EPA Texas decision: "food v. fuel" myth or fact?

The U.S. Environmental Protection Agency denied Texas’ request to be exempted from that nationwide Renewable Fuels Standard. The EPA decision is here.
Texas Gov. Rick Perry asked for the exemption because of the link many have made behind the surging production of corn-based ethanol and a rise in food and grain prices, including the feed for Texas’ cattle industry.

“I am greatly disappointed with the EPA’s inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households,” Perry said. “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.”

Here’s a sampling of other reactions.
Biotechnology Industry Organization (BIO) President & CEO Jim Greenwood:

“Moving backward to a time where supplies of corn outpaced demand is not a possibility. We applaud the EPA’s decision not to grant the waiver.”

“…. many economists and studies agree that undoing the RFS would not reduce corn and food prices as claimed by those who requested the waiver.

National Farmers Union President Tom Buis :

“The Renewable Fuels Standard is part of our nation’s energy solution. America’s farmers have the ability to produce a safe, abundant food supply while playing a part in reducing our dependence on foreign oil. Despite the rhetoric from the supporters of big oil, ethanol has reduced our dependence on foreign oil, and saved consumers from paying even higher prices for gasoline.
The food versus fuel myth is not based on the facts. While high commodity prices have been named the culprit, the farmer’s share of the retail food dollar is less than 20 cents. Energy prices have a far greater impact on retail food prices and with sky high energy costs; it’s no wonder food prices have increased.
“The Renewable Fuels Standard is particularly important for rural America where ethanol production has revitalized once-struggling communities.”

Scott Segal, head of the Bracewell Giuliani government relations section:

It is disappointing that EPA chose not to grant a waiver of the renewable fuels standard. Support for the waiver was an area of extraordinary common ground between the agriculture sector, many refiners, and environmentalists.
Studies have clearly indicated that the current renewable fuels standard has had a profound impact on food prices. In a June 2008 report, agricultural economist Keith Collins found that “the increase in corn expected to be used in ethanol between 2006/07 and 2008/09 may account for up to 60 percent of the increase in corn prices between 2006/07 and 2008/09.” This price increase for corn leads directly to food price increases ….”.

U.S. Secretary of Energy Samuel W. Bodman :

“Looking toward the future, we must have a diverse array of cost competitive technologies and sources to overcome our addiction to oil in a time frame that is consequential, and biofuels constitute a prominent – but not an exclusive – promising pathway.”
In June, DOE announced an estimate that gasoline prices would be between 20 cents to 35 cents per gallon higher without ethanol, a first-generation biofuel. Also, without biofuels, DOE estimates that the U.S. would have to use 7.2 billion more gallons of gasoline in 2008 in order to maintain current levels of travel, a 5 percent increase.

Friedman, Billings, Ramsey & Co. analyst note:

Across all scenarios, the EPA determined that waiving the mandate could have reduced corn prices by $0.07/bu, although under some scenarios, the impact could have been as high as $0.30/bu. It appears the EPA concluded such an impact did not amount to severe economic harm within the context of corn prices that rose nearly 250% between 4Q05 and 2Q08. As we have discussed previously, the Energy Policy Act of 2005 (EPAct05) allows waivers in the event of (1) ethanol (not corn) shortages and (2) severe economic or environmental harm. Some supply-related waivers have been granted in the past, but EPAct05 limits these to a maximum of 20 days before expiration. The Texas waiver request addressed the question of economic harm.
If Senator John McCain (R-AZ) wins the presidential election, he could appoint an EPA administrator who shares his limited enthusiasm for biofuels. This scenario could lead to two low-odds, but potentially negative, outcomes for biofuels. First, a new EPA administrator might apply different economic analysis to a future waiver request, perhaps by taking stricter interpretations of “severe” or “economic harm.” Second, future assays may incorporate life-cycle greenhouse gas emissions, because this calculation will be required for assessing “advanced biofuels” and “cellulosic biofuels” compliance.

Where are you on the food vs. fuel debate?

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