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U.S. mulls ending ethanol import tariffs

/ Source: The Associated Press

The Bush Administration is considering lifting import tariffs on ethanol in a bid to alleviate any supply crunch of gasoline ahead of the peak summer demand driving season, Energy Secretary Samuel Bodman said Thursday.

"It's something the administration has considered and will continue to consider," Bodman told reporters, after a meeting with his counterparts from Canada and Mexico.

He conceded, however, that the power to actually lift the tariffs is out of the administration's hands. That authority lies with Congress, where any proposed policy changes to the ethanol import tariff scheme could face a huge challenge from key Republican leaders from farm states, particularly Senate Finance Committee Chairman Charles Grassley, R-Iowa., who have strongly opposed lifting the 54 cents a gallon tariff on ethanol imports from countries such as Brazil.

Taking action is largely a Congressional matter, Bodman said, although he noted that President George W. Bush wants lawmakers to seriously consider legislative proposals that would improve the ethanol supply outlook.

"The president has encouraged Congress to examine all options for increasing available supplies of ethanol," he said, adding that he "will continue to do that."

Kevin Book, a senior analyst at Friedman, Billings, Ramsey & Co., Inc., said it would be hard for lawmakers to support repealing a tariff that was established in the name of energy security.

"That 54 cent tariff was put in place in Congress in 1980 to boost America's energy independence," he said. "Even if you're not Chuck Grassley, that's a hard sell to make."

Book added that lifting the tariff could upset domestic sugar manufacturers because it would attract more sugar-based ethanol from Brazil, which could set a bad precedent for sugar imports.

Still, Bodman's comments sent stocks reliant on high ethanol prices into a frenzy. Pacific Ethanol shares ended down 7 percent at $34.89, while agribusiness giant Archer Daniels Midland, the largest U.S. producers of ethanol, closed down 7.7 percent at $40 in much higher-than-normal volume.

Ethanol industry groups argue that ethanol supplies are adequate and lifting the tariff is unwarranted.

"There is enough ethanol in this country and the tariff isn't a barrier to imports," said Matt Hartwig, spokesman for the Renewable Fuels Association. He said it's unlikely Brazil could export more supplies of ethanol because it's already facing a tight supply situation.