Peter Schrag: Can California avoid the next energy mess?
The Sacramento Bee
Opinion by Peter Schrag
Jan. 30, 2002
LINK TO PUBLISHED ARTICLE
Now that "energy crisis" and Enron have become household words, Californians had better get familiar with ethanol and Archer Daniels Midland.
The two sets of terms aren't corollaries, but close enough. The Bush administration has ruled that without an "oxygenate" additive such as ethanol or MTBE, now being phased out because of water pollution problems, California gasoline won't burn cleanly enough to meet air-quality standards. It thus won't give the state a waiver from the federal requirement.
But as a leading environmentalist says, the decision is based a lot more on political science than science. And it could cost California motorists close to a half-billion a year.
And that's where ADM comes in. The monster agribusiness company, which calls itself supermarket to the world, markets about half the ethanol produced in this country. ADM's contributions to politicians of both parties -- some $4.5 million in the 1990s, plus some $930,000 in soft money in the 2000 election cycle alone, including $100,000 for the Bush inauguration last year -- put it ahead of Enron on many lists of political-influence peddlers.
The investment, bolstered by intensive lobbying from Midwest farmers, is paying off handsomely. The president says that ethanol, a "renewable" fuel that comes mostly from corn, not only reduces emissions but also fosters energy independence.
The claim is dubious. Many studies indicate that ethanol, while reducing carbon monoxide emissions, increases the emission of smog-producing and other toxic compounds. A 1999 report commissioned by the U.S. Environmental Protection Agency itself called for an end to the requirement. That, the panel said, "will result in greater flexibility to maintain and enhance emission reductions, particularly as California pursues new formulation requirements for gasoline."
The Sierra Club, the Natural Resources Defense Council, the Clean Air Trust and other environmental groups echo the findings. But Washington hasn't paid much attention. Despite evidence that ethanol has contributed nothing to energy independence, every gallon of gas with ethanol gets a 5.4-cent federal subsidy (which costs $600 million a year in federal highway funds). And as MTBE is being phased out -- in California, Gov. Gray Davis has set Jan. 1, 2003, as the deadline -- ADM and other ethanol producers stand to gain handsomely.
Davis has lobbied vigorously for a waiver of the ethanol requirement, arguing, with considerable evidence, that California's auto and fuel standards will achieve the same or even better results without ethanol. He's also suing the federal EPA.
According to a North American Free Trade Agreement claim by Methanex Corp., a Canadian producer of MTBE, Davis himself got $200,000 from ADM during the 1998 gubernatorial campaign and allegedly was flown to ADM headquarters in Decatur, Ill., to meet with company officials. MTBE didn't have to be phased out, Methanex says; the problem is not the compound but the flawed underground tanks from which it leaks. Davis' phaseout order, says the claim, suggests still more influence peddling.
But in this case, ADM's investment hasn't paid off. There's been overwhelming pressure in California, as elsewhere, to get MTBE out of gasoline as quickly as possible. Davis is not doing ADM's bidding; he's trying to straddle a line between cleaner water and higher gas prices. Chances are he'll extend the MTBE phaseout and try to negotiate with Congress for (at least) more flexibility on ethanol.
Unlike Enron, ADM is not likely to implode; there's no sign of accounting shenanigans, no "partners" where red ink can be hidden. But six years ago, ADM was forced to pay $100 million in what was then the largest price-fixing fine ever imposed. In 1998, three of its senior executives, including Chief Operating Officer Michael Andreas, son of former board chairman Wayne Andreas, were sentenced to prison.
The case, said a federal appeals court, reflects "an inexplicable lack of business ethics and an atmosphere of general lawlessness. ... Top executives at ADM and its Asian co-conspirators ... spied on each other, fabricated aliases and front organizations to hide their activities, hired prostitutes to gather information from competitors, lied, cheated, embezzled, extorted and obstructed justice." These are not the kind of guys you want to depend on when you fill your tank.
California's gasoline situation will probably never become the crisis that electricity was last year -- and in this case, no one can blame the state or its politicians. But if something doesn't give before the end of the year, the state will not only be paying for ethanol it doesn't need, but also be subject to sudden supply shortages.
California may be able to produce some of its own ethanol, but most will have to come from the Midwest, either by ship (down the Mississippi, which sometimes freezes) or by train. Without a federal waiver, every gallon of ethanol not available at the refinery means a shortage of 14 gallons of gas. If ever there was a price-spike formula, this one is it.
Last week, California's Republican gubernatorial candidates once again rehashed last year's energy crisis. Somebody ought to start asking what they'd do about the next one.
Peter Schrag can be reached at Box 15779, Sacramento, CA 95852-0779 or at email@example.com .