Memo To Congress: First, Do No Harm

Capitol Hill's rush to promote alternative fuel could yield some damaging legislation

Oil prices may have dipped, but Washington's enthusiasm for curbing America's oil addiction hasn't wavered.

Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) is pushing a bill that requires ethanol and biodiesel production to jump tenfold by 2030, one of scores of similar measures. President George W. Bush is expected to announce new incentives for ethanol in his State of the Union speech. Add in a flood of bills mandating limits on carbon dioxide emissions, which would also boost fuel alternatives, and "this is the first time in 30 years of working on energy legislation that I've seen a consensus that major changes are essential," says Philip E. Clapp, president of the National Environmental Trust.

Yet even as ethanol supporters bask in the bipartisan attention, they fret that good intentions could go awry. "This is a very dangerous situation. There are all these people who just discovered ethanol, and they're introducing all these bills," warns House Agriculture Committee Chairman Colin Peterson (D-Minn.). "Fifty percent of them will do more harm than good."

Take the idea of mandating a big increase in renewable fuel for cars. The 2005 Energy Bill requires refiners to use 7.5 billion gallons of ethanol per year by 2012. Combined with the existing 51 cents-per-gallon tax credit and soaring oil prices, that provision has triggered an ethanol investment boom. Production leapt to 5 billion gallons in 2006, and the industry will have the capacity to make more than 11 billion gallons by 2008.

The problem: That capacity bumps up against the so-called blend wall. Auto fuel that contains more than 10% ethanol is too corrosive to use in existing gas station pumps. Without new pumps, and cars capable of running on high-ethanol fuel, the U.S. can't use more than 8 billion to 10 billion gallons of ethanol a year. "We've done a better job of focusing on production than we have on distribution," concedes booster Senator Barack Obama, a probable Democratic Presidential candidate who hails from corn-producing Illinois.

What some experts see as the best policy may be the least likely to pass: a tax on oil that kicks in only if the price goes below, say, $40 per barrel. "That would keep OPEC from dropping the price of oil to drive out ethanol," explains venture capitalist and ethanol investor Vinod Khosla. Democrats, however, fear they can't get the new taxes by Republicans.

At this point, ethanol backers are hoping that Congress doesn't make things worse. Says Peterson: "Just don't screw us up."

By John Carey and Eamon Javers

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