Ethanol

Climate Protection

Oil Reduction

A Public Forum
Vol. 3, Issue III
May 2003

 

A Publication of the Environmental and Energy Study Institute

 

Welcome to “ECO.”  This newsletter is written to provide the most current information about ethanol and serve as a public forum.  The Environmental and Energy Study Institute (EESI) hopes to build consensus within the environmental community regarding the potential benefits of ethanol – and particularly the expanded opportunities provided by cellulosic ethanol – with a special focus on climate protection.  Ethanol can also be a political bridge to broader alliances in support of climate initiatives.

Many in the environmental community have made strong statements in support of ethanol as a low-carbon fuel with large potential benefits to reduce life-cycle greenhouse gas (GHG) emissions.  Ethanol also reduces carbon monoxide emissions and our reliance on oil, contains no sulfur and helps to eliminate smog through its use as an oxygenate for gasoline.  Cellulosic ethanol, produced from agricultural wastes, wood wastes or energy crops, provides even greater GHG emission reductions than corn-based ethanol, promotes rural economic revitalization and offers a solution to waste disposal problems. However, there have been concerns about ethanol ranging from volatile organic compounds (VOCs) to corporate welfare.  ECO addresses these and other issues.  Please share your views with us and we will address them in “ECO.”

 

 

Commentary


RENEWABLE FUELS -- LET'S DO IT
by U.S. House Representative Collin C. Peterson (D-MN)

Because America 's energy needs are likely to continue growing into the foreseeable future, it is imperative that we in Congress do all we can to promote and grow opportunities for production of environmentally friendly renewable fuels.  At present, renewable fuels provide for only a small part of our needs, but the possibilities in this area are vast and we should be doing all we can to encourage and develop all of these options.

Renewable fuels are not only important for addressing the nation's overall energy needs, they are also an essential component of our efforts to strengthen agricultural sectors of the country and revitalize rural economies.  Value-added agricultural products like ethanol and other biofuels are environmentally friendly energy products that can be used to create and expand agricultural product markets.

This Congress I introduced legislation, H.R. 837, which has largely the same language that was included in the Senate-passed energy bill from the 107^th Congress (S. 385).  My bill would have created a renewable fuels program requiring gasoline sold or dispensed in the United States to contain 2.3 billion gallons per year of renewable fuels in 2004, and 5 billion gallons per year by 2012.  It also would have eliminated the Reformulated Gasoline Oxygen requirement and create a credit-trading program to give refiners more flexibility in using renewable fuels.  In addition, it also would have completely phased out the use of MTBE, an oxygenate used in gasoline known to contaminate groundwater.

When the House began to develop its Energy bill for this session, I took my bill to Chairman Tauzin and he listened to what I had to say about the renewable fuels title, in part because I had helped to get strong language and funding for renewable fuels into the recently enacted Farm Bill, including support for ethanol, biodiesel, and wind energy.  Other Members - particularly Congressman Shimkus and Speaker Hastert - made critical contributions as well to this bipartisan effort on behalf of renewable fuels and in the end we got much of what we were working for in the House bill, including the Renewable Fuels Standard, which includes biodiesel.

Minnesota leads the country in promoting the use of ethanol.  We are the first and only state to meet the goals of the federal Energy Policy Act of 1992, legislation enacted to reduce the nation's dependence on foreign oil, by blending nearly all of our gasoline with 10 percent ethanol.  A current state program requires statewide use of oxy-fuel, an ethanol blend, providing a 20-cent per gallon incentive for ethanol producers.  For every dollar invested by the State, $11 of economic benefit is generated.  Minnesota 's ethanol industry boots the economy by more than $400 million, and provides over $15 million in taxes.  Minnesota has 13 ethanol plants, 5 of which are in my Congressional District in Western Minnesota .  These plants employ more than 400 people and have about 7,000 farmer-investors.

Our national energy policy should be long-term, domestically focused, designed to reduce dependence on foreign oil, and promote practical and cost-efficient conservation.  The ethanol industry is expanding to meet the demands under current law.  Sixteen states have phased out MTBE and ethanol takes its place as an oxygenate.  U.S. ethanol fuel production was 2.13 billion gallons in 2002, but U.S. ethanol fuel production capacity is 3.2 billion gallons/year, and growing.  A robust renewable fuels standard like the one proposed in H.R. 837 will help ethanol producers meet the growing demand for ethanol nationwide.

