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Dirty Prices

Ethanol — once the enemy in the state’s war on air pollution — is today’s action hero in the state’s battle to keep gasoline cheap for California motorists. Faced with a tight oil supply and rising gasoline prices, the Schwarzenegger administration has surrendered and is no longer pressing the Environmental Protection Agency to waive a federal requirement to use the corn-based alcohol as a gasoline additive. Instead, the administration is embracing ethanol, according to observers, even though a state report shows that the federal rule requiring a minimum of 5.9 percent ethanol in California gasoline increases emissions. The California Air Resources Board report said it adds 70 tons a day of smog — and cancer-forming hydrocarbons — to the air in summer, the equivalent of adding about 2 million cars to the road. “I believe the Schwarzenegger administration wants to encourage and promote the increased use of ethanol and other alternative fuels,” said Tom Koehler, vice president of Pacific Ethanol, a company chaired by former Secretary of State Bill Jones. The company expects to open a plant in about a year in Madera that will make ethanol from corn brought by train from the Midwest. Koehler said that estimates of additional pollution from ethanol are dramatically inflated due to flaws in methodology. Driving the increased interest in ethanol is the rising worldwide demand for oil in the face of a static supply. The imbalance has caused gasoline prices to rise to about $1.80 per gallon wholesale in California. The higher price has caused state policy-makers and oil companies to look more favorably on increasing to 10 percent the amount of ethanol used in gas, since ethanol-laced gasoline sells for about 90 cents a gallon after a 52-cent-per-gallon federal tax subsidy. Motorists would save 12 cents per gallon, Koehler said. “Ethanol has gotten to be more cost-effective,” said Mary Rose Brown, senior vice president of communications for San Antonio–based Valero Energy Corp., which just boosted the ethanol level in the gasoline it makes at its Bay Area refinery. “California reformulated gasoline rules allow up to 10 percent [ethanol] at any time,” said Jerry Martin, a spokesperson for the Air Resources Board. He added that the agency’s staff is reassessing estimates of additional air pollution from ethanol. Meanwhile, in Washington, legislation that would increase the use of ethanol nationwide from 4 billion gallons to 6 billion gallons a year under a new renewable fuel standard has moved onto the Senate floor. Legislation in the House boosting ethanol use to 5 billion gallons a year is expected to clear a key committee by this week. Sen. Richard Lugar (R-Ind.) is leading a bipartisan group of predominantly farm-state senators who will seek to amend the Senate bill to double ethanol production to 8 billion gallons a year by 2012, said Mark Hayes, an aide to the Indiana Republican. Sen. Barbara Boxer (D-Cal.) hopes to amend the bill to create special incentives to produce ethanol from farm waste products, such as California rice straw, as well as subsidized corn. In Sacramento, Sen. Christine Kehoe (D-San Diego) and Assemblywoman Fran Pavley (D-Woodland Hills) have sponsored bills that would seek to reduce the use of gasoline in California by 20 percent in the years ahead, said Gil Topete, an aide to Kehoe, whose bill already has cleared the Senate Energy Committee. Despite concerns about added air pollution, many state legislators see a greater role for ethanol in reducing the state’s reliance on gasoline, particularly in the winter when smog is less of a concern. Koehler, who also is director of the California Renewable Fuels Association, notes the state could quickly achieve half of its 20 percent reduction goal by adding 10 percent ethanol to gasoline. However, ethanol critics point out that growing the massive amounts of corn needed to make the fuel additive erodes and contaminates soil and pollutes rivers and the Gulf of Mexico, where a 7,000-square-mile dead zone has developed, an area bigger than the state of Connecticut. Fertilizer has fed oxygen-depleting algae blooms off the Mississippi Delta and pesticides and herbicides have polluted both fresh water in the huge river basin and marine water in the gulf. “Industrial agricultural runoff is pretty serious,” said Ryan Zinn, national organizer for the Organic Consumers Association. Making ethanol from corn uses up to six times more energy than it produces because of all of the fossil fuel required, according to Tad Patzek, a professor of civil and environmental engineering at the University of California at Berkeley. “It destroys an ecosystem that could sustain itself, but now cannot do so,” he said. Patzek said that Brazil, which relies heavily on ethanol produced from industrially grown sugar cane, is rapidly depleting its soil. A recent study by Argonne National Laboratory disputes Patzek’s conclusions about ethanol. It shows that new farming and ethanol-production methods have made the grain-based alcohol a sustainable fuel with a favorable energy balance. Patzek did not take into account these new efficiencies — including use of genetically modified corn — said Michael Wang, the scientist who conducted the Argonne study. What is clear is that ethanol is federally subsidized, according to Keith Ashdown, vice president of policy for Taxpayers for Common Sense. Gasoline with 10 percent ethanol receives a 5.2-cent-per-gallon reduction in the excise tax, which totals around $1 billion a year, he said. It also benefits from federal price supports for corn. Archer Daniels Midland, which makes 42 percent of the nation’s ethanol directly — plus controls another 12 percent of it through its ownership of the Minnesota Corn Processing — is the primary beneficiary of those subsidies, said Ashdown. The federal government paid $2.8 billion in subsidies to corn growers in 2003 and a total of $37.4 billion between 1995 and 2003, according to the Environmental Working Group. About 10 percent of the nation’s corn crop is used to make ethanol, according to the American Coalition for Ethanol, or some 8 million of the total 80 million acres of corn fields, an area the size of Maryland.

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