Ethanol Mandate Post-Mortem

The unjustifiable Wisconsin Ethanol Mandate is presumed dead after having been indefinitely postponed in the Senate, but stranger zombies have re-emerged to haunt the helpless masses. Ironically, action at the Federal level may be the key factor in keeping this mandate deceased and harmless while at the same time demonstrating there was no need for this statist anti-market approach in the first place.

EPA Revokes Mandate: (2/15/06) In a move to provide greater flexibility in producing clean-burning gasoline to protect and improve air quality, EPA is revoking the two percent oxygen content requirement for reformulated gasoline (RFG) nationwide. … The revocation takes effect nationwide on May 6 and in California 60 days after the regulation's publication in the Federal Register.

The EPA announcement uses language to imply some noble action to remove a Federal “burden” but the reality is this reversal and backtracking from 1990 Clean Air Act guidelines has more to do with big dollar liability than any sincere appreciation for free markets. It turns out that mandating gasoline have additives to replace the completely demonized lead formulations merely created new environmental problems.

MTBE in Fuels: MTBE has been used in U.S. gasoline at low levels since 1979 to replace lead as an octane enhancer (helps prevent the engine from "knocking"). Since 1992, MTBE has been used at higher concentrations in some gasoline to fulfill the oxygenate requirements set by Congress in the 1990 Clean Air Act Amendments.

Oil Companies to Pay Clean Up Costs: (2/16/2005) LOS ANGELES - Under the terms of a settlement filed today in federal court, several oil companies will pay $1.5 million to the U.S. Environmental Protection Agency for costs it incurred while directing the investigation and cleanup of methyl tertiary butyl ether or MTBE, a gasoline additive, from a groundwater basin formerly used for drinking water by the City of Santa Monica.

So while at the State level Sergeant Schultz was working to give Wisconsin citizens one single government approved consumer choice, the oil industry and the Bush administration were figuring out how to keep MTBE from becoming the next Asbestos like permanent lawsuit industry for the trial lawyers. The simple solution is government will stop requiring MTBE and the industry will stop using it within hours of the May 6, 2006 sunrise.

Additive's Demise Pumps Up Fuel Prices: The federal Environmental Protection Agency, responding to more than a decade of concerns that MTBE is polluting water supplies and making motorists sick, recently announced that it would end its oxygenated fuel requirement on May 6. … Although not an outright ban on MTBE, the EPA's action, which follows federal legislation, effectively ends its use because refiners don't want any liability if they continue to use MTBE.

Of course any abrupt change in an essential market will have ripple effects and the ethanol industry is going to get the entire gasoline additive market by default. Absolutely 100% blue sky opportunities without the need for campaign cash to Governor Doyle for his signature.

Ethanol Industry Braces for Growing Pains: Energy analysts said it is unclear whether ethanol producers can manufacture and distribute enough supply once U.S. refiners phase out the use of a petrochemical called methyl tertiary butyl ether, or MTBE, which enables gasoline to burn more completely, and thus more cleanly, but carries some public health risks.

It’s the distribution factor that may cause everyone the big headaches because unlike gasoline, or leaded gasoline, or MTBE gasoline, ethanol blends can’t be shipped long distance through pipelines. Expect a lot more heavy truck traffic on the Interstates this summer.