On April 11, the House passed H.R. 6, the Energy Security Act of 2003, which requires gasoline sold or distributed in the United States to contain 5 billion gallons per year of renewable fuels by 2015.  I supported it in large part because of the provisions within the renewable fuels title of the bill.  We didn't get everything we wanted, but it was a good compromise - balanced and sensible - and I think it will serve to support and expand opportunities in the renewable fuels industry.

But now comes the hard part.  One of the biggest problems we have in Congress stems from those individuals who are philosophically rooted in intransigent positions; they demand conformity, reject compromise and ignore changing circumstances.  This kind of "all or nothing" thinking is present on both sides of the political aisle and that's why often times it seems like nothing gets done in Congress.

Compromise and a willingness to listen, learn and reconsider issues and policies in the light of changing circumstances is at the heart of our representative system of government.  To develop solutions to the real problems we face, Congress is going to have to do more of this kind of thing instead of drawing lines in the sand.  In my view, the House passed Energy bill represents a compromise that includes a good plan for renewable fuels, but we're going to need 51 Senators who feel the same way about that in order to get it done.

The challenge of getting an Energy bill that is good for ethanol and other biofuels passed and signed into law provides Congress with yet another opportunity to break this cycle, but like most things, it will take some work.  It will take people willing to work with all sides in order to find sensible and balanced solutions to difficult questions.  This approach often puts people like me in the middle, between the ideologues on both sides.  However, in my view it is "in the middle" where workable and inclusive solutions are frequently found.

Members worked together in good faith on the Energy bill's renewable fuels provisions, and although we didn't get everything we wanted we accomplished a great deal -- particularly for ethanol and other renewable biofuels - and we'll keep working on it at every opportunity to make it even better.  Now that the House bill has passed it's my hope that the Senate will be able to avoid the narrow and divisive issues that stalled the Energy bill in the last Congress.  I'd like to think that when Senators - particularly those in "farm states" - take a look at the renewable fuels title of the House passed bill they will realize that this is a good deal for their constituents, something well worth their support.  I'm hoping that Senators "keep their eye on the ball" and don't get polarized and locked in by pre-existing ideologies.  I hope they will see that what we've done in the House is good for renewable fuels and come to a compromise as well.

Compromise has worked in the House.  We need a broad coalition of constituent organizations to help us urge the Senate to do the same thing.  Renewable fuels are good for the environment, good for farmers and energy consumers, good for rural economies, good for urban and suburban air quality and good for the future of our nation.  We need to look at the big picture, support the renewable fuels industry and get this done.

 

Dr. Edward Murphy, Downstream General Manager,
American Petroleum Institute

 

The American Petroleum Institute (API) and its member companies welcome the commitment that the new Congress has shown to addressing the fuel supply problems facing U.S. fuel providers and consumers. Both houses have taken significant action in shaping fuels legislation – but much work remains before this urgently needed legislation wins final approval and is sent to the President.

Time is of the essence because individual state MTBE bans will start to take effect soon, with Connecticut 's starting in October and New York 's and California ’s bans beginning in January 2004. Differing start dates and gasoline requirements from various states, combined with a federal oxygenate requirement for reformulated gasoline (RFG), will complicate an already tight fuels system and increase the potential for disruptions in the supply and distribution system.  

API believes Congress should repeal the oxygen content requirement for reformulated gasoline that is in the Clean Air Act and require a national phasedown of MTBE.  As part of the package that meets these objectives, we also support a renewable fuels standard that phases up to 5 billion gallons over several years nationally, with an averaging and credit trading program to allow the use of renewable fuels where most feasible and cost-effective. In addition, we support provisions that would protect and enhance the environmental benefits already achieved from reformulated gasoline.

Repeal of the oxygen requirement and a significant reduction in the use of MTBE were two of the key recommendations of the U.S. Environmental Protection Agency’s 1999-2000 Blue Ribbon Panel on Oxygenates in Gasoline. Three years have passed since those recommendations were made.

These steps are a much better solution than the alternative—which is continued state MTBE bans and further aggravation of the already troublesome situation of a patchwork of fuels requirements across the country. A solution that relies on state-by-state MTBE bans to fix the problem is not efficient and will exacerbate supply problems that are likely to arise out of uncoordinated and disjointed state requirements. Unique state fuel requirements isolate affected markets, and, in the event of a supply disruption, could cause shortages and price volatility, as experienced in two of the last four years in Chicago and Milwaukee . Sixteen states already have enacted MTBE bans or caps and additional states are considering bans. 

