This summer's drought is stoking the fires of the food vs. fuel debate. But the most commonly discussed policy response to the drought - a waiver of the ethanol blending rules mandated in the Energy Independence and Security Act of 2007 - may not bring the desired results for livestock producers and consumers, economists say.
Following up on requests from the governors of Arkansas and North Carolina to waive the Renewable Fuel Standard, the Environmental Protection Agency published a notice seeking comments on impacts of the waiver. The governors join a long list of recent requests to waive the RFS including calls from 156 U.S. House members, 26 U.S Senators, poultry and livestock producers and the United Nations.
EPA issued a Federal Register notice opening a 30-day public comment period on the requests. EPA spokeswoman Alisha Johnson says EPA has received petitions from "a number of states, as well as requests for action from industry and members of Congress." She says the agency has received and acted on similar petitions in the past, following the same Clean Air Act process.
The latest petitions came from Georgia Governor Nathan Deal and New Mexico Governor Susana Martinez urging EPA Administrator Lisa Jackson to use her authority to waive the RFS, becoming the fifth and sixth governors to make such a request.
Section 211(o)(7) of the Energy Independence and Security Act of 2007 allows the Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, to waive the national volume requirements of the RFS, in whole or in part, upon petition by one or more States, or by any party subject to the requirements of the RFS program.
EPA is requesting comments on any matter that might be relevant to its review of the request, specifically asking for comments on whether compliance with the RFS would severely harm the economy of Arkansas, North Carolina, other States, a region, or the United States. In its notice EPA stated the letters from the Governors of the States of Delaware and Maryland, the National Pork Producers Council, the Dairy Farmers of America, and various members of Congress are available in the docket. Any additional similar requests submitted to EPA will also be docketed and considered together with requests already received, the notice says.
EPA is seeking comments on whether the relief requested will remedy the harm and to what extent, if any, a waiver would change demand for ethanol and affect prices of corn, other feedstocks, feed and food.
Recent studies from Iowa State University, Purdue University and the University of Illinois have all showed that waiving the RFS may have a minimal impact, especially as refiners have become accustomed to using ethanol as an octane.
Bruce Babcock at ISU found that waiving the RFS would lower corn prices by about 7.4% however the "desire by livestock groups to see additional flexibility on ethanol mandates may not result in a large drop in feed costs as they hope," his report notes.
To the extent there is flexibility in refiners' ability to use less ethanol, and the use of prior blending Renewable Identification Numbers, corn prices could reduce 47 cents/bu. and a partial waiver could reduce corn prices by as much as $1.30/bu., the Purdue study found.
EPA also is seeking comments on "the amount of ethanol that is likely to be consumed in the U.S. during the relevant period, based on its value to refiners for octane and other characteristics and other market conditions in the absence of the RFS volume requirements; and if a waiver were appropriate, the amount of required renewable fuel volume appropriate to waive, the date on which any waiver should commence and end, and to which compliance years it would apply."
It is estimated the stock of RINs currently available to be 2.6 billion gallons. That means if they chose, blenders could use as little as 3 BG of ethanol for the remainder of 2012 to meet their obligation, which is about 5.6 BG. "To the extent that carry-forward blending credits were used in 2012, more ethanol plant closings and less ethanol production could be seen," the Purdue authors write.
The latest supply and demand estimates showed that ethanol's corn use is expected to drop 10% due to higher corn costs.
Based on guidance from EPA, the clock on the 30-day public comment period and the 90-day window EPA will have to make a decision will begin once the agency publishes a notice that it has received the request. The Renewable Fuels Assn. notes that the 2008 waiver request from Texas Gov. Rick Perry - which the agency ultimately denied - took 104 days total, or 73 business days.
Pat Westhoff, director of the University of Missouri's Food and Agricultural Policy Research Institute, says the EPA set a high bar when it denied Texas' waiver request in 2008 and puts the burdens on states and those commenting to outline the economic harm a RFS waiver would remedy.
The agency's timeline allows for the agency to wait to act until after the Nov. 6 elections, and possibly will allow for the November crop report due out Nov. 9.
Analysts expect if the crop gets much smaller it will put significant pressure on EPA to reduce the mandate. It is expected if the crop finds a few more bushels on the national average, it is less likely a waiver would be granted.
EPA has established a public docket for the notice under Docket ID No. EPA-HQ-OAR-2012-0632 which is available for online viewing at www.regulations.gov.