Colorado Legislature Debates Ethanol Mandate

Published June 1, 2006

The Colorado Senate on April 27 approved a bill requiring 75 percent of all gasoline sold in the state between November and April to contain at least 10 percent ethanol.

The bill, which had been stalled in the Senate under fierce opposition, was immediately sent to the House, where it was put on the fast track for consideration by the House Agriculture, Livestock, and Natural Resources Committee.

Tax Credits Proposed

The bill, S.B. 138, cleared the Senate in a 27-11 vote. State Sen. Brandon Shaffer (D-Longmont) had made the ethanol mandate a top priority since last summer.

In addition to requiring Colorado motorists to purchase 75 percent of their fuel from ethanol blends during the winter months, the legislation would provide tax credits to encourage the use of 85 percent ethanol blends and ethanol made from nontraditional sources such as trees or grasses.

Ethanol Debate Rages

“Ethanol-based products are less expensive,” asserted Shaffer in the April 28 Telluride Watch.

While Shaffer, a Democrat, strongly supported the bill, Republicans were divided. “We are sticking it to every driver in the state of Colorado,” protested state Sen. Jim Dyer (R-Centennial) in the Telluride Watch article, noting cars using ethanol get lower gas mileage than those using regular gasoline.

“I truly believe we have the opportunity to lessen our dependence on foreign oil, help the environment, and make use of home-made and home-grown fuel,” countered state Rep. Cory Gardner (R-Yuma) in the April 28 Sterling Journal-Advocate.

Analysts Split

Free-market analysts are also split on ethanol, producers of which receive subsidies and tax credits from the federal government. Some analysts, such as Heartland Institute Science Director Jay Lehr, believe ethanol is a long-term winner with or without favorable government treatment. Others, like the Cato Institute’s Jerry Taylor, feel government is unfairly picking winners and losers in an economic matter best left to free markets.

“Although I long opposed ethanol, technology has advanced to the point where it makes sense both economically and environmentally,” Lehr said. “Ethanol is fast reaching a point where it can thrive without government assistance or mandates.”

“If ethanol makes so much sense, it should not need favorable tax treatment relative to gasoline,” countered Taylor. “Let the market, rather than politicians, decide what fuel source is best for America. The citizens of Colorado will be the losers if this bill becomes law.”

Production Setting Records

The Colorado debate is occurring at a time when ethanol production is achieving all-time records. Data from the U.S. Energy Information Administration show the U.S. ethanol industry set a new monthly production record of 302,000 barrels per day in February 2006. February’s production represented a 14,000 barrels-per-day increase over the prior month’s production, and a 57,000 barrels-per-day increase over February 2005.

The increase in ethanol production is important to meet rising demand resulting from ongoing environmental and legal problems associated with the clean-air fuel additive MTBE.

“These numbers completely dispel the myth of ethanol shortages this driving season,” Bob Dinneen, president of the Renewable Fuels Association, told AgWeb on April 28. “With dramatic increases in both production and stock supplies, as well as increased imports, it is abundantly clear that ethanol supplies will be more than adequate to meet the surging demand created by gasoline refiners’ decision to eliminate MTBE. The U.S. ethanol industry has the supply and the know-how to get ethanol to the markets that need it when they need it.”

Hearings Discuss Long Term

In April 26 hearings on Capitol Hill, U.S. senators discussed extending federal tax credits and import tariffs to provide long-term security to ethanol manufacturers. A 51 cents-per-gallon federal Volumetric Ethanol Excise Tax Credit took effect in January 2005 and is currently scheduled to expire in 2010. A 54 cents-per-gallon tariff on ethanol imports is scheduled to expire in 2007.

“This is a long-term, very serious challenge,” Sen. Pat Roberts (R-KS), who advocates federal guarantees to ethanol manufacturers, explained in the hearings. “Certainly our communities invest in the long-term viability of these biofuels, but these [production facilities] must be able to sustain price changes in our commodities irrespective of future market fluctuations.”

“If the federal tax credit of 51 cents per gallon is eliminated, ethanol production would fall sharply to about 1.5 billion gallons per year,” added Sen. Saxby Chambliss (R-GA). He cautioned, “We’ve got to make sure that folks understand that they’re going to have the ability to get a decent return on their investment based in the long term.”

James Hoare ([email protected]) is an attorney practicing in Syracuse, New York.