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July 23, 2003

Federal Court Ruling Adds Uncertainty to California Ethanol Market

A federal court ruling on July 17th will force the U.S. Environmental Protection Agency (EPA) to reconsider whether California fuel blends must include an oxygenate such as ethanol. Concerns about groundwater pollution led California to phase out its use of MTBE, another oxygenate, by the end of this year, leaving ethanol as the only practical alternative. Oxygenates are added to gasoline blends as a means of reducing ozone emissions. California sought a waiver from the oxygenate requirement, but EPA denied that waiver in June 2001, effectively requiring the state to switch to ethanol as an additive. The new ruling finds that EPA "abused its discretion in refusing to consider and weigh the effect of the proposed waiver on particulate matter pollution along with its effect on ozone pollution" and requires EPA to reconsider the waiver. See the ruling on the Ninth Circuit Court of Appeals Web site (PDF 117 KB). Download Acrobat Reader.

The ruling creates uncertainty for the California fuel market, which is currently in transition between gasoline blends containing MTBE and blends made with ethanol. California Governor Gray Davis responded positively to the news, but also maintained that California is not anti-ethanol. "We want our refiners to have maximum flexibility in what they put into gasoline, as long as they produce the cleanest burning gas in the world," said Governor Davis. See the Governor's press release.

For their part, the Renewable Fuels Association (RFA) and the National Corn Growers Association (NCGA) do not see the ruling as a setback for ethanol fuel, noting that the court affirmed most of the technical and procedural aspects of the original EPA decision, questioning only the potential impact of ethanol on particulate emissions. According to the RFA, ethanol reduces particulate emissions, so the organization expressed confidence that EPA's review of particulate emissions will support the original decision to deny the waiver. See the press releases from the RFA and NCGA.

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