The U.S. Environmental Protection Agency ended the longstanding battle over the future of California's gasoline market, denying the state's request for a waiver from the oxygenate requirement in federal reformulated gasoline. The state has argued a waiver is necessary to enable them to phase out the use of MTBE.

"We cannot grant a waiver for California since there is no clear evidence that a waiver will help California to reduce harmful levels of air pollutants," said EPA Administrator Christie Whitman. "The Administration is concerned about the risks of MTBE in drinking water in California and other states. Clean air and clean water are equally important. We do not want to pursue one at the expense of the other. As it currently stands, the Clean Air Act provisions limit the Agency's ability to address these concerns. We are exploring all options and currently assessing the health risks of MTBE."

The state has set an MTBE phase-out deadline of December 31, 2002. California is expected to use nearly 150 million gallons of ethanol in 2000. It will take approximately 580 million gallons of ethanol to meet California's oxygenate demand.

Construction Projects Given "Green Light" following Waiver Denial
The waiver decision has sparked a great deal of interest in industry growth, paving the way for pending projects to move forward to the construction phase. "The denial of the California waiver has had a positive impact on investors' and lenders' willingness to move forward with ethanol projects," said Jeff Broin of Broin and Associates. Broin and Associates has begun construction of two 40 million gallon farmer-owned facilities: Tall Corn Ethanol in Coon Rapids, Iowa and Northern Lights Ethanol in Milbank, South Dakota. A third will break ground soon. They will complete construction of the Wentworth, South Dakota facility and an expansion at Exol in Albert Lea, Minnesota this year, adding another 60 million gallons. Broin is also scheduled to expand the Pro-Corn facility in Preston, Minnesota from18 to 36 million gallons.

Fagen will begin construction this year on plants in Oregon, Wisconsin, Iowa, and South Dakota, totaling 210 million gallons of ethanol capacity. "The correct decision by the EPA to not allow California to backslide has pushed several of our projects to the finish line," said Bill Wells of Fagen.)

In the course of a year, Delta-T expects to begin construction on eight to ten ethanol plants totaling 270-300 million gallons of additional production capacity. "A number of our projects waiting for this decision have now given us the green light to move forward as fast as possible," said Larry Johnson of Delta-T Corp.

Annual Ethanol Production Capacity:
Current and Proposed
U.S. Production Capacity (56 plants) 2 billion gal. yr.
On-going Expansions (34 plants) 235 million gal. yr.
Under Construction (10 plants) 210 million gal. yr.
Approved Construction (16 plants) 590 million gal. yr.
Other Construction for 2001/2002 (25 plants) 465 million gal. yr.
Projected Capacity by 12/31/03 3.5 billion gal. yr.