Lifting ethanol tariff will not lower gasoline prices: senators

Washington (Platts)--5May2006

Lifting the 54 cents/gal tariff on Brazilian ethanol imports would not
lower gasoline prices for consumers, according to two US senators from large
corn-growing states.

Republican senators Chuck Grassley of Iowa and John Thune of South
Dakota said instead of lowering prices for consumers, suspending the tariff
would "undermine efforts to make our country more energy independent and
reward the oil companies that are already raking in record profits." Corn is
the primary feedstock for ethanol in the US; sugar cane is the main feedstock
for Brazilian ethanol.

Some in Congress have urged a temporarily repeal of the import tariff,
saying it could boost the amount of ethanol moving into the US and help lower
gasoline prices. Many analysts have said that a tight ethanol market has
contributed to strong gasoline prices, particularly in reformulated gasoline
areas, since refiners have switched from using the additive MTBE to ethanol in
that clean-burning gasoline formulation.

Representative John Shadegg, an Arizona Republican, earlier this week
introduced a bill to lift the tariff. "By impeding competition in a domestic
ethanol industry that is not yet large enough to meet the enormous demand for
the product, the tariff effectively forces up domestic prices for ethanol, and
by extension, for gasoline," he argued as he unveiled his legislation.

The American Coalition for Ethanol Friday said a repeal of the import
tariff would have "no impact" on the price of gasoline because it does not
address the primary culprit behind the gasoline prices -- the record high cost
of crude oil.

"There's too much misleading propaganda claiming that 'boat loads' of
ethanol from Brazil can save the day for US motorists if we would simply
suspend the secondary tariff on ethanol imports -- this is nonsense," ACE
Executive Vice President Brian Jennings said in a statement.

The coalition Friday sent a letter to President George W. Bush and
Congressional leaders asking them to oppose any moves to lift the tariff. In
the letter, Jennings argued that lifting the tariff was unnecessary because a
"significant" amount of ethanol -- up to 7% of the US market -- can already be
imported into the US duty free under the Caribbean Basin Initiative.

Jennings also said that removing the tariff would force US taxpayers to
support the production of foreign ethanol that is already heavily subsidized
in Brazil. "The 51 cents per gallon blender's tax credit is available to
ethanol, no matter the country of origin, and the primary purpose of the 54
cent import duty is to protect American taxpayers from subsidizing
foreign-produced ethanol," he said.

Jennings contended that US ethanol supplies are adequate to meet the
demand created by the removal of MTBE from the fuel supply, and said that
lifting the tariff would undermine the growth of the US ethanol industry.
"Suspending the import duty, even temporarily, would substantially undermine
efforts to finance and construct new ethanol plants, taking the steam out of
an economic engine that is creating jobs, driving economic development, and
gaining ground on energy independence -- one gallon at a time," Jennings said.

US Energy Secretary Samuel Bodman on Thursday said the Bush
administration is considering lifting the tariff. But he suggested the
decision on the tariff was really up to Congress, which was juggling a variety
of different interests on the matter. Many lawmakers from corn-growing states,
for example, are concerned that cheaper ethanol from Brazil could erode their
market share.

--Cathy Landry, cathy_landry@platts.com

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