In the absence of federal legislation, consumers will be subject to the uncertainties posed by uncoordinated state actions. While individual states are restricting the use of MTBE, they cannot change the federal RFG oxygen content requirement. That requirement is unnecessary, uneconomical and inflexible. It requires the use of an oxygenate in each gallon of gasoline in RFG areas. Maintaining the status quo – with the federal RFG oxygen requirement in place and states continuing to ban MTBE – will require using ethanol in RFG areas where it may not be cost-effective. Alternatively, other states may pursue solutions that further fragment the market in new and different ways.

It’s important to recognize that the cost of an approach that includes a federal phasedown of MTBE, repeals the federal RFG oxygen content requirement and includes a renewable fuels standard with a flexible national averaging, banking and trading program would be less than maintaining the status quo of state MTBE bans and maintaining the federal RFG oxygen requirement.  A study by the U.S. Department of Energy (DOE) revealed that the cost of the renewable fuels standard would be minimal, between 0.5 and 1.0 cents per gallon and likely less with an effective banking and trading system. Importantly, a state-of-the-art study in 2002 by MathPro, Inc., a leading economic analysis firm, concluded that replacing the 2 percent oxygen requirement with the renewable fuels standard would be less costly than the status quo outcome of continued state MTBE bans and continuation of the federal RFG oxygen requirement.

The provisions outlined here are supported by an historic coalition, including API, numerous farm and ethanol interests, Northeast state air quality officials, and environmental interests. They offer carefully considered solutions to the fuels problems that have challenged fuel providers and burdened energy consumers, and protect important environmental benefits achieved by reformulated gasoline. 

 

As always, EESI welcomes your comments about the issues raised in this commentary and throughout ECO.  Responses, article and commentary submissions, and feedback can be sent to eco@eesi.org

 

 

RFS Advances in House and Senate

On April 11th, the U.S. House of Representatives approved a comprehensive energy bill, H.R. 6.  The bill includes a Renewable Fuels Standard (RFS) that requires the use of five billion gallons of renewable fuels a year by 2015.  "This specific provision will mean more to rural America than even the Farm Bill," Rep. John Shimkus (R-IL) stated. "It will give farmers a new market for their crops, increase investment in rural America , decrease our reliance on foreign oil, and provide for a cleaner environment." 

This enthusiasm is echoed by Ken Cole, Vice President of Government Relations for General Motors: “Establishing domestic renewable sources of energy can diversify our fuel supply and provide an opportunity to enhance energy security by reducing petroleum energy usage.”

H.R. 6
Similar to its Senate counterpart, S. 791, the House bill eliminates the oxygenate requirement of the 1990 Clean Air Act, but unlike the Senate bill it does not ban MTBE.  An amendment offered by Rep. Lois Capps (D-CA) in the House Energy and Commerce Committee to include an MTBE ban failed by 18-32, meaning that the banning of the controversial fuel additive would continue on a state-by-state basis.  Both S. 791 and H.R. 6 allow 1 gallon of cellulosic ethanol to be credited as 1.5 gallons of renewable fuel as an incentive to spur the development of cellulosic ethanol facilities.    H.R. 6 would also extend the Senate’s “safe harbor” provision, which exempts renewable fuels producers from certain product liability claims, to MTBE producers,   This will be controversial in conference with the Senate.

S. 791
S. 791, the Senate’s version of RFS legislation, is nearly identical to S. 385, the fuels compromise reached as part of last year’s comprehensive energy bill that ultimately died in the Senate and House conference committee. 

S. 791 was referred out of the Senate Environment and Public Works Committee (EPW) on April 9, 2003 , and will likely be offered as an amendment to the Senate energy bill when it reaches the floor.  S. 791 requires that five billion gallons of renewable fuel additives be sued in the nation’s fuel supply by 2012, eliminates the oxygenate requirement, and calls for a national ban on MTBE.

At the Senate EPW markup, an amendment from Lisa Murkowski (R-AK) was passed that exempts Alaska and Hawaii from ethanol requirements.  Several amendments sponsored by Sen. Hillary Clinton (D-NY) and Sen. Barbara Boxer (D-CA) were also approved, including: increased incentives for R&D for cellulosic ethanol; requirements for broadening the scope of public health studies on the effects of fuel additives to include pregnant women, children, and minorities; and loan guarantees for conversion of solid waste facilities to produce ethanol.  An amendment from Sen. Boxer that would have removed the safe harbor clause in S. 791 for ETBE producers was defeated 9-10.

