Bipartisan Representatives Introduce RFS ‘Safety Valve’ Bill

Practicality of changing RFS levels twice a year would be an administrative nightmare and may not lower corn prices.

Just days after the National Academies of Sciences released its report questioning the nation’s ability to meet the cellulosic component of the Renewable Fuels Standard, Congressional members introduced the Renewable Fuels Standard Flexibility Act of 2011, which will tie the amount of corn ethanol production required under the RFS to U.S. corn supplies.

The legislation was introduced by Rep. Bob Goodlatte, R-Va., and Jim Costa, D-Calif., and a news conference was held Oct. 5 alongside livestock groups who have been hit with higher corn prices in recent years.

Goodlatte, who also introduced a bill to completely eliminate the RFS but noted there “may not be the political will to eliminate mandate,” said the RFS Flexibility Act provides a “commonsense solution” to ensure enough corn supplies to meet demand.

Livestock groups praised the legislation as a way to level the playing field. R.C. Hunt, president-elect for the National Pork Producers Council said the legislation acts as a “safety valve” if the supply of corn relative to the total usage falls below certain levels.

Specifically, the legislation will set up a process to require the administrator of the Environmental Protection Agency to review twice yearly the U.S. Department of Agriculture’s (USDA) report on the current crop year’s ratio of U.S. corn stocks-to-use in making a determination on the RFS. In years with tight stocks-to-use ratios, a reduction to the RFS could be made.

Goodlatte said under the supply situation unveiled in the latest supply and demand estimates from the U.S. Department of Agriculture, the bill would require a 25% reduction of the corn ethanol mandate. Had the RFS been in place since 1969, according to an analysis by Paragon Economics, a reduction in the RFS would have only been triggered five times. 

Wally Tyner, Purdue University expert in biofuels policy, said the legislation would “wreak havoc” on the RIN market – which each gallon of biofuels is given a Renewable Identification Number and those are traded by blenders.

“I don’t see how administratively you could change the RFS twice a year,” and it would be “almost impossible” for EPA to administer, Tyner added. “Either the ethanol producer or gasoline blender would be trying to figure out the target that needs to be met. And if that target changes every six months, you’re going to have increased volatility.”

A July 2011 analysis commissioned by the International Centre for Trade and Sustainable Development, found that corn prices would have been exactly the same in 2009-10 if both the RFS and Volumetric Ethanol Excise Tax Credit (VEETC) had not existed.

Tyner added with corn at $5.90 and oil prices at $78, if the RFS is eliminated it would have some impact on prices. However, if oil goes up to $85-$90 and corn is in the $6-$6.50 range, changing the RFS may have a negligible impact.

Growth Energy, an ethanol lobbyist group, also warned that “corn stocks-to-use ratios is an inconsistent and imperfect economic indicator and should not be used to manage the RFS.”

Goodlatte said he’s “willing to listen to better options” if the industry has an improved trigger that helps in times of short supplies.

 

 

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