Missouri's ethanol mandate questioned

JEFFERSON CITY, Mo. -- A House committee will consider today whether to repeal Missouri's 4-month-old ethanol mandate.

A 2006 law requires most Missouri gas to be blended with 10 percent ethanol whenever it is cheaper than regular gas. That requirement kicked in Jan. 1.

Rep. Mike Dethrow, among the lawmakers who voted for the ethanol mandate, said Monday that it is time to re-examine how it's affecting the motorists, the state's economy and farmers.

Dethrow, R-Alton, said he wouldn't have voted for the requirement had he known what he does now. He said state and federal ethanol mandates have altered the market and contributed to higher animal feed prices.

Ethanol is essentially a grain alcohol made by turning plant starch into sugar, fermenting it and then adding a small amount of natural gasoline, making the mixture toxic. Because ethanol is similar to gasoline, most vehicle engines can use fuel blended with up to 10 percent ethanol -- called E10.

An economic analysis prepared by the consulting firm LECG estimates that Missouri motorists will save 9.8 cents for each gallon of E-10 they use in 2008. That study, paid for by the Missouri Corn Merchandising Council and released Monday, also predicts that over the next decade E-10 will save consumers $54 per year -- or $214 million for the entire state.

That's based on projected future costs of ethanol and oil prices from the Energy Information Administration.

Supporters of using biofuels point to the study as proof that Missouri was wise to require E-10. They argue that the mandate helps lower gas prices by increasing competition for gas.

Lawmakers this year are considering legislation that also would require use of biodiesel, which is made from soybeans and animal byproducts. That bill already has cleared the Senate but has yet to be debated by the same House Transportation Committee that is scheduled to accept public testimony today on Dethrow's bill.

Critics of the biodiesel mandate blame the ethanol requirement for driving up the price for livestock feed.

"When you guarantee a segment of the any industry a piece of the market, if affects those who don't have it," Dethrow said about the ethanol mandate.

But John Urbanchuk, who authored the ethanol gas prices study, said biofuels have had little effect of food prices and are only one of several factors making it more expensive to feed farm animals such as cattle and hogs.

"It is a factor in the livestock industry right now, but it's a complex set of facts," Urbanchuk said. Also, he said, ethanol production produces distillers grains that can be used as livestock feed to replace corn that is being used for ethanol.

Lawmakers who want the state to produce more biofuels said that besides lower gas prices, ethanol and biodiesel refineries bring new economic activity to rural areas and guarantee Missouri uses a renewable resource for some of its energy.

"There's only so much oil on this earth, but we can grow more corn and we can grow more soybeans," said Rep. Mike McGhee, R-Odessa.

A 2007 study produced by the Missouri Department of Economic Development estimates that biofuels could generate an additional $542 million in economic activity in the state each year through 2013.

That analysis projects state subsidies and tax breaks for the ethanol and biodiesel industries would result in a $14.8 million annual loss in state revenue, but a net gain in Missourians' personal income of $492 million each year.

Urbanchuk said one of those tax credits -- the Volumetric Ethanol Excise Tax Credit for suppliers who buy ethanol to blend it into gas before selling it to gas stations -- was factored into his economic analysis.

But he said it's impossible to calculate how all the tax breaks and subsidies that go into biofuels and regular gas would affect consumers' savings by using E-10.