RFS In Place, Organizations Comment
EPA keeps renewable fuels levels in place after considering state requests.
The U.S. Environmental Protection Agency (EPA) Nov.16 announced that the agency has not found evidence to support a finding of severe “economic harm” that would warrant granting a waiver of the Renewable Fuels Standard (RFS). The decision is based on economic analyses and modeling done in conjunction with the 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%. 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 United States. The standard was established by Congress in the Energy Policy Act of 2005 (EPAct).
EPAct required EPA to implement a renewable fuels standard to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel. A waiver of the mandate requires EPA, working with USDA and DOE, to make a finding of “severe economic harm” from the RFS mandate itself.
This is the second time that 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.
Industry organizations comment
National Farmers Union (NFU) President Roger Johnson said he is pleased with the decision.“The RFS has helped reduce our dependence on foreign oil from 60% in 2005 to 45% today and currently supports almost 500,000 American jobs and generates $53 billion in economic activity each year,” he explained. “Furthermore, the existing structure of the RFS provides sufficient market flexibility in case of a drought or other market disruption.
“It is crucial that we maintain a stable and long-term biofuels policy in order to incentivize the commercialization of next generation biofuels,” he continued.
Read Smith and Bart Ruth, co-chairmen of the 25x’25 Alliance recognized the hardships the drought has caused for livestock operations, but stressed that analyses indicated that waiving the standard would have had little effect on feed prices.
“The agency said that a waiver would have no real impact on ethanol production or use in the relevant time frame that a waiver could apply (the 2012-2013 corn marketing season), and therefore little or no impact on corn, food or fuel prices,” they said in a joint statement. “Out of some 500 scenarios analyzed by the agency, only 11% of them suggested a possible impact, with the average impact of those scenarios on corn prices amounting to only 7¢ a bushel — a drop of less than 1%.
“At this point, livestock and poultry producers can do little but hope that energy markets remain depressed enough to limit ethanol demand for corn until next harvest. It is not a comfortable place to be,” said Steve Meyer and Len Steiner in their Nov. 19 Daily Livestock Report (www.dailylivestockreport.com). “So far, ethanol production has averaged about 8.5% below year-ago levels since September, and it is currently running about 10% below year-ago levels. In part this reflects the impact of high grain prices, but even more so it is a result of slowing gasoline demand (and hence lower need for ethanol blending), the use of ethanol credits and lower overall crude oil prices.”
USDA currently projects a 10% year-to-year decline in ethanol use for the 2012-2013 marketing year. That projection may be achievable if current conditions persist, Meyer and Steiner explained. “However, if crude oil prices move sharply higher (say because of a conflict in the Middle East, or improving global demand), then ethanol output would likely follow crude prices higher.
“What the ethanol mandate has done is inextricably tie grain, livestock and energy markets,” they continued. “The problem is that while ethanol producers can quickly cut off production and then start again in a week, the cattle and hogs liquidated today will take months and years to rebuild. Moreover, the farms that are forced to sell may not be able to sustain the economic hit and eventually go out of business. The final result is a U.S. meat industry that is substantially smaller, meat prices that are substantially higher and U.S. producers that will find it increasingly difficult to compete in global markets.”
For more information, visit www.epa.gov/otaq/fuels/renewablefuels/notices.htm.
[Click here to go to the top of the page.]