EPA's ever growing mountain of regulation is having an effect on the production of commodities up and down the food chain. Criticism has been somewhat balanced for a long time, but it now appears that some regulations are being openly criticized as destructive, and EPA motives are being questioned. Some critics suggest that EPA set requirements so high that there was no way for them to be reached under any current set of circumstances. Some analysts also believe that corn prices might fall as much as 8% if the waiver was allowed.
Ongoing drought across much of the US has caused extensive damage to core livestock and farming operations, however EPA studies suggest that regulatory impact will be minimal. Other studies, such as the latest published by University of Missouri, suggest that outcomes might now be quite so clear as EPA press releases suggest. We suggest that the results vs. costs of these decisions may be far more disconnected than policy makers might want to admit. Despite weak arguments to the contrary, it is demonstrably clear that the forced (and subsidized) increase in bio-fuel production acts to increase the price of pork, chicken, and beef.
The period for public comment on refusal to waive elicited more than 33,000 opinions which were apparently acknowledged then dismissed by EPA.
No one knows just how long the US drought will continue, thus EPA's low impact estimates are as yet theoretical. We opine that as the drought continues or deepens the effect of many such regulations will be disproportionately high, and that EPA studies will be relegated to the 'oops” category where real life and the calculator have diverged markedly. The problem of course is that if indeed the actual impacts should have justified waivers, tremendous damage may have already been done to agricultural sectors already under terminal stress. But by then it will be too late for farmers in some areas, and price increases will have already been in effect to consumer products as well.
The RFS for 2012 calls for 15.2 billion gallons of corn-based ethanol, as well as 2 billion gallons of advanced biofuels and about 10 million gallons of cellulosic fuel. The drought, and soaring grain prices that come with the drought, have again caused complaints about the amount of corn going to ethanol. In particular, the pork, dairy and poultry industries have been hard hit by high grain prices and blame corn use in ethanol as a major factor in the higher costs to produce meat and dairy products.
Biofuel industry experts speaking on a telephone press conference Thursday stressed that the push by states and congressmen to reduce or waive the RFS would create tremendous uncertainty and again cause investors to pause at the idea of spending money to develop advanced biofuels or cellulosic ethanol.
Marketing year simulations are not entirely satisfactory representations of calendar year mandates and, for that matter, some of the other underlying factors. Our results suggest that rollover is a key element, but our rollover is a constraint at the end of August, whereas the actual rollover limit applies at the end of December, which is in between corn harvests. The effect of rollover seems intuitively to remain important even considering it on a calendar year basis: easily carrying extra RINs from a year when a mandate is waived to a year with the mandate more binding can lead to larger effects after the waiver. However, we do not model the rollover on a calendar year basis so we approach this extrapolation with some caution.
Shrinking supply and higher demand are a recipe for disaster but it’s one that the Environmental Protection Agency largely has the ability to control. Waiving the RFS standard will relieve much of the pressure the industry is feeling and keep prices under control for consumers. Bruce Babcock from Iowa State University estimates that waiving the mandate would moderate corn prices by 8 percent. The administrator of the EPA was given this power for just this purpose. She should use it to provide the needed relief to the agricultural industry as a whole and to all American consumers.
“While AFPM supports the sensible integration of alternative fuels into commerce, consumer choice in the marketplace—not mandates—should dictate how these fuels are used,” Drevna said. “The growing chorus of concern from food, livestock, engine, and consumer communities continues to highlight the mandate’s unintended consequences and destructive nature.”
The American Petroleum Institute did not take a position on the waiver, but felt that EPA “applied an improper and unnecessary high bar, which makes it questionable if any waiver could be granted,” API Senior Policy Advisor Patrick Kelly said.
Noting that it is focusing on the impending ethanol blendwall and other underlying RFS problems, Kelly continued, “The RFS has become increasingly unrealistic and unworkable.”