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EPA Rejects Congress's Ethanol Waiver

by: Money Morning August 08, 2008 | about stocks: ADM / PEIX / VSE    

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By Jason Simpkins

The Environmental Protection Agency has denied a request from several U.S. policymakers to temporarily waive ethanol requirements for gasoline in hopes of bringing down corn prices.

A federal energy bill, the Renewable Fuel Standard [RFS], currently requires that 7.76% of gasoline products be blended with ethanol. That amounts to about 9 billion gallons that U.S. ethanol producers have to produce this year. Next year, they will have to produce 11.1 billion gallons of corn-based ethanol.

However, corn prices have more than doubled over the past two years, and there is a growing concern that the diversion of corn to ethanol production is a big reason why.

In late April, Texas Gov. Rick Perry petitioned the EPA to grant a 50% waiver on the nation’s which calls for 9 billion gallons of corn-based ethanol to be added to gasoline supplies this year.

Several U.S. policymakers - including Republican presidential nominee John McCain - signed on, arguing that the diversion of corn for ethanol production is driving up the price of corn as well as livestock feed and therefore is a principle catalyst for soaring food prices.  But yesterday (Thursday) the EPA denied the request.

"The EPA’s professional staff conducted a detailed analysis … and found that the Renewable Fuel Standard mandate is not causing severe economic harm, but rather strengthening the nation’s energy security and farm communities," Johnson EPA Administrator Stephen Johnson said on a conference call with reporters.

Governor Perry responded, saying he was "disappointed with the EPA’s inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households."

"For the EPA to assert that this federal mandate is not affecting food prices not only goes against common sense, but every American’s grocery bill," Perry said.

Perry may disagree, but a report from the Council of Economic Advisors in May said only 3% of the 40% increase in food costs worldwide could be attributed to the diversion of corn to ethanol production.

Furthermore the ruling will give a welcomed boost to U.S. ethanol producers, who are currently losing ground to biofuel companies in Brazil. Brazil uses sugarcane, rather than corn, to produce its ethanol.

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This article has 15 comments:

  •  
    Aug 08 08:11 AM
    as usual the USEPA is out to lunch. here you have a bunch of lawyers (not an agricultural economist among them) who are totally disconnected from the real world.
    > jack
    Reply
  •  
    Aug 08 08:56 AM
    "Perry may disagree, but a report from the Council of Economic Advisors in May said only 3% of the 40% increase in food costs worldwide could be attributed to the diversion of corn to ethanol production."

    And a report from the World Bank said that "7075 percent [of the] increase in food-commodity prices [between January 2002 and June 2008] was due to biofuels and the related consequences of low grain stocks, large land-use shifts, speculative activity and export bans."

    econ.worldbank.org/ext...
    Reply
  •  
    Aug 08 09:05 AM
    The Governor of Texas, possibly the largest Oil producing state is against the production of Ethanol? What a surprise.

    Cattle ranchers in his state have to pay too much for corn? Everybody in my state is paying too much for gasoline and alot of it comes from Texas. When we mandate how much Texas charges for oil, he can have some input on how much ethanol we make.
    Reply
  •  
    Aug 08 09:21 AM
    Corn is off 35% from recent highs as ethanol production continues to grow. I think this issue has passed. Nothing will change except ethanol companies will start making some profits.
    Reply
  •  
    Aug 08 09:29 AM
    "When we mandate how much Texas charges for oil, he can have some input on how much ethanol we make."

    And here I had naively thought that socialism was washed up as a concept, especially one would think on a blog appealing to capitalist investors. (And I do not mean that term in any derogatory sense.)

    The other approach is to simply let the market determine prices and allocate goods. It is not inconsistent to ask for market prices and no quotas for either oil or ethanol.
    Reply
  •  
    Aug 08 09:51 AM

    Speculative activity????? No kidding.

    Go To:

    www.stopoilspeculation.../

    AND SIGN THE PETITION.

    I am glad the EPA did not hurt the US ethanol producers. Food prices are up because of Commodity Speculation.

