Domestic Fuel

Two state governors have reportedly made an official request to the EPA to waive the RFS for corn ethanol, and the ethanol industry is wasting no time saying it should be denied. According to this Reuters article, North Carolina Gov. Bev Perdue and Arkansas Gov. Mike Beebe have asked the EPA for a waiver to the Renewable Fuels Standard (RFS), but officials at the Renewable Fuels Association (RFA) and Growth Energy have called on the government to reject those requests.

In a statement, the RFA says while the drought has stressed agricultural areas, it is not severe enough for the EPA to grant such a waiver:

“The RFS already includes a number of compliance options allowing great flexibility for oil refiners to meet their obligations under the program. The market is already taking advantage of these flexibilities as ethanol production has slowed 15% since the beginning of the year in response to market signals.

“To be clear, a waiver of the RFS will not provide the relief meat and livestock producers seek nor will it make it rain on dry corn fields and pastures. What waiving the RFS would do is send chilling signals to investors in new biofuel technologies, threaten to force gas prices higher than they already are, and dramatically lower the availability of ethanol feed products on which the livestock industry is growing to rely.”

Growth Energy responded saying the marketplace will straighten out any imbalance between corn supply and demand:

“Furthermore, the governors continue to use misinformation saying that corn ethanol uses 40 percent of the corn crop – we do not. In fact, only 16 percent of the corn acres harvested goes to ethanol production. Just one-third of the kernel is used for ethanol, with all the protein, fiber and oil being returned to the food chain in the form of a high protein animal feed, which replaces corn and soybean meal and is less expensive.

“To blame the ethanol industry due to a lack of rain does not make any sense. These governors are asking American family grain farmers who are already suffering crop loss to also take a further loss by limiting their market through a domestic grain embargo, benefiting large corporate food companies by lining their pockets at the expense of the family farmer, and our nation’s pursuit of energy independence.”

Earlier today, the RFA held a webinar where its VP of Research and Analysis Geoff Cooper looked at the impact of the drought on the corn crop and what it means for ethanol production and the RFS. He pointed out that the waiver would not provide much relief for livestock producers or consumers at the grocery stores. Cooper said any waiver would produce just a 4.6 percent reduction in the price of a bushel of corn. That translates into even less savings for consumers when you consider that commodity prices make up only 14 percent of the grocery bill. He also noted that consumers would end up paying a lot more for gasoline as ethanol is credited with lowering gas prices $.84-$1.07 per gallon. “Really what’s driving higher gas prices, as you would expect, are higher crude oil prices and some of the problems in the refining sector,” Cooper explained. You can see my article on the webinar here.