EPA keeps renewable fuels levels despite state requests

Nov 23, 2012

A waiver of the nation’s Renewable Fuels Standard (RFS) would only lower corn prices about 1 percent, according to the Environmental Protection Agency (EPA) which made the long awaited decision to deny a request to waive the standards.

EPA announced that the agency has not found evidence to support a finding of severe “economic harm” that would warrant granting a waiver of the RFS.

The hotly debated topic has divided grain and livestock groups, and the two sides were quick to voice their concerns, or relief, after EPA’s decision was released on Nov. 16.

“In light of the most widespread drought to face the country in more than 50 years, the refusal to grant this waiver is a blatant example of the flawed policy of the RFS,” said National cattlemen’s Beef Association (NCBA) President J.D. Alexander, a cattle feeder from Pilger, NE. “The artificial support for corn ethanol provided for by the RFS is only making the situation worse for cattlemen and women by driving up feed costs.”

In comments submitted by NC- BA to EPA in October, NCBA stated that the cattle industry, along with other livestock groups, has suffered a significant economic impact due to the RFS mandate and the drought. From December 2007 to August 2012, the cattle feeding sector of the beef industry lost a record $4 billion in equity due to high feed costs and economic factors that have negatively affected beef demand. According to USDA reports, corn prices have increased about 60 percent since June 15, 2012, and the near futures price is hovering around $8 per bushel. In a report by USDA’s Economic Research Service, 2011 feed costs for livestock, poultry and dairy reached a record high of $54.6 billion, an increase of more than $9 billion over 2010 costs. These costs are borne by cattlemen and women nationwide, according to Alexander. Further, the ending carry-over stocks for 2012-13 are now forecast at 647 million bushels, less than 5 percent of expected corn usage, and the lowest amount ever, according to USDA reports. This is a 35 percent decrease from last year’s carry-over amount. If realized, this would mean there would be very limited corn reserves for next year should the country experience another poor crop.

The effects of the refusal to waive the RFS will be felt throughout the economy with predictions of a 500,000-head beef cow and 50,000-head dairy cow liquidation in the U.S. alone in 2012. These losses are driven by drought and high input costs.

“Our message to EPA and administrator Jackson is how bad does it have to get for livestock producers before relief is brought to rural America? Cattlemen and women are only asking for a level playing field,” Alexander said. “With EPA’s refusal to grant a waiver when faced with these conditions, it is clear the RFS is not working as Congress intended.”

National Corn Growers Association President Pam Johnson viewed the news as a win for agriculture.

“The National Corn Growers Association supports the Environmental Protection Agency’s decision to deny the Renewable Fuel Standard waiver request. We believe Administrator Jackson appropriately recognized petitioners did not properly prove severe nationwide economic harm had occurred, thereby creating no justification for a waiver of the RFS.

“The ethanol industry plays a pivotal role in job creation throughout the country supporting over 400,000 jobs nationwide. This includes many in ethanol plants in rural America.

The RFS advances the use of domestically produced renewable fuels, encourages new technologies, and enhances U.S. energy independence,” Johnson said.

The National Council of Chain Restaurants also shared concerns over EPA’s decision.

“We are very disappointed in the Environmental Protection Agency’s decision not to grant a waiver from the Renewable Fuel Standard ethanol mandate,” executive director Rob Green said.

“This year’s catastrophic drought seriously reduced corn yields and has led to a situation where the RFS’ unsustainable mandates force ethanol fuel to commandeer a shrunken pool of available corn for food and livestock feed.

“The RFS statute provides a safety valve, in the form of a waiver, for precisely this kind of situation, but the EPA has failed to let it work. We will now face higher prices as a result.

“The National Council of Chain Restaurants will continue to press the case to policymakers that the RFS is a flawed law which unfairly distorts the market at the expense of chain restaurants, our consumers, and everyone else involved in the food supply chain.”

According to an EPA press release, the decision was based on economic analyses and modeling done in conjunction with USDA and U.S. Department of Energy (DOE).

“We recognize that this year’s drought has created hardship in some sectors of the economy, particularly for livestock producers,” said Gina McCarthy, assistant administrator for EPA’s Office of Air and Radiation.

“But our extensive analysis makes clear that congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact.”

To support the waiver decision, EPA conducted several economic analyses. Economic analyses of impacts in the agricultural sector, conducted with USDA, showed that on average, waiving the mandate would only reduce corn prices by approximately 1 percent. Economic analyses of impacts in the energy sector, conducted with DOE, showed that waiving the mandate would not impact household energy costs.

EPA found that the evidence and information failed to support a determination that implementation of the RFS mandate during the 2012-2013 time period would severely harm the economy of a state, a region, or the U.S., the standard established by Congress in the Energy Policy Act of 2005.

This is the second time EPA has considered an RFS waiver request. In both cases, analysis concluded that the mandate did not impose severe harm. In 2008, the state of Texas was denied a waiver. — Traci Eatherton, WLJ Editor