EPA's RFS proposal risks ending America's rural renaissance

By Jonathan H Harsch

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Oct. 20, 2015 -- When President George W. Bush signed the law creating the Renewable Fuel Standard (RFS) in