Drought stirs conflict over renewable fuel mandate

by Jay Sjerven
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The US Environmental Protection Agency on Aug. 20 submitted to the Federal Register a notice for publication that opens a 30-day public comment period on requests from Arkansas Gov. Mike Beebe and North Carolina Gov. Beverly Perdue that the agency waive the Renewable Fuel Standard requirements at least for 2012 and 2013. The governors charged the renewable fuel mandate under the RFS, which requires the manufacture of 15.2 billion gallons of biofuels in 2012, was largely responsible for a surge in feed grain prices that was damaging the livestock industries and general economies of their states.

Congress has given the agency the authority to grant a full or partial waiver of the RFS if its implementation would severely harm the economy or environment of a state, region or the entire country, or if the EPA determines that there is an inadequate supply of renewable fuel.

“In consultation with the Departments of Agriculture and Energy, EPA must decide on a waiver request within 90 days of receiving it,” the spokeswoman said. “EPA and its federal partners continue to closely monitor the drought’s impact on crop supplies.”

Perdue in her request for a waiver issued Aug. 14 said the imposition of the RFS this year “has imposed severe economic harm to my state’s swine, poultry and cattle-producing regions. This affects not only the economic interests of consumers and the livestock and poultry producers within my state, but also the many other industries that provide support services to this important economic sector and that benefit from the economic growth and development that our robust livestock and poultry industries have provided.

Perdue pointed to the recent surge in corn prices and stated, “North Carolina hog producers finished about 8.5 million animals last year, and for every $1-per-bu increase in the cost of corn, the feed costs to produce these animals increases by about $85 million.”

Beebe’s request sent Aug. 15 stated, in part, “Virtually all of Arkansas is suffering from severe, extreme or exceptional drought conditions. The declining outlook for this year’s corn crop and accelerating prices for corn and other grains are having a severe economic impact on the state, particularly on our poultry and cattle sectors. While the drought may have triggered the price spike in corn, an underlying cause is the federal policy mandating ever-increasing amounts of corn for fuel. Because of this policy, ethanol production now consumes approximately 40 percent of the US corn crop, and the cost of corn for use in food production has increased by 193 percent since 2005. Put simply, ethanol policies have created significantly higher corn prices, tighter supplies, and increased volatility.”

He concluded, “By granting a full or partial waiver for renewable fuel in 2012 and 2013, EPA can help level the playing field during this crisis.”

The ethanol industry stated the circumstances outlined by Governors Perdue and Beebe do not rise to the level of severe economic harm laid out by the EPA in 2008, when it rejected Texas Governor Rick Perry’s request for waiver of the RFS.

The Renewable Fuels Association said the EPS should reject the governors’ requests. The RFA asserted the RFS was flexible and would allow oil refiners to meet their obligations.

“The market is already taking advantage of this flexibility by reducing ethanol corn demand by 12 percent in just the last two months,” the RFA said. “A mountain of excess RFS credits, strong ethanol supplies and continued demand for ethanol as a fuel additive make any waiver of the RFS unnecessary.”

The RFA said more than 2.5 billion RFS credits exist that may be used instead of physical gallons of ethanol by refiners to meet their RFS obligation. The credits accrued in recent years when refiners manufactured ethanol in excess of its obligations under the RFS. Also, some 800 million gallons of ethanol are in storage and may be used by refiners to meet the obligations.

Because of the timing of the governors’ requests, the EPA is not required to issue a decision until after the election. The Obama administration has been a staunch supporter of a diversified energy policy in which biofuels have a high standing.

Secretary of Agriculture Tom Vilsack recently said of the federal ethanol policy, “It is impacting in a positive way the cost of gasoline in this country. Some estimates put it at 25 cents to as much as $1.30 less (per gallon) because we have a biofuel industry. There are jobs connected to that industry and less reliance on foreign oil. The question is: Is the market responding to concerns about supply, and the answer is, yes. Exports are down just a bit, and ethanol production is down between 10 percent and 30 percent, depending on the part of the country.”

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