Testimony of

Trevor T. Guthmiller

Executive Director of the American Coalition for Ethanol

Before the Senate Committee on Agriculture, Nutrition and Forestry

April 11, 2000

Thank you, Mr. Chairman, members of the committee. My name is Trevor Guthmiller, and I am Executive Director of the American Coalition for Ethanol (ACE) in Sioux Falls, South Dakota. ACE is a grass-roots, non-profit ethanol advocacy group formed in 1988, with membership comprised of ethanol producers, commodity organizations, rural electric cooperatives along with businesses and individuals who support increased ethanol production and use. We greatly appreciate this opportunity to comment on the relative merits of proposals to deal with the MTBE water contamination problem, the importance of the oxygen standard in reformulated gasoline (RFG), and of the need to provide sustainable growth opportunities for ethanol over the mid- to long-term.

Mr. Chairman, the ethanol industry has been very fortunate over the years to have had the bipartisan support of many members of Congress including yourself. You have been one of the ethanol industry's most articulate spokesmen, and have effectively promoted expanded ethanol production and use since the industry's inception in the late 1970s. Ethanol's bipartisan supporters include all the other members of this Committee as well, both Republican and Democrat. The entire ethanol industry and America's grain producers owe all of you a great deal.

In the interests of time, Mr. Chairman, I would ask that my full written testimony be submitted into the record. I would then like to briefly summarize the ACE position in the remaining few minutes.

To begin, Mr. Chairman, ACE believes that the Daschle-Dole-Harkin reformulated gasoline (RFG) provision in the Clean Air Act Amendments of 1990, which established the minimum oxygen standard in reformulated gasoline, has been a great success. With your strong support, and that of many members of this Committee, the Daschle-Dole-Harkin provision was adopted by the Senate by an overwhelming 69 - 30 vote. That was ten years ago. The ethanol industry has grown, but we are again at a crossroads due to the problems caused MTBE, which is putting the future of the reformulated gasoline program and the oxygen requirement in jeopardy.

Knowing that we have a great product, we still must deal with the reality that the petroleum industry, essentially both our customer and our competitor, controls the entire fuel infrastructure our product is distributed through, and if they didn't have to use ethanol to meet certain clean fuel goals, they wouldn't use it. Cost is irrelevant to them since the customer pays the final cost regardless of what the product is, and they would much rather have the customer buy their petroleum product versus our ethanol product.

It is good for our country to require the use of fuels other than petroleum if they are able to be incorporated into our transportation infrastructure with little or no cost to the consumer. Ethanol meets that test. The question then becomes, how do we best incorporate a growing ethanol industry into our national energy policy.

To answer that question we need to look at what are the values of ethanol. First off, ethanol has value as an oxygenate. Adding ethanol to gasoline undisputedly reduces automotive emissions. This has value to areas of the country where automotive emissions lead to poor air quality. Our country and its taxpayers end up having to pay at least a portion of the healthcare costs associated with the health problems caused by poor air quality.

Ethanol also has value as a domestically produced renewable fuel that can be used to replace an imported fossil fuel. Currently, our government and our gasoline supply industry place no value on substituting a fossil fuel for a renewable fuel. With high gas prices as the result of our increasing reliance on imported oil, the time to consider charting a course that will result in the greater use of domestically produced renewable fuels like ethanol and biodiesel is now.

The decisions that the EPA and Congress will make in the next few months will potentially determine whether this industry goes forward or falls backward. We literally have our fate in your hands. Last week I spoke at the groundbreaking of a new ethanol plant near the small town of Wentworth, South Dakota. Approximately 975 farmers, with the help of the local rural electric cooperatives and the South Dakota Corn Utilization Council, invested their money in that project which will one day turn the low value corn they grow into high value ethanol. The investment they made was not only in that plant, but also in the good will of the United States Congress, since it was Congress that wisely created the reformulated gasoline program and the requirement that oxygenated fuel be used in that program.

There are many who do not understand the personal investment that thousands of family farmers have made in cooperative ethanol plants. They will say the answer is just getting rid of the reformulated gasoline program's oxygen requirement, or to allow states to opt out of the oxygen requirement with no consideration given to the loss of markets or potential markets for ethanol. That is not the answer. Two of my board members, John Carruth and Audrey Swanson, are farmers from Minnesota who have no connection to the ethanol industry other than the fact that they invested some of their family's money in a farmer-owned ethanol plants. They represent over 12,000 individual farmers in Minnesota, South Dakota, Iowa, Nebraska and Missouri, to name a few states, who have invested in ethanol plants. Those are the people we must remember and think about when decisions that will affect the future of the ethanol industry are made.

