The U.S. Environmental Protection Agency on Thursday denied Texas’ request to modify a national ethanol mandate, contending that the requirement hasn’t caused food prices to rise or harmed the economy.
After conducting extensive computer modelings and other research, the EPA concluded that the Renewable Fuels Standard – also known as the RFS – should remain in place. The agency said it would waive the RFS only if it finds the requirement would cause “severe harm” to the economy or environment.
“Our staff examined the impact on corn prices, fuel prices and current price for renewable fuel credits, which are used to demonstrate compliance with RFS mandate,” said EPA Administrator Steve Johnson during a conference call. “This research found that the RFS mandate isn’t costing a severe economic harm. RFS is strengthening our energy security and supporting the American farming community.”
A 2005 law set up the RSF program, but the energy act passed in December increased the biofuel mandate, requiring the country to use 36 billion gallons of a variety of biofuels by 2022 (see House Passes Energy Bill).
The Energy Independence and Security Act of 2007 doubled the target, calling for 9 billion gallons in 2008 and 11.1 billion gallons in 2009.
The mandate has spurred growth in the number of companies entering the ethanol market. Just this week, oil giant BP said it’s investing $90 million in Verenium, which is developing a cost-effective way to turn plants and wood chips into ethanol (see BP Invests $90M in Verenium for Ethanol).
In April, Texas Gov. Rick Perry asked the EPA to cut the 9 billion gallon requirement in half, arguing that the mandate had pushed up corn prices, which in turn raised the feed cost for livestock companies and affected food prices for consumers.
A vast majority of the ethanol produced in the United States today is made from corn, although a number of companies, such as Verenium, are developing technologies for turning nonfood feedstocks, such as switchgrass, rice straw and wood chips, into ethanol.
The EPA’s decision drew a sharp rebuke from industry groups representing cattle and poultry producers, as well as bakers and beverage makers.
Representatives from these groups, which held a press conference, warned of rising grocery bills and a shortage of meat and dairy products as a result of the biofuel mandate.
“Herds and flocks have been reduced. Eggs set for hatching have dropped (in numbers) significantly,” said Joel Brandenberger, president of the National Turkey Federation. “What’s happening now may be mild compared to what will happen in the future – there may be a small amount of meat and poultry available on the market.”
Bakers nationwide have called their trade group to complain about the increasing cost of making bread and other baked goods, said Lee Sanders, a senior vice president for the American Bakers Association. Wheat, not corn, is the main ingredient used for baking, and the association has seen more farmers stopped planting wheat in favor of corn, Sanders said.
“Kansas now produces more corn per acre than wheat, so that’s a drastic change in the last 20 years” Sanders said.
Meanwhile, other companies and trade groups have lined up to herald the EPA’s decision.
Archer Daniels Midland, the nation’s largest ethanol producer, issued a statement saying: “this ruling clearly recognizes the important role of biofuels in helping meet current and future energy demands.”
Earlier this week, ADM said the rising demand for ethanol over the past year made up for slightly lower average selling prices, while Aventine Renewable Energy on Friday said that ethanol prices increased (see Earnings Roundup: Making a Profit Proves Tough and Aventine Posts Loss Despite Record Sales).
The DOE in June estimated that gasoline would cost between 20 cents to 35 cents per gallon more if lower-priced ethanol wasn’t blended in.
The department also said the country would use 7.2 billion more gallons of gasoline, or 5 percent more than expected this year, for the same amount of travel if it weren’t for biofuels.