Ethanol tariff may be lifted for Bush goal

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From combined dispatches

The U.S. tariff on ethanol imports probably would be lifted to meet President Bush's goal of increasing the use of renewable fuels, Energy Secretary Samuel W. Bodman said yesterday.

We are "probably going to need to remove the tariff so we can import more," Mr. Bodman said at a roundtable discussion at the World Economic Forum in Davos, Switzerland.

Mr. Bush, in his State of the Union address Tuesday, said the United States should expand the mandate for alternative fuels such as ethanol to 7.5 billion gallons by 2012 and 35 billion gallons by 2017 to reduce gasoline consumption by 20 percent. The U.S. imposes a 54-cent-a-gallon tariff on ethanol imported from countries outside the Caribbean and Central America.

The U.S. ethanol industry would have trouble producing more than 14 billion gallons within the next five to eight years, said Todd Alexander, a partner with Chadbourne & Parke in New York that has helped develop and finance ethanol plants.

"And even that would be difficult to achieve," he said.

Indeed, 35 billion gallons of ethanol would require more corn than the nation's 11.1 billion bushel yield last year, the environmental group Friends of the Earth noted.

Lifting tariffs may generate opposition from lawmakers in states that rely on them to make their ethanol competitive with fuel from countries like Brazil.

"It will happen over Chuck Grassley's dead body in the near term," said James Lucier, a senior political analyst at Prudential Equity Group. "Grassley believes that ethanol is still a nascent industry that needs to be protected from foreign competition."

Mr. Grassley, Iowa Republican, has maintained support in a state that is trending Democratic "because of his intimate association with the Iowa farm industry," Mr. Lucier said.

In May, Mr. Bush said he wanted to work with Congress to drop the ethanol tariff to address supply concerns and reduce gasoline prices. Ethanol became the primary additive in reformulated gasoline in the spring, a process that resulted in spot shortages and surging pump prices.

The U.S. "must go beyond corn" to increase ethanol supplies, Mr. Bodman said. Corn could produce only 12 billion to 15 billion gallons of fuel a year, so the nation must develop ways to derive ethanol from plant waste.

Last year, major corporations, venture capitalists, investment banks, hedge funds and farmers spent a record $71 billion worldwide on renewable energy, according to New Energy Finance, a London research firm.

The $71 billion invested in renewable energy last year marked a 43 percent increase over 2005, according to New Energy Finance. The research firm estimates 1,250 private equity funds target environmental projects.

Investments in wind energy topped the list, New Energy said, driven by a U.S. tax credit and production costs competitive with fossil fuels. No alternative energy absorbed more financing worldwide than solar -- $4.4 billion, double the 2005 amount.

Ethanol, though, remains the short-term renewable of choice. Seventy-five plants are under construction in the United States -- Mr. Bush's speech will surely encourage more -- in addition to the 111 factories already operating, according to the Renewable Fuels Association.

Goldman Sachs invested $27 million in a Canadian factory earlier this year. Sun Microsystems co-founder Vinod Khosla has steered tens of millions of dollars into ethanol projects, as has Microsoft founder Bill Gates, who pumped $84 million into Pacific Ethanol last year.

Richard Branson, the billionaire founder of Virgin Airways, is the alternative-fuel industry's latest avatar. In the fall, Mr. Branson pledged $3 billion to finance for-profit renewable energy projects. Roughly $400 million will help build ethanol refineries in the United States.