STAND. COM. REP. NO. 43-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 2204
                                     




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committees on Energy and Environmental Protection and
Agriculture, to which was referred H.B. No. 2204 entitled: 

     "A BILL FOR AN ACT RELATING TO ETHANOL,"

beg leave to report as follows:

     The purpose of this bill is to encourage private sector
investment in ethanol production facilities located in Hawaii by
establishing an ethanol producer income tax credit of forty cents
per gallon of qualifying production of fuel grade ethanol.

     Ethanol can be produced from agricultural crops or by-
products as well as municipal solid wastes.  Up to ten percent of
ethanol can be blended in gasoline without altering the
performance or operating reliability of gasoline-powered
vehicles.

     The potential benefits of this new industry in Hawaii are
numerous.  A local ethanol industry can bolster the sugar
industry, which is currently facing declining market prices.  It
could also stimulate the development of new crops, thereby
providing new jobs and strengthening Hawaii's economy.  Because
agricultural residue, newspaper, municipal solid wastes, and
other under utilized materials can be converted to ethanol, this
new industry could address Hawaii's landfill and disposal
problems.  Finally, this new industry will help to decrease
Hawaii's heavy dependence on imported petroleum.


 
 
 
                                 STAND. COM. REP. NO. 43-00
                                 Page 2

 
     Supporting testimony was submitted by E D & F Man Alcohol
Inc., Hawaiian Commercial & Sugar Company (HC & S), Gay &
Robinson, Inc., Pacific Biodiesel, Inc., the Hawaii Farm Bureau
Federation, and the Hawaii Renewable Energy Alliance.  The
Department of Business, Economic Development, and Tourism
supported the intent of this bill but deferred to the Department
of Taxation regarding the tax implications.  The Department of
Taxation and the Western States Petroleum Association opposed
this bill.  The Tax Foundation of Hawaii offered comments.

     Your Committees find that E D & F Man Alcohol Inc. is
interested in working with HC & S to establish a local ethanol
industry on Maui, provided that production incentives are
offered.

     Because this measure limits the tax credit to ethanol
produced at a Hawaii facility, there were some concerns that this
may violate the constitutional rights of out-of-state residents.
According to the Department of Taxation, state laws that
discriminate against interstate commerce are prohibited by the
Commerce Clause of the United States Constitution.  Accordingly,
your Committees will continue its investigation into this matter.

     As affirmed by the records of votes of the members of your
Committees on Energy and Environmental Protection and Agriculture
that are attached to this report, your Committees are in accord
with the intent and purpose of H.B. No. 2204 and recommend that
it pass Second Reading and be referred to the Committee on
Economic Development and Business Concerns.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Energy and
                                   Environmental Protection and
                                   Agriculture,

                                   
                                   
                                   
                                   
______________________________     ______________________________
FELIPE P. ABINSAY, JR., Chair      HERMINA M. MORITA, Chair