Let me say this very clearly - farmers did not create the problems associated with the use of MTBE, and they should not be made to pay the price for getting it out of our system. Eliminating the oxygen requirement is not the answer. Modifying it may be, eliminating it is not. That is not the answer because it does nothing to reduce our dependence on imported fossil fuels, nor does it protect the investment of the farmers who have gotten together to build ethanol plants who were banking on there being a continuing market for their fuel. Nor does it help protect our air quality.

In his recent speech to the National Conference on Ethanol Policy and Marketing in San Francisco, Senator Daschle stated the obvious: if it is possible, the ethanol industry would prefer that the successful reformulated gasoline program with the oxygen requirement be maintained as it is, and ethanol use expanded to fill the gap left by the departure of MTBE. The outstanding success of the reformulated gasoline program with ethanol in the Chicago and Milwaukee areas provides the best evidence for this position.

However, ACE is also aware that there are many powerful interests who are strongly opposed to this approach, and who are demanding an elimination of the oxygen standard. Though we are highly skeptical of the oil industry's claims that it can produce equivalent "clean gasoline" without the use of ethanol or any other oxygenate, there are many people who are so frustrated with MTBE that they do not want to accept the status quo.

If it proves to be impossible to hold on to the oxygen requirement, or if it seems as though the oxygen requirement will be dismantled by the granting of waivers by the EPA, then we agree with Senator Daschle that a Renewable Fuels Standard (RFS) must be established to ensure the sustainable growth of the ethanol industry--both traditional grain-based, and emerging biomass technologies--well into the future. This would protect the investment of all the farmers who have bought shares in ethanol cooperatives, while at the same time paving the way for the continued growth in the ethanol industry.

I would like to briefly cite several highlights of Senator Daschle's proposal that ACE believes should be part of any legislation that emerges from the current debate.

· The oxygen standard should not be eliminated. If necessary, it should be modified to allow Governors the authority to petition the EPA for a waiver from the standard, while at the same time require them to adopt a renewable fuels standard for their state that will ensure the growth of ethanol use. RFG areas, like Chicago and Milwaukee, where the use of ethanol has been a huge success should be allowed to continue with their programs.

· Any renewable fuels standard must have strong enforcement and penalty provisions, and the Secretary of Agriculture must be involved in making any decisions concerning waivers of the requirement related to concerns over potential shortages of ethanol due to drought or other extraordinary occurrences.

· If enacted, a renewable fuels standard should include strong anti-backsliding language that will preserve the real-world gains made from the use of oxygenated fuels in RFG areas. To prevent refiners from increasing toxics an aggressive cap should be imposed on the level of aromatics in gasoline.

· A renewable fuels standard, if enacted, could also include credit-trading mechanisms, to provide flexibility for refiners, and protection for consumers.

If it is politically feasible to hold on to the oxygen requirement in reformulated gasoline as MTBE is eliminated from use in the country, then that is what we would prefer happen. However, the reality is that that might not be possible. Another reality is that the EPA may grant a waiver from the oxygen requirement to California, and should that be granted, the Northeast states would not be far behind in submitting their waiver application. The Governor of Missouri has recently asked the EPA to be let out of the RFG program because of his concern with MTBE.

If those waivers happen any chance of growth in the ethanol market becomes severely limited. And then, those 975 farmers who pooled together their own money to build an ethanol plant in Wentworth, South Dakota, who broke ground last week will be left without a market for their fuel. And any other farmer group out there that is looking at creating some extra income for their family through processing their corn into ethanol, including the 12 farmer-led groups who recently met in Iowa and are looking at ethanol plant projects, will most likely be stopped dead in their tracks. Protecting the oxygen requirement, or finding some other mechanism to promote the increased use of ethanol, is vital to the future of this industry - vital. Finding a solution is not a partisan issue, it is an agricultural issue and an economic issue, and it is a personal issue to all the farmers who have invested in ethanol plants.

Creating a value for ethanol as a renewable fuel and as an oxygenate would be beneficial for our industry. A standard that would require an increasing amount of renewable fuels in reformulated gasoline areas would help give farmers and others the certainty of increased demand so that they could invest in and build more ethanol plants.

The United States Department of Agriculture estimates that replacing MTBE with ethanol in reformulated gasoline areas would increase the demand for corn for ethanol use by over 500 million bushels and would increase the price of corn by $.14 per bushel, which would increase total farm cash receipts by $1 billion annually. On top of that, we would then double the amount of petroleum the ethanol industry is currently displacing in our country. That's what we want to happen, the question is how do we best get there.

Any solution to this MTBE crisis that would at least ensure the doubling of the size of the ethanol industry, protect the investments of farmers in ethanol plants and preserve the air quality benefits achieved with the use of clean burning oxygenated fuels, would be something that we could support. Mr. Chairman, ACE's membership commends you for convening this important hearing, and thanks you for your longstanding support of the ethanol industry. We urge you and your colleagues to continue the tradition of seeking bipartisan solutions to these very complex problems, and we pledge our resources to assist you and your colleagues in any way that we can. Thank you for your time.