The nation's corn growers and ethanol makers have had the brass ring yanked away for the second year in a row.

California Gov. Gray Davis has given California refineries another year to transition from MTBE (methyl tertiary butyl ether) to ethanol, denying once again to corn growers and ethanol makers a 750- to 900-million-gallon per year market.

Davis is running for re-election and doesn't want to chance gasoline prices reaching $3 per gallon for the voters who drive the 20 million vehicles registered in the state and fuel up at the more than 11,000 gas stations.

“I am not going to allow Californians to be held hostage by another out-of-state energy cartel,” Gov. Davis said. He does not believe the ethanol industry has the capacity to meet the demand for ethanol in California if MTBE is banned now.

In February, an independent study commissioned by the California Energy Commission (CEC) warned that price spikes of up to 100 percent are likely if MTBE is phased out without an adequate supply of ethanol available and ready for distribution. In 1999, California experienced a supply reduction of similar magnitude due to fires at TOSCO and Chevron refineries, and the price of gasoline doubled. The independent study also said that phasing out MTBE next year could result in a 5 to 10 percent gas shortage.

Not surprising, the nation's corn growers responded to Davis' executive order with more than “aw shucks.”

“Extreme disappointment, dismay and anger” were just three of the sentiments expressed by renewal fuel advocates.

Fears unwarranted

National Association of Corn Growers (NCGA) president Tim Hume, a corn grower from Walsh, Colo., said Davis' fuel shortage fears from mandating ethanol use are unwarranted.

“This view illustrates the complete lack of knowledge of the ethanol market and the U.S. transportation system in California government,” bristled Hume.

What makes corn growers even more angry is that Davis and the state's refineries believe fuels can be produced in the state to meet the federal clean air standards without any oxygenate additive, MTBE or ethanol.

By extending the so-called ethanol phase-in period, Davis is giving himself and his Democratic allies political wiggle room to get legislation through Congress legislation to either counter the Environmental Protection Agency's denial of a waiver to California of federal oxygenate requirements or increase ethanol production.

The day before signing the executive order, Davis said he has talked to Senate Majority leader Tom Daschle of South Dakota, and who “ has a bill to fix the (California) problem, and it's heading in the right direction.”

The governor's actions also incited the ire of Corn Belt Republican Sen. Charles Grassley. In the wake of Davis' announcement, Grassley said he would offer legislation as part of the Senate's scheduled debate on a broad U.S. energy policy that would force California to stick to its 2003 ban.

Unpopular in state

Grassley is already unpopular in California, the nation's No. 1 agricultural state, for his amendment to the Senate farm bill that would place onerous limits on marketing loan benefits.

The Grassley-Dorgan amendment would cripple the federal farm marketing loan program and render generic commodity certificates useless, undermining the safety net for all crops. That amendment has drawn opposition from both sides of the political aisle among California Congressmen and its two Democratic senators. His latest announcement to force ethanol on California will almost assuredly nullify any free trip to Disneyland.

Davis is walking a fine political line because the MTBE/ethanol debate has a serious and growing environmental issue.

MTBE has been used as a gasoline-blending component since 1979 to raise the oxygen content of gasoline in an effort to produce less carbon monoxide. However, MTBE also has been found leaking into groundwater supplies and causing widespread water pollution in California and many other states. Regulators continue to make new MTBE finds in the state while gasoline stations continue selling gasoline containing MTBE.

In effort to win support within California, NCGA CEO Rick Tolman met with representatives from the California Agriculture Leadership Program in March, and he said they were open to the idea of using the corn-derived fuel additive.

“They were interested in our policies on ethanol,” he said. There were some initial questions concerning NCGA “forcing ethanol on California,” but he was able to explain to them it's not necessarily about ethanol. “I explained to them we were not so much interested in California using ethanol but in an overall renewables program across the U.S., whether it's corn or other products, they really warmed up to that.”

Other raw materials

California produces only about 500,000 acres of corn annually and less than half of that is for grain. The majority of it is for silage used primarily by dairies. That means California could not supply a significant amount of product for a corn-to-ethanol plant. However, proposals have been made to use rice straw, and there have been suggestions that cull fruit could be a source for ethanol plants. The rice idea has some merit, but it is probably not economical to use cull fruit since it would probably cost more to harvest it than growers would receive as an ethanol feedstock.

Plus if there were a huge cull fruit supply it would reflect a severe economic decline in that industry that would not be turned around by selling peaches, plums, grapes, raisins or other perishable products for ethanol.

However, other California farmers support ethanol use in the state because it would reduce corn surpluses outside of California and improve prices for corn, alfalfa and other livestock forages. Increased ethanol use also could increase corn acreage elsewhere, thus reducing acreages for commodities in an oversupply, like cotton which is more of an agricultural mainstay in California.

Davis did not promise that his latest deadline extension would be his last. “The federal legislation to create a national renewable fuels standard is important to California. We will watch developments very carefully as we decide how to proceed with the transition to ethanol — including, if necessary, a review of this executive order next year,” he said.

The new timeline for the MTBE phase out gives Congress time to harmonize its new ethanol mandate with California's actual ethanol usage in 2004 and beyond, according to Davis.

Deadline

Under the newly announced timeline, the MTBE phase out will be accomplished no later than Dec. 31, 2003. Individual refineries may make the transition to ethanol earlier than December 2003 if they determine it is feasible and will not risk supply shortages or price spikes.

Even though Davis has extended the deadline for the MTBE ban, ChevronTexaco Corp. and other California refiners are keeping on track in meeting the original time frame of Jan. 1, 2003, for removing MTBE, according to (NCGA).

“There is a continued danger using MTBE in California gasoline. California refiners and gasoline distributors can still do the right thing and begin using ethanol now,” said Hume.

ChevronTexaco continues to minimize the use of MTBE, ChevronTexaco spokesperson Nicole Hodgson told NCGA. At its Richmond, Calif., refinery, 3 billion gallons of gasoline without MTBE added already has been produced. The challenge is getting it to the consumer. “The state relies on a common distribution system for petroleum products, so because of that, there is some uncertainty if we can directly introduce it to the market, Hodgson said.

“According to several news reports, four of California's six major oil companies prefer to switch from MTBE to ethanol this year,” said Bob Dinneen, Renewable Fuels Association (RFA) president.

“The domestic ethanol industry has demonstrated there are sufficient supplies of ethanol to replace MTBE, refiners have testified to their readiness to meet the original phase out deadline, and state water officials are adamant that drinking water supplies be protected. More importantly, consumers across California overwhelmingly believe MTBE should be removed from gasoline,” according to Dinneen.

e-mail: hcline@primediabusiness.com