Global standards for biofuels will help trade, hold prices

By DAN CATERINICCHIA
The Associated Press

1/23/2008

WASHINGTON — A government watchdog agency report made public recently warns of declining trade and rising fuel prices unless global standards for biofuels, such as ethanol and biodiesel, are developed.

Biofuel blends are expanding “the array of incompatible gasoline and diesel blending stocks, and final blended products that cannot be interchanged at the retail level, reducing opportunities for trade,” congressional investigators concluded in a report originally delivered to Senate leaders last month.

According to the Government Accountability Office report, the biofuel products being developed require separation during shipment, stressing an outmoded supply infrastructure.

Without changes, the report said, the domestic energy supply will be “less secure ... and prices will tend to be higher or more volatile.”

Crude-oil prices earlier this month topped a record $100 a barrel, and gas prices in the U.S. remain above $3 a gallon even though reduced demand would suggest they should be falling.

To prevent price volatility, the GAO recommended the secretaries of Transportation and Energy coordinate with other relevant agencies and foreign governments to “encourage uniform biofuel and petroleum product blending practices.”

However, the report acknowledged that some differences based on local environmental requirements, engine performance, or other factors could be beneficial.

The U.S. produces about 7 billion gallons of ethanol made from corn, but the energy bill signed last month by President Bush mandates production of 36 billion gallons by 2022, with 21 billion gallons coming from other sources.

Brazil, which rivals the U.S. as the world’s top ethanol producer, requires diesel oil to contain 2 percent biodiesel as it tries to grow the market for the renewable, clean-burning fuel.

Meanwhile, the U.S. petroleum industry says the government’s promotion of a gasoline alternative is a disincentive for oil refiners when it comes to long-term plans for capacity increases. If the ethanol industry is unable to meet the mandates, oil refiners might not be able to add capacity quickly enough to avoid supply imbalances that drive prices higher.

The GAO also said the government should study the adequacy of the fuel infrastructure system and determine if a lead federal agency can be identified to coordinate permit issuance for infrastructure construction.

The departments of Energy and Transportation neither fully agreed or disagreed with the report, according to the GAO.