May 05,2006

Grassley: Lifting Ethanol Import Tariff Won’t Help to Lower Gas Prices

Floor Statement of Sen. Chuck Grassley
Chairman, Committee on Finance
Delivered Friday, May 5, 2006

Mr. President, I’d like to speak on a matter that has gotten a lot of attention lately, and for good
reason. The rising cost of gasoline is hitting all Americans hard. Families, businesses, farmers, and
truckers are all hurting as the cost escalates out of control.

With gas prices now hovering near $3 a gallon, everyone here in Congress is looking for a solution
or for someone to blame. Unfortunately, some have chosen to pinpoint ethanol as the culprit.
However, blaming ethanol for the costs at the pump ignores the fact that crude is at near record
highs, and our country is still suffering from a strained domestic refining industry.

Around the country, gasoline refiners are making a voluntary decision to remove MTBE, a gasoline
additive, from the market. In its place, they are using ethanol. So, ethanol is currently being blended
for the first time in many parts of the East Coast and in Texas.

Because of the new demand for ethanol, some of my colleagues have begun to argue that there is a
shortage and that it’s responsible for the rising cost of gasoline. They look to increased imports of
ethanol, and the lifting of the import tariff, as the solution. Let me be clear: There’s no shortage of
ethanol. And, ethanol is a tiny fraction of the cost of gasoline.

You don’t have to take my word for it. Guy Caruso, Administrator of the Energy Information
Administration of the Department of Energy, recently stated that the 10 percent blend of ethanol is
affecting prices by “just a few pennies.” Ethanol’s role in gasoline prices is a tiny fraction of the
overall increase.

I’d also like to address the claim that there is a shortage of ethanol. According to the Energy
Information Administration, 130,000 barrels per day of ethanol are needed to replace MTBE. Last
month, 302,000 barrels of ethanol were produced each day. That seems to me like it’s enough to
meet the demand. There’s also 25 days of ethanol supply in storage.

Have there been some transportation issues surrounding the transition from MTBE to ethanol? The
answer is yes, and they’re being dealt with. Sufficient supplies of ethanol are where they need to be.
There is no shortage of ethanol.

If there is no shortage, what good does it do to eliminate the import tariff on imported ethanol?
None. Domestic supplies are sufficient.

Lifting the tariff won’t have an impact on gas prices as the only other major producer of ethanol –
Brazil – simply doesn’t have enough ethanol to export at significant levels at this time. I know this
issue well. I was in Brazil just six weeks ago, and one thing I heard over and over was that Brazil
is experiencing an ethanol shortage.

Shortages of ethanol in Brazil are being driven by strong demand for ethanol in that country. Looking
at the longer term, USDA analysts in Brazil are reporting that Brazil is anticipating even higher
demand for ethanol later this year and in 2007.

Given low supplies in Brazil, there has even been talk of importing ethanol into Brazil.
I’d like to point out something else. Brazil and other countries can already ship duty-free ethanol to
the United States. They don’t have to pay the U.S. tariff. Under the Caribbean Basin Initiative,
Brazilian ethanol that is merely dehydrated in a Caribbean country can enter the U.S. market dutyfree
up to 7 percent of the U.S. ethanol market. That’s generous access, but Brazil has never even
come close to hitting the 7 percent cap.

And it isn’t that the Caribbean countries don’t have the capacity to dehydrate more Brazilian ethanol.

They do.

As we’re already providing duty-free access for Brazilian ethanol shipped through Caribbean
countries, and as Brazil isn’t taking full advantage of this duty-free treatment, I don’t know why we
should bend over backwards to provide even more duty-free access for Brazilian ethanol.

I especially don’t know why we should do this given Brazil’s stance in the Doha Round negotiations
of the World Trade Organization. Brazil is the leader of the G-20 negotiating group in the WTO
negotiations, a group that is resisting our efforts to obtain improved market access for U.S. products
around the world.

In addition, the Brazilian government intervenes extensively in the price and supply of ethanol in that
country. But the U.S. tariff on ethanol operates as an offset to an excise tax credit that applies to both
domestically produced and imported ethanol. So by lifting the tariff, we would in effect be giving
the benefits of a U.S. tax credit to subsidized Brazilian ethanol.

Providing yet more duty-free treatment for Brazilian ethanol would send the wrong signal to those
Americans who are devoting their careers to help America become more energy independent. The
U.S. ethanol industry is working every day to lessen our dependence on foreign oil. This is a virtue
that President Bush has touted again and again.

Just last week the President restated his goal to replace oil from around the world by expanding the
use of U.S. ethanol.

The President stated, “The federal government has got a role to play to encourage new industries that
will help this nation diversify away from oil. And so we’re strongly committed to corn-based ethanol
produced in America.” The President clearly understands the need to assist our domestic ethanol
industry so that it can get a foothold and succeed. Why would the United States want to send a signal
that we’re backing away from our efforts to seek energy independence by promoting renewable fuels
in the United States?

We’re already dependent on foreign oil. Surely, President Bush doesn’t intend for our nation to go
down the path of eventually becoming dependent on foreign ethanol also. Providing yet more dutyfree
treatment would be a step in the wrong direction. I don’t think our country should take any
action that would harm the farmers and investors in rural America who have worked so hard to
develop this industry. The efforts to reduce our dependence on foreign oil have only just begun.

Providing more duty-free treatment for ethanol won’t increase supplies or reduce prices at the pump.
It’s a solution in search of a problem. It’s a bad idea for our energy independence and our national
security.

-30-