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EPA ponders cut in ethanol level

By David Streitfeld

New York Times News Service

The ethanol industry, until recently a golden child that got favorable treatment from Washington, is facing a critical decision on its future.

Gov. Rick Perry of Texas is asking the Environmental Protection Agency to temporarily waive regulations requiring the oil industry to blend ever-increasing amounts of ethanol into gasoline. A decision is expected in the next few weeks.

Perry says the billions of bushels of corn being used to produce all that mandated ethanol would be better suited as livestock feed than as fuel. Feed prices have soared in the last two years as fuel has begun competing with food for cropland.

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"When you find yourself in a hole, you have to quit digging," Perry said in an interview. "And we are in a hole."

His request for an emergency waiver cutting the ethanol mandate to 4.5 billion gallons, from the 9 billion gallons required this year and the 10.5 billion required in 2009, is backed by a coalition of food, livestock and environmental groups. Farmers, ethanol and other biofuel producers are lobbying to keep the existing mandates.

"This is a critically important decision that will determine the future of biofuels in this country," said Brent Erickson, a lobbyist at the Biotechnology Industry Organization, which supports the ethanol mandates. "There will be a dramatic reaction from whoever loses."

The EPA received 15,000 public comments on the Texas proposal, roughly split between those in favor and those against. LHT Inc., an infrastructure company, said it never would have spent tens of millions of dollars developing delivery pipes for ethanol without the mandated increases. "How do we get our money back?" an executive asked. OK Industries, an Arkansas chicken company upset about rising feed costs, said this is the first year since the company was founded during the Great Depression that it cannot afford to give its employees a wage increase.

An agency spokesman said the EPA can approve the request, deny it or craft a middle path. The deadline is Thursday, but the agency says it needs more time to review public comments and formulate a decision.

The agency’s authority on the issue derives from a 2005 energy law that sets some of the most important ethanol quotas. The law says states can petition the agency for a reduction in the ethanol mandates on the grounds of severe harm to the economy or environment. Decisions must be made after consultation with the secretaries of energy and agriculture.

Ethanol is under siege from other quarters. Sen. Kay Bailey Hutchison, R-Texas, has introduced legislation calling for a freeze of the mandate at the current level, saying it "is clearly causing unintended consequences on food prices." The measure is co-sponsored by 11 other Republican senators, including the presumptive Republican presidential nominee John McCain.

The Federal Reserve chairman, Ben S. Bernanke, testified last week that "it would be helpful" to remove a 51-cent-a-gallon tariff on imported Brazilian ethanol. If Brazilian ethanol enters the U.S. market, domestic producers argue, the industry will suffer.

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In a new report, the Organization for Economic Cooperation and Development is critical of biofuels, saying further development will raise food prices while doing little for energy security.

But the attempts to undercut ethanol are proving divisive. Perry said he hoped the other 49 governors would join him, but was able to cite only one that had: Gov. M. Jodi Rell of Connecticut. (A spokesman for Rell declined to offer a full-fledged endorsement of Perry’s initiative, saying she supported a modification of the mandate but had not made any specific proposals.)

In ethanol’s home ground of the Midwest, where much of the corn is grown and the additive is made, Perry’s petition was opposed by 12 governors. Sen. Charles Grassley, R-Iowa, accused the Grocery Manufacturers Association, which is leading the public relations fight against ethanol, of "treasonous" acts.

Perry is also being accused of ill motives. The Houston Chronicle reported that his interest in a rollback developed after Lonnie "Bo" Pilgrim, chairman of the East Texas chicken company Pilgrim’s Pride, donated $100,000 to the Republican Governors Association, of which Perry is the chairman.

The governor brushed aside such concerns. "I have always been of the position that when your opposition has to point to a political contribution rather than trying to make their debate on the issues, they might be losing," he said.

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