S. 791 is scheduled to begin debate on the Senate floor on May 6.  Debate over amendments to the energy bill is apt to last several weeks.

 

EPA Requests More Information on 
New York Waiver Request

In early April, the U.S. Environmental Protection Agency (EPA) informed New York that it is unable to act on the state’s request for a waiver from the federal oxygenate requirement in the area surrounding Manhattan.  

New York State officials had argued that replacing MTBE with ethanol would prove too costly for oil producers, who would have been forced to import the ethanol from out-of-state producers.  State officials had also objected to implementing MTBE bans on a state-by-state basis, arguing that a national ban on MTBE was needed:  “The only way to develop a consistent region wide approach to RFG or any fuel is for the federal government to establish the standards,” said Dan Gilbert of the New York State Department of Environmental Conservation.

EPA could not act on New York’s request for a waiver of the Clean Air Act's reformulated gasoline oxygenate standard because of a ‘lack of technical information’ supporting the request.  In a letter to New York's Environmental Conservation Commissioner Erin Crotty, EPA Assistant Administrator Jeffrey Holmstead wrote: "[T]he application and supporting information fail to address the requirements specified in the [Clean Air Act] statute. Without the necessary technical supporting documentation, we are unable to evaluate the merits of the request and can take no further action."

EPA’s response to NY comes as another Northeast state, Connecticut, is in the process of deciding whether to move the deadline for a state-wide MTBE ban.  The Connecticut ban was originally mandated in a 2000 bill that called for the removal of the controversial gasoline additive by October 1, 2003.  However, on March 17 the Environment Committee of the Connecticut General Assembly approved moving the state’s MTBE ban to January 1, 2004, so that the ban would coincide with New York’s deadline.  The bill (S.B. No. 840) was then referred to the Transportation Committee of the General Assembly for review, which passed the bill on April 15^th.  If passed by the Senate, it will be voted on by the General Assembly sometime before the first week of June.

California made a similar waiver request, which was rejected by EPA in June, 2001.  Governor Gray Davis (D) subsequently delayed the states MTBE phase-out by one year until December 31, 2003. 

 

Legislative Updates

Senate Finance Committee Passes
Ethanol Excise Tax Modification

 

On April 3, the Senate Finance Committee finished marking up the Energy Tax Incentives Act of 2003 (S. 597).  The bill is designed to more accurately target small ethanol producers, direct more tax revenue toward the Highway Trust Fund, and creates a new volumetric ethanol excise tax credit (VEETC) of 5.2 cents on a 10 percent ethanol blend.

Recent years have seen a sharp growth in the amount of farmer-owned cooperative ethanol plants.  This trend has allowed individual producers to become more competitive in the market, but individual owners within the cooperative do not currently have access to the credit.  If enacted, each farmer-owner would receive the ten-cent per gallon tax credit on his or her share of the company's production in any given year. 

Also, as the small ethanol producer program is currently structured, a small ethanol producer can manufacture no more than 30 million gallons of ethanol per year in order to qualify for a 10 cent per gallon tax credit for the first 15 million gallons of production per year.  The legislation would update the definition of a small ethanol producer from a maximum production of 30 million gallon per year to 60 million gallons.  The credit was originally designed to help smaller-scale producers gain a foothold in the ethanol market.  However, farmer-owned plants now routinely produce 40 to 50 million gallons each year, which rendered the 30 million gallon limit outdated. 

The bill also ensures that the entire excise tax paid on ethanol-blended gasoline would be transferred to the Highway Trust Fund (HTF).  Currently, 2.5 cents of the federal excise tax paid on ethanol-blended fuels goes to the government’s general fund instead of being transferred to the HTF.  This has been fertile ground for many critics of the excise tax, who argue that ethanol-blended fuels effectively removed revenue from the HTF.  The proposed change would add approximately $600 million in annual revenues to the HTF.

Restructuring the Tax Credit
Most notably, S. 597 restructures the ethanol excise tax exemption so that ethanol-blended fuels make the same contribution per gallon to the HTF as regular gasoline.  Currently, regular gasoline is taxed at the rate of 18.4 cents per gallon, and ethanol-blended fuel is taxed at a much lower rate (5.2 cents on a 10 percent blend).  S. 597 eliminates the existing ethanol excise tax exemption and requires that both gasoline and ethanol-blended gasoline be taxed at the same 18.4 cent rate.  The revenue from this tax will be transferred to the federal government’s General Fund (GF), and then transferred to the HTF.  The tax credit would be taken from the General Fund and not from the HTF.  This requirement – that the excise tax credit come from the General Fund as opposed to the HTF – adds approximately $1.4 billion to HTF revenue annually.

