EPA Says Ethanol Mandate Isn’t Driving Up Food Prices

by

It was food makers vs. feed growers – something of a proxy war in the larger food vs. fuel fight – and the feed folk won.

The EPA on Friday rejected a request by several states – livestock, pork, poultry and dairy producing states, mostly – to waive the federal renewable fuel standard, which requires that transportation fuel sold in the United States contain a mandated amount of ethanol.

corn harvest

image via Shutterstock

Ethanol in the U.S. is made overwhelmingly from corn, and in this drought year the industries that use corn for feed had argued that siphoning off a huge portion of a smaller-than-normal crop and putting it in gasoline tanks was tightening supplies, driving up prices and generally making life miserable if not impossible for them.

EPA said sorry, we can’t help.

“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,” the agency said in a statement.. “Economic analyses of impacts in the energy sector, conducted with DOE, showed that waiving the mandate would not impact household energy costs.”

This year, the renewable fuel standard requires blenders to work 13.2 billion gallons of ethanol into gasoline. In a normal year, that would eat up about 40 percent of the corn crop. Due to drought, however, this year’s crop has been forecast to come in around 25 percent smaller than normal, so theoretically ethanol is eating up a much greater proportion.

Nevertheless, the EPA said the RFS just doesn’t have a whole lot of influence on the market. Quoting from the decision [PDF]:

EPA’s analysis shows that it is highly unlikely that waiving the RFS volume requirements will have a significant 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. We analyzed 500 scenarios, and in 89 percent of them we see no impacts from the RFS program at all.

The battle over the RFS led to a lobbying donnybrook in Washington, with the various players in the biofuels industry squared off against food producers, who were also cheered on by oil interests who have long despised the blending mandate.

The EPA said that during a six-week comment period that ended in mid-October, nearly 30,000 comments were submitted.

A coalition of livestock, poultry and dairy organizations expressed outrage at the EPA decision.

“How many more jobs and family farms have to be lost before we change this misguided policy and create a level playing field on the free market for the end users of corn?” the group asked in a press release.  “It is now abundantly clear that this law is broken, and we will explore remedies to fix it.”

On the other side of the argument, it was party time.

“Despite millions of dollars spent by Big Oil and Big Food to shamelessly attack American-made ethanol, it comes as no surprise EPA denied the requests to waive the RFS because the facts are on our side,” Brian Jennings, vice president of the American Coalition for Ethanol, said in a statement. “EPA considered the flexibility built into the RFS, precedent established in 2008, and data which proved waiving the RFS wouldn’t remedy the harm of the drought in making the right decision.”

Posted on November 17th, 2012 · Comment ↓

Tags , , , ,

Posted in Biofuels, Editor's Pick, Featured, Renewable Energy

  • http://www.facebook.com/people/Sean-Bell/1682234735 Sean Bell

    40% of the harvest goes to ethanol and this only moves the price by 1%. There is obviously something magical to this corn. Or do they mean that it is unnoticeable mixed in with the rest of the food inflation? If the price doesn’t rise one week to the next, the size of the container gets smaller. The situation in government must be worse than I thought if they are forced to start lying this openly about everything.

    • Pete Danko

      Sean — I’m skeptical, at best, of our policy on ethanol (see: http://www.earthtechling.com/2012/01/its-time-to-move-past-ethanol/), but feel compelled to correct some misimpressions your comment might leave readers. The EPA didn’t say that 40 percent of the harvest going to ethanol moves the price by just 1 percent; that isn’t even what it analyzed. It said that on average in the 500 scenarios it analyzed, *waiving the RFS* for the corn market year 2012-13* would reduce the price of corn by just 1 percent. I emphasize “waiving the RFS” because that action would not suddenly shift 40 percent of the harvest from ethanol to feed as your comment suggests. There are two major reasons for this: First, those covered by the RFS currently have a lot of flexibility *not* to buy corn at high prices because they have a lot of blending credits that they can carry over from previous years, when for economic reasons they used more ethanol than they were required to. This dramatically lowers the impact of waiving the RFS. Also, with gas prices relatively high, ethanol plants can remain strong competitors for corn even without a mandate. So while it’s true that the RFS is dubious energy policy in the long-run (and most economist believe that), in the short-term, most economists do see its impact on corn prices as modest.

      • Rockne O’Bannon

        Good point Pete. And maybe the easiest way to resolve this would be to see what happens over say… five years.
        I am so agnostic on this issue. Bumping food prices up in the short run might not even be such a bad thing. Finding non-food sources for energy is probably better.
        Engine damage? Yeah right. The same argument was used with unleaded fuels. Seatbelts. Airbags. I am old enough to know that Detroit will trot out just about anything to get what it wants. They need to get with the program and give people what they want instead of making up excuses for why they can’t.

  • DoctorNine

    It strains credulity to claim that such a large shift in the market for corn has no substantial impact on price. Every college freshman who has taken Macroeconomics, knows this to be a bald lie. Of course it has an effect on price. The question, is why the EPA is using this sort of analysis, when there are better ways to show the actual economic impact of the 15% mandate. The answer, obviously, is that there are political reasons to try to continue with this mandate, even when demonstrable harms with small engines, older machines, and plastic gas tanks have been so well documented.

    Still, the rise in food prices is really the least of my concerns about ethanol.

