Ethanol in gas won't be halved

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By Patrice Hill

The Bush administration Thursday rejected pleas from a diverse coalition of ranchers, environmentalists, food and consumer groups to ease this year's spiral in food prices by halving the amount of ethanol required in gasoline.

Groups from the World Bank to the World Food Organization and Sierra Club have blamed the ethanol requirement for driving up the price of corn, which is a basic ingredient not only in ethanol but also in many foods from sodas to vegetable oil, and is used worldwide as feed for cattle and hogs. The price of corn and other essential grains surged to record highs this spring and spurred cries for relief from the ethanol mandate and backtracking by ethanol supporters in Congress.

But corn prices have plunged since the steep run-up this spring — part of a global retreat in commodity prices sparked by slowing economic growth in the United States and the rest of the world — easing pressure on the administration to act. Corn prices are down 34 percent from a record near $8 a bushel set June 27.

The Environmental Protection Agency said the damage to the economy was not severe enough to merit a waiver of the 9-billion-gallon mandate this year requested by Texas and 77 members of Congress on behalf of ranchers hit hard by soaring feed costs. The decision was the first test of procedures for waiving the mandate if it leads to widespread economic or environmental problems.

EPA Administrator Stephen L. Johnson, who was flooded with 15,000 comments on the matter, said he recognizes that high food prices are causing a hardship for many consumers, ranchers and restaurants, but those costs had to be weighed against the benefit of lower gas prices and oil imports as a result of using ethanol for 10 percent of the nation's transportation fuel.

The mandate "is strengthening our nation's energy security and supporting America's farming communities," he said. It "remains an important tool in our ongoing efforts to reduce America's greenhouse gas emissions and lessen our dependence on foreign oil in aggressive yet practical ways."

While studies by the United Nations showed ethanol and other biofuels accounted for a third or more of food price increases this year, administration studies concluded that ethanol caused only a small fraction of U.S. price increases, which it said are due more to soaring demand for grains in Asia.

It was the latest in a string of EPA decisions to provoke a storm of protest.

"Higher corn prices are creating a serious economic burden for restaurants and consumers. Restaurateurs are being sorely challenged by the sharp increase in wholesale food prices — the largest in 27 years," said John Gay, senior vice president at the National Restaurant Association. He urged Congress to revisit the mandate "to ensure that we are not forcing our needs on food and fuel to compete against each other."

Scott Segal, a lawyer representing independent refiners, noted the "extraordinary common ground" that oil businesses found with environmentalists and ranchers in opposing the mandate. "The EPA appears to have been somewhat cavalier in the way it treats food-price shocks, and overly optimistic in the way it describes alleged ethanol benefits," he said.

Environmental groups opposed the mandate because it has prompted farmers to plant corn on land previously set aside for conservation, is depleting water supplies in arid areas, and has led to an increase in fertilizer and pesticide runoff into the Mississippi River and other major waterways.

"Biofuels are not the solution that corporate agribusiness is making them out to be," said Kate McMahon of Friends of the Earth. "They are worsening global warming and polluting our air, water and soil. ... Instead of getting stuck on false solutions, what we need to do is use less fuel altogether."

But corn farmers, alternative energy groups and foreign ethanol producers applauded the decision.

"We're pleased that the EPA did not turn its back on the promise of renewable fuels," said American Farm Bureau Federation President Bob Stallman. He noted that the mandate was designed to stimulate development of ethanol from cellulosic fibers and grasses, which if commercially feasible would be far better for the environment and the economy than corn-derived ethanol.

"Today's EPA decision was sound. It is the high price of gasoline - not the Renewable Fuel Standard - that is driving ethanol demand," said Joel Velasco, a representative of Brazilian farmers who use sugar cane to make ethanol. "Reducing the blending mandate would have no impact on ethanol demand in the short term and could jeopardize future production of advanced renewable fuels."