Interest grows in ethanol debate

A proposed ethanol mandate under discussion on Capitol Hill has sparked a lobbying fight among groups as diverse as livestock producers to Wall Street investors.

Lobbying activity has intensified in recent days in preparation for a scheduled meeting of committee and leadership staff on Wednesday to kick-start discussion on the Renewable Fuels Standard (RFS), part of an informal “non-conference conference” attempting to resolve differences between the House and Senate energy bills.

{mosads}The many opponents of the Senate RFS, to include food groups, oil and gas companies and livestock producers, want a lower corn-based ethanol target and production increases tied to independent analyses that would weigh environmental and economic impacts.

It would be tough to overstate the interest in the RFS, which would require that 36 billion gallons of renewable fuels are produced by 2022. Not more than 15 billion gallons could be produced from corn-based ethanol. The remainder would have to come from still-unproven technologies such as the production of ethanol from the cellulose in plants.

Interested parties include members on the Hill who represent the varied business and other interests keeping watch from downtown.

A group of 25 “oil-patch” members from energy-producing states met Tuesday to discuss their strategy to maintain their influence in the unusual process, said Rep. Gene Green, a Democrat whose Houston-based district includes a number of oil and gas companies.

Green had helped lead the oil-patch delegation in the discussions prior to the House floor vote in August, and was promised a role in conference discussions. He told The Hill that it is critical the Senate RFS be made more flexible. One way to do that would be to establish conditions — proven technological advances on cellulosic ethanol, for example — that would have to be met before a production mandate kicks in.

“We don’t want to let the mandate get ahead of the economics or the science,” Green said.

Increasing the current 7.5 billion gallon ethanol mandate has significant support both on Capitol Hill and in the White House. One of the conditions administration officials identified last week as a necessary component of the bill was an “ambitious” alternative fuels target akin to what President Bush laid out in his State of the Union address last winter when he called for a target of 35 billion gallons.

Given the support, in fact, the loose coalition arrayed against the Senate RFS language seems resigned that the energy bill will include some production increase. But they are trying, for different reasons, to moderate the measure.

One oil lobbyist said the industry would accept a 12 billion gallon corn-based production mandate. The industry also wants an independent body on the order of the National Academy of Sciences to weigh the economic and environmental effects before each production milestone is implemented.

In addition, seven environmental and health groups sent a letter to energy bill writers Tuesday in support of House language that would require the Environmental Protection Agency to study the impact of increasing the percentage of ethanol in gasoline beyond the 10 percent limit now in place.

“The use of mid-level ethanol blends across our nation could have significant impacts on engine emissions, air quality, engine performance and safety,” the letter states.

Ethanol supporters said the aggressive target in the Senate bill should be maintained.

Ethanol plants have grown nearly as fast as the corn in the Midwest since Congress adopted a 7.5 billion gallon mandate for 2012 in the Energy Policy Act of 2005. Firms such as Goldman Sachs, Credit Suisse and Societe Generale have invested in ethanol plants in the hope that demand would continue to grow and the producers could be taken public.

But a glut of ethanol has driven down prices and threatens the future of some of the new plants. At a minimum, investors have had to scale back their original expectations.

Thomas H. Lee, a Boston-based investment firm, has backed off plans to take an ethanol producer that it had bought public.

“Right now you don’t have a lot of interest in IPOs or in financing new projects,” said J. Christopher Groobey, a project-finance partner at Baker & McKenzie.

A new energy bill with the Senate RFS could create new demand for ethanol, Groobey said.

Ethanol producers are already outpacing the targets set in the energy bill. Hart Downstream Energy Consulting, for example, estimates domestic ethanol production capacity will exceed 12 billion gallons by the end of 2009.
Michael McAdams, a lobbyist at Hart and the executive director of the Advanced Biofuels Coalition, said the Senate bill gets it right by placing few limitations on the technologies that could help meet the production mandate. Members of his coalition represent a variety of alternative fuel production methods.

A Senate RFS would “provide some certainty in the marketplace that we are going to try to use these fuels,” McAdams said.