amoco, the nation's largest buyer of ethanol for processing into fuel.

But U.S. ethanol industry officials say that domestic supplies are more than adequate to meet California's needs, with 56 production facilities pumping out more than 2 billion gallons a year, and 12 more plants under construction.

Illinois leads in ethanol production, followed by Iowa, then Minnesota.

For farmers, the specter of competition from South America has grown along with Washington's increasing interest in global free trade. The battle over California's lucrative ethanol market has intensified in recent weeks as that state's officials sought once again to get an exemption from federal oxygenate rules, arguing that the state's cleaner-burning gasoline doesn't require ethanol to meet federal pollution limits.

The U.S. Environmental Protection Agency (EPA) turned down a California waiver request earlier this year. But the issue surfaced again last week when California Reps. Christopher Cox (R) and Henry Waxman (D) tried unsuccessfully to resurrect the waiver as an amendment to President Bush's energy package in Congress.

In a vote that united Republicans and Democrats from Midwestern farm states, the amendment was voted down in the House 300 to 125.

In the meantime, Cal/EPA Secretary Winston Hickox challenged the assumption that his state would soon be importing hundreds of millions of gallons of Midwest ethanol, saying in a letter published in the New York Times last month that it may be cheaper to do business with Brazil. Rukeyser, his spokesman, explained that a combination of Brazil's getting around the steep U.S. tariffs and U.S, producers having to ship by higher-cost U.S. foagships or facing the potential of wintertime rail and barge traffic disruptions may result in lower costs to ship from Brazil than from the Midwest.

Rep. Gil Gutknecht, R-Minn., said he believes it's unlikely Brazil could supply the California market more cheaply and reliably than U.S. producers. But he welcomes the debate prompted by the denial of the California ethanol waiver.

In a meeting this week with Davis, Iowa Gov. Tom Vilsack told reporters that the California governor was "surprised" by the comments of others in his administration and assured Vilsack that he would not be looking abroad to buy ethanol.

But Rukeyser suggested that California would be much more willing to do business with the Midwest if officials there dropped their opposition to California's waiver request.

Monte Shaw, a spokesman for the Renewable Fuels Association, which represents the U.S. ethanol industry, said the Californians' apparent readiness to tap Brazilian ethanol belies their previously stated concerns about consumer price spikes driven by ethanol shortages

http://www.knoxstudio.com/shns/story.cfm?pk=ETHANOL-08-08-01&cat=AN

-- Martin Thompson (mthom1927@aol.com), August 09, 2001

Answers

Based on the earlier estimates of demand, we will likely need BOTH sources, plus home-grown, to avoid shutting down the state. Even then, gas prices will reach unaffordable levels.

-- Margaret J (mjans01@yahoo.com), August 09, 2001.