    Rather than continue with a policy that has been shown scientifically to be questionable, maybe we need a more forward thinking policy about biofuels. It may be better to provide incentives for synthesis of more energy dense and less corrosive fuels from all that ethanol that we are capable of producing. You know, something that would be infinitely miscible with gasoline, and not destroy plastic tanks.

    But instead, we get political kabuki theater from the EPA.

    We need to hijack this misdirected policy, and redirect/reframe. It is possible to do much much better with biofuels. And it is mandatory that we look at the chemistry and science of the alternatives, before we go too far down the road with investment in ethanol infrastructure.

    • dumdedumdum

      Microeconomics.

      • DoctorNine

        No, macroeconomics. We are talking about the world markets for corn, petroleum, and ethanol, not individual households, which is the purview of microeconomics.

        • dumdedumdum

          No, analysis of markets for individual products like you describe, whether world markets or local ones, fall into micro. This is especially so for consideration of the impact of various policies on market conditions and behaviors. Macro has to do with aggregates

          • DoctorNine
          • dumdedumdum

            I suggest you read the whole thing. e.g., for micro, “In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).” We’re talking here about the microeconomics of the corn and ethanol industries.

            The investopedia entry says essentially what I said earlier.

          • DoctorNine

            Again, no. The whole quote:

            “..The field of economics is broken down into two distinct areas of study: microeconomics and macroeconomics.
            Microeconomics looks at the smaller picture and focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it. People who have any desire to start their own business or who want to learn the rationale behind the pricing of particular products and services would be more interested in this area.
            Macroeconomics, on the other hand, looks at the big picture (hence “macro”). It focuses on the national economy as a whole and provides a basic knowledge of how things work in the business world. For example, people who study this branch of economics would be able to interpret the latest Gross Domestic Product figures or explain why a 6% rate of unemployment is not necessarily a bad thing. Thus, for an overall perspective of how the entire economy works, you need to have an understanding of economics at both the micro and macro levels…”

            We are not talking about how individual businesses or even whole industries are behaving within the national economy. We are talking about how political decisions at the national level (the ethanol mandate, and the EPA’s choice of metric to track its impact.) are affecting all parts of the national and even international economy related to food, transportation and fuel.

            Certainly, there are arguments to make against the mandate at the microeconomic level, but my point was predominantly macroeconomic.

          • dumdedumdum

            You’re quite confused, but suit yourself.

          • DoctorNine

            Actually, I think it’s you are are confused. But suit yourself.

    • http://twitter.com/aligatorhardt aligatorhardt

      I would prefer an actual study to just imagining the result as you have done. There are millions of dollars spent by petroleum interests on misinformation campaigns against all competition for petroleum, fueling public rumors that are just not true. Impact of ethanol on food prices is massively exaggerated – Renewable Energy Magazine, at the heart of clean energy journalism

      • DoctorNine

        My concerns are not ‘just imagining’ the results of our current policy. This is a handy study I read recently, which articulates some of them:

        http://www.ase.tufts.edu/gdae/Pubs/wp/12-02WiseGlobalBiofuels.pdf

        There are many other studies which justify this concern. I suspect that you probably have read a few of them yourself. However, my objective here isn’t to advocate for one particular policy over another. Rather, it is to point out, that our current policy doesn’t serve our country or our world well. And more importantly, that we need to use this new found political inertia to free ourselves from dependence upon non-renewable resources, to craft a sustainable and rational fuel sector. This has to include engineered hydrocarbon fuels, because of their superior energy density. But ethanol, as a chemical, is not the best biofuel. For many reasons. So we need to continue to search for that ultimate sustainable liquid hydrocarbon fuel, which we can substitute for fossil petroleum, and not become complacent with the intermediate successes which we have had with ethanol/gasoline blends.

        Have a great day.

  • http://www.facebook.com/people/Russell-Higgins/100001863567550 Russell Higgins

    1. US Gov’t a few years ago was going to remove ethanol as a carbon reducing fuel, because it does not, it shifts carbon use from autos to the ethanol factories. Only a huge effort by the ethanol lobby, ie, bribes to congress, kept it labeld carbon reducing, and then, ONLY for sites with operating ethanol plants, so, no new ethanol makers, maybe more efficent, can join the club.
    2. The report cited is SO slanted that it passes as double speak. Yes, if you change the mandate for one year only, and only months before that year starts, you’ll have no effect, all the futures contracts have been signed! If you manipulate the studies parameters, you can make it say anything. Ethanol = Gold (if you mean is there an infintesimal amount of gold in ethanol, you bet it’s gold, and silver, and just about anything if you make the ppm small enough!).
    3. 40% of corn goes to the worst method of making ethonal ever invented, OF COURSE ITS DRIVING UP FOOD PRICES! Corn in, well, used to be the major animal feed in the country AND gone food shopping lately!
    4. Why does Brazil produce ethanol so much cheaper and we refuse to adopt their technology, which is no more than taking millions of acres of useless swamps and planting sugar cane to make ethanol from. (tree huggers, I know, it’s all valuable eco systems, so’s prarie turned to corn, being irrigated from diminishing aquifers) We too have millions of acres of useless swamps in the US, in impoversihed states that need the jobs. Con Agra though does not own those swamps or grow sugar cane, so, we turn corn into crappy carbon heavy fuel. Brilliant