    I would make Commodity Futures Trading illegal. India has done it with some commodities.
    Reply
  •  
    Aug 08 10:07 AM
    Corn based ethanol is just flat out a dumb idea that came from a bunch of no nothing politicians; the switch grass crowd. I would like to see it replaced by sugarcane grown in the southeast, Hawaii, and eventually Cuba and imported stuff from Brazil.
    Reply
  •  
    Aug 08 10:25 AM
    The problem is Congress. Congress makes some flat out idiotic law and then hands it to the agencies to interpret and enforce. The RFS and other laws have sections saying, in effect, Congress is making this over-arching law but if it turns out to be a disaster than the administrator (in this case the EPA) has the power to waive it. No disaster, no waiver, which is EPA's position. Don't like the law? Elect a different Congress.
    Reply
  •  
    Aug 08 11:05 AM
    congress enacts laws that are do fuzzy that the agencies charged with enforcement cannot figure out what is the actual intent of congress. ultimately the intent of the law is determined by the courts. this has been going on since 1969 (clean air act).
    > jack
    Reply
  •  
    Aug 08 02:09 PM
    What does the EPA have to do with capitalism? They are a watch dog to make sure capitalism does not poison it's consumers. (that is bad for buyers and sellers) Their focus is clean air and water. Ethanol added to gasoline = cleaner air.
    Reply
  •  
    Aug 08 02:10 PM
    Clean air wins! Clean air wins!

    Reply
  •  
    Aug 08 02:27 PM
    Dear Shaggiemann

    Where in the continental US do you think we can grow sugercane? If we could, don't you think we would? We know sugar cane produces more alcohol than corn don't you think we could grow it if we could?

    Try clicking your heels togethor a couple of times and repeating there is no place like home, there is no place like home.
    Reply
  •  
    Aug 09 05:55 AM
    Regarding various sources of ethanol (corn, sugar, etc.) don't forget bio-mass and cellulosic ethanol.

    The Energy Independence and Security Act of 2007 strengthened the RFS by increasing the mandated amount of renewable fuels used annually in the United States to 36 billion gallons by 2022, of which at least 16 billion must be cellulosic ethanol, which is derived from non-food feedstocks such as agricultural residues, canes, wood and grasses. This federal commitment to advanced biofuels provides a stable and predictable market framework for companies like Verenium (VRNM), which just began start-up and commissioning one of the nation's first demonstration-scale cellulosic ethanol facilities.
    Reply
  •  
    Aug 09 10:55 PM
    So what if ethanol does drive up the price of corn! That should have nothing to do with the price of our grocery bill, as that corn was mostly used to feed cattle anyway. It takes more corn to grow a cow than the beef it produces anyway. We should be eating the corn; not the cow!

    Beef is one of the most wasteful industries in America, as it requires more resources to produce than what we get from the finished product. The beef industry is all about economics; not about feeding America. By using corn to produce ethanol, at least we are producing a product which helps us meet our energy requirements.
    Reply
  •  
    Aug 11 01:16 AM
    ArizonaWolfman: Beef cattle -- or so the industry claims -- are not being hurt as badly as hog and poultry producers, as cattle can eat a much higher proportion of DDGs or DDGs (co-products of ethanol plants) in their rations. And of the final stages of beef production occurs in feedlots that are not too far from the ethanol plants. Hogs and poultry, which are very efficient converters of grain to meat, by the way, can eat only limited amounts of DDGs and DDGSs in their feed rations.

    Dairy production is spread throughout the country, by contrast, and dairy producers in states like Vermont are located far from ethanol plants. Granted, it would be nice if most of their feed were grass (to which cows are adapted), and not corn or feedwheat, but that is how the industry has developed. So, for the government all of a sudden to favor (through subsidies and mandates) one use of corn over another is unfair to those other users and precipitating major structural change in the industry -- structural change driven by government medling, not market forces.

    I hope you are not going to argue that young children should be eating feed corn instead of drinking milk or eating yoghurt.
    Reply
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