 

Research & Development

USDA Announces Notice of Funding 
Availability (NOFA) for Section 9006 of 2002 Farm Bill

The Rural Business-Cooperative Service (RBS) has published a solicitation for the Renewable Energy Systems and Energy Efficiency Improvements Program, which is authorized under Section 9006, Title IX of the 2002 Farm Bill.  The bill makes available $23 million in competitive grant funds for fiscal year (FY) 2003 to purchase renewable energy systems and make energy efficiency improvements for agricultural producers and rural small businesses.  According to Assistant Secretary of Energy David Garman, “this investment will pay dividends to the whole of our country. Rural America can help to fulfill the promise of the President’s National Energy Plan in expanding the nation's overall supply of clean and affordable energy for a new century of economic growth.”   Due to the time constraints for implementing this program, RBS has decided to institute only the grant program (no loans) for FY 2003.  Applications must be completed and submitted to the appropriate US Department of Agriculture (USDA) State Rural Development Office by June 6, 2003 .  Applications for renewable energy systems must be between $10,000 and $500,000, and applications for energy efficiency improvements must be between $10,000 and $250,000.  The grant request must not exceed 25 percent of the eligible project costs, and the applicant must be an agricultural producer or rural small business, have a demonstrated financial need, and be located in a rural area.

Eligible uses of funds include the purchase and installation of equipment, construction of or improvements to existing facilities, retrofitting, energy audits, and several other expenses relating to the start-up of the project.  Ineligible uses of funds include land acquisition, capital leases, working capital, vehicles, or funding of political or lobbying activities, to name a few. 

It must be noted that future funding for Section 9006 is not secure.  Although funded for FY03, the administration has proposed cutting $20 million from the program in FY04.  A similar funding cut has also been proposed for the Value-Added Agricultural Market Product Development Grants program, an initiative designed to help farmers develop and market innovative new uses for their crops.  On April 7, a “Dear Colleague” letter was sent by a bi-partisan group of 39 U.S. Representatives to the House Appropriations Committee in order to restore mandatory funding (as provided for in the 2002 Farm Bill) to the two programs for FY04.  The House and Senate Appropriations committees have not scheduled markups for FY04.

On April 23, a group of 20 trade associations and environmental organizations sent a letter detailing ways to improve the response to the NOFA, especially from family farmers and others of limited financial means.  For further details on the Section 9006 NOFA and the “Dear Colleague” letter, please visit www.eesi.org.

 

Recent Studies

Survey of American Farmers Highlights Support for Development of Renewable Energy on Farms

A recent survey completed by Robinson and Muenster Associates, Inc. of South Dakota , and sponsored by the American Corn Growers Foundation (ACGF), found extensive support among farmers for the development of renewable energy.  The survey included 511 farmers from 14 different states who cumulatively represent the planting of 86 percent of the nation’s corn in 2003.

Farmers surveyed stated that the federal and state government should provide incentives like production tax credits in order to spur the development of wind-energy in rural America .  According to Dan McGuire, ACGF Program Director and project director of the organization’s “Wealth from the Wind” program, “77.9% believe farmers should be offered financial incentives such as production tax credits…”  When asked about The Renewable Energy System and Energy Efficiency Improvements program, Section 9006 of the Energy Title, 82.2% of corn producers surveyed expressed support. 

The survey also showed the extent to which farmers are willing to play in the development of renewable energy. McGuire added that “93.3% of the nation’s corn producers support wind energy, 88.8% want farmers, industry and public institutions to promote wind power as an alternative energy source and 87.5% want utility companies to accept electricity from wind turbines in their power generation mix.”

   

Biomass R&D Technical Advisory Committee and  
Interagency Board begin Joint Meetings

On February 24-25, 2003 , the Biomass R&D Technical Advisory Committee (Advisory Committee) and the Interagency Biomass R&D Board held their first joint meeting.  The two groups were originally established by the Biomass Research and Development Act of 2000 to “coordinate the biomass-related programs within and among federal departments and agencies.” The Committee is also charged with educating policy makers and the public on the potential for biomass to increase energy independence and energy security, and the role that the federal government might play in spurring such a movement.  The Interagency Board is co-chaired by the Departments of Energy and Agriculture, and is overseen by roughly 25 individuals from trade associations, environmental organizations, academia, private industry and government.  Additional member government agencies include the Department of Interior, Environmental Protection Agency, National Science Foundation, Office of Science and Technology Policy, and Office of the Federal Environmental Executive.

