Texas Biofuels Waiver Request Shot Down

Thursday, Jan 7, 2010  |  Updated 3:18 PM PDT
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Texas Biofuels Waiver Request Shot Down

WASHINGTON DC, August 7, 2008 (ENS) - The Bush administration today denied a request by Texas to cut the U.S. biofuels mandate in half, rejecting the claim that the massive increase in corn-based ethanol is causing economic harm to the state's livestock industry and raising food prices.

Few stakeholders were surprised by the decision, but debate over the U.S. biofuels mandate reflects lingering concern about the economic and environmental impact of nation's ethanol boom.

The controversy centers on the nation's renewable fuels standard, RFS, which calls for the nation to increase its production of ethanol and other biofuels to be blended into gasoline. Such fuels account for some six percent of the nation's gasoline supplies.

The RFS requires nine billion gallons of biofuels be used this year, with the target set to jump to 11 billion gallons in 2009 and 36 billion gallons by 2020.

Congress first established the RFS in 2005. Lawmakers increased it last year, promoting the mandate as part of a strategy to reduce the nation's dependence on foreign oil and to cut greenhouse gas emissions.

The politics of corn production hang heavy over the RFS controversy.

Corn-based ethanol currently accounts for the vast majority of biofuels blended into the U.S. fuel supply. Other sources of biofuels are not commercially viable, but corn-based ethanol is a ready alternative thanks to generous subsidies and support from U.S. lawmakers.

The U.S. Department of Agriculture predicts a third of U.S. corn production will be funneled into ethanol this year, yet record corn prices have some wary of the larger impact of the ethanol boom on food and livestock feed prices.

In May more than 20 Republican senators, including Arizona's John McCain, the presumptive Republican presidential nominee, urged EPA to waive the RFS mandate because of concerns about its impact on food prices.

Others are concerned about the impact on the nation's environment.

Corn growers use large amounts of pesticides and the boom in corn production has been linked to an increase this year in the giant dead zone in the Gulf of Mexico.

And although blending ethanol with gasoline helps cut greenhouse gas emissions from cars and trucks, in can increase emissions responsible for smog.

Today's announcement came in response to a request made in April by Texas Governor Rick Perry, who asked the U.S. Environmental Protection Agency to cut the RFS mandate by 50 percent.

Perry, a Republican, argues that demand for ethanol is responsible for corn prices that reached record levels in June, up nearly 120 percent from 2007. Those high corn prices that are harming his state's cattle and poultry farmers, Perry said in his request, and are being passed onto consumers in higher food costs.

But the head of the EPA disagreed. The RFS mandate is not causing the "severe economic harm" required by law to waive the requirement, EPA Administrator Stephen Johnson said today.

"Rather, the RFS is strengthening our nation's energy security and supporting America's farming communities," Johnson told reporters on a teleconference.

EPA was not required to consider the environmental impacts of the RFS mandate, Johnson added, as the Texas petition was based solely on economic concerns.

EPA's analysis found the RFS mandate may be responsible for increasing corn costs between seven and 30 cents per bushel. The agency has yet to complete analysis of the long-term economic or environmental impacts of the policy.

The Texas governor blasted the decision, saying the EPA appears incapable of looking past the "good intentions" of the policy.

"For the EPA to assert that this federal mandate is not affecting food prices not only goes against common sense, but every American's grocery bill," Perry said. "Any government mandate that artificially props up a single industry to the detriment of millions of Americans is bad public policy."

But recent events have given some strength to the view that the RFS mandate is not the key factor behind corn prices.

Prices have dropped from a record high of nearly $8 a bushel in June to less than $5.40 earlier this month - a decrease many contend has been driven by a drop in the price of oil.

"Most economists now recognize the real severe economic harm is being done by the skyrocketing price of oil and not by ethanol production," said Bob Dineen, head of the Renewable Fuels Association. "In fact, without ethanol production the damage from high oil prices would be even worse."

Dineen contends that curtailing the RFS mandate would have had little impact on corn prices but would have "sabotaged the development and growth of new technologies and a cellulosic biofuels industry."

Other reaction to the decision demonstrated the strange bedfellows brought together by the biofuels controversy.

Livestock interests, along with environmentalists, grocery manufacturers, restaurants and oil industry groups had all called on EPA to grant the Texas waiver.

"Diverting a third of our corn crop to ethanol production has driven corn and all feed prices up to levels that are severely impacting U.S. meat and poultry producers as well as consumers," said Jesse Sevcik, vice president for legislative affairs for the American Meat Institute.

The head of the nation's largest chicken producer said the RFS mandate has caused feed prices to "spiral out of control," adding that his company's food costs could jump $900 million this year.

"It's apparent that the government intends to blindly pursue this misguided and destructive policy despite reams of data demonstrating its negative impact on the environment, food prices, and world hunger," said J. Clinton Rivers, president and chief executive officer of Pilgrim's Pride Corporation.

Environmentalists had hoped debate over the Texas waiver would have prompted EPA to review the environmental impacts of the RFS mandate.

"Corn-based ethanol isn't just raising food prices," said Frank O'Donnell, president of Clean Air Watch. "It is causing more smog, adding to global warming, and causing more water pollution.

With controversy over the RFS mandate far from settled, the EPA is bracing for a potential flood of requests asking for changes to the policy.

States were the only interested parties allowed to file waiver requests this year, but next year the door will be open to industry groups and other affected parties. -- By J.R. Pegg, ENS Washington Bureau Chief

Copyright Environment News Service (ENS) 2008. All rights reserved.

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