Energy

President Bush today came out in support of at least a temporary end to the tariff on ethanol imports, putting the “pro-ethanol” president at odds with the ethanol industry and farm-state lawmakers. In an interview with CNBC, Bush said, “I think it makes sense to — when there’s a time of shortage of a product that’s needed, so that the consumers can have a reasonable price, it seems to me to make sense to address those shortages, and dropping a tariff will enable the foreign export of ethanol into our markets, which will particularly help on our coasts. And yeah, I’ve talked to Congress about that.”

However, the ethanol industry contends that there are sufficient supplies of ethanol to meet the demand and that dropping the tariff will have no impact on prices. According to the Renewable Fuels Association:
The Energy Information Administration (EIA) estimates that 130,000 barrels per day (b/d) of ethanol will be needed to replace the volume of MTBE refiners have chosen to remove from the gasoline pool. The most recent EIA report shows that U.S. ethanol production has soared to 302,000 b/d in February.

In addition, there have been reports that Brazil is having trouble meeting its own demand for ethanol. A recent Knight-Ridder article said that Brazilian ethanol producers are struggling to keep up with domestic demand for ethanol, which is projected to grow by 50 percent over the next five years. Yet a 15 percent jump in prices earlier this year sparked a sharp drop in consumption. Even so, suppliers are struggling to plant enough fields of new sugar cane, from which ethanol is produced here, to keep up with the anticipated growth in demand.

Energy Secretary Samuel Bodman sent ethanol stocks down today with comments that the Bush administration is considering lifting import tariffs on ethanol, but ethanol interests were busy out stating their reasons why the tariffs should remain in place. Senator Charles Grassley (R-IA) and Sen. John Thune (R-SD) issued a joint statement saying that ending the duty is unnecessary and would have negative consequences. “Everyone’s looking for a way to lower gas prices, but lifting the ethanol tariff won’t mean lower prices for consumers. What’s more, it would undermine efforts to make our country more energy independent and reward the oil companies that are already raking in record profits.”

The Alcohol and Tobacco Tax and Trade Bureau (TTB) is warning the public not to start their own home ethanol plants. A notice on the TTB website says “it is illegal to distill alcohol without first obtaining a Federal permit” from the TTB. The notice is in response to “several news items on people distilling ethanol at home to supplement their gasoline needs.” Those wishing to distill alcohol at home are invited to contact TTB to apply for a permit, but I would bet it’s no easy process, since they note there “may also be additional permitting requirements and other restrictions on the state and local level.”