At this first joint meeting, the Committee reached consensus that biomass can and will play an integral part in enhancing national energy security, but cautioned that biomass is not getting the financial backing necessary to its success.  They noted that in addition to general budget decreases in the biomass arena for FY04, innovative areas of research like co-firing and black-liquor gasification “have either been cut or will be cut in the FY 2004 budget,” according to Biomass R&D’s website.  The Committee also cautioned against diverting attention away from biomass toward newer projects, such as hydrogen initiatives that have received significant attention of late

The meeting is the outgrowth of several documents produced by the Advisory Committee in 2002.  In October 2002, the Advisory Committee authored a “Vision for Bioenergy and Biobased Products in the United States,” which asserted that “by 2030, a well-established, economically viable, bioenergy and biobased products industry will create new economic opportunities for rural America, protect and enhance our environment, strengthen U.S. energy independence, provide economic security, and deliver improved products to consumers.”  December 2002 saw the release of the Committee’s “Roadmap for Bioenergy and Biobased Products in the United States ,” which outlines the research and development that will be needed in order to satisfy that vision.

In preparation for the meeting, each government agency of the interagency board was required to provide a comprehensive summary of each office’s respective biomass activities.  Not surprisingly, the Department of Energy (DOE), the Department of Agriculture (USDA), and the National Science Foundation (NSF) were found to be the agencies most invested in biomass-related research and development.  In FY03, DOE’s budget for its Biomass Program is roughly $114 million, with most of its funding going towards project in the areas of making plastics and chemicals from renewable, biobased materials, and improving technology for biomass power, as well as biofuels like ethanol and biodiesel.  USDA’s FY03 budget is approximately $259 million for biomass activities and is aimed at research on bioconversion, agronomic practices, implementation of the 2002 Farm Bill, and the distribution of incentives overseen by its Commodity Credit Corporation.  The National Science Foundation has a biomass budget of roughly $50 million for FY03, and is focused on primarily biomass research and education in the fields of metabolic engineering, biotechnology, plant biology, and genomics.

For more information about the Biomass R&D Technical Advisory Committee, please visit http://www.bioproducts-bioenergy.gov.

 

  Report Finds Ethanol Not Responsible for
Price Spikes in California

At the request of Governor Gray Davis, the California Energy Commission (CEC) issued a report on March 28, 2003 , entitled “Causes for Gasoline & Diesel Price Increases in California .”   The report explains the reasons behind the dramatic leap in California ’s gas prices from $1.58 a gallon on January 1, 2003 , to $2.15 a gallon on March 17, 2003 – an increase of 57 cents.

Given California ’s ban of the fuel additive MTBE and the increasing amount of ethanol being blended in California ’s gasoline, speculation grew as to whether ethanol was to blame for the price spikes.  Critics of ethanol such as Senator Dianne Feinstein (D-CA), previously had warned that substituting ethanol for MTBE could have “unanticipated side effects, such as supply problems [and] resulting in higher gasoline prices for the consumer.”  As gasoline prices rose dramatically in the first quarter of 2003, critics cited supply-side issues with ethanol as among the possible reasons for the rises in price.

However, the CEC’s report dismisses the idea that the rise in prices is due to ethanol.  Instead, the report points out that although California refineries produce 44 million gallons of gasoline a day, the state still imports roughly 100 million gallons of gasoline and blend stocks each month to meet demand.  And, as long as this is the case, California ’s gasoline prices will be inextricably bound to the volatile petroleum market:  “What primarily drove this year's increases to record-setting levels was the unusually high cost of crude oil on the world market. The price of crude oil on the world market nearly doubled in the past year due to market uncertainty about the threat of war in the Middle East . Other factors included an oil strike in Venezuela that drastically cut supplies and a cold winter in the Eastern U.S. that increased the need for heating oil.”  The report also found a host of other potential causes, including delayed maintenance and unexpected production problems among California ’s refineries.

The report also explicitly states that ethanol most likely had no role in the dramatic increases in price.  Because almost all major California refiners began to make the switch from MTBE to ethanol ahead of the deadline at the end of 2003, price increases are not attributable to a transition to ethanol production.  According to the report, “The early, voluntary phaseout of MTBE by most of California ’s petroleum industry and the transition to low volatility gasoline do not appear to have been primary causes of the recent high gasoline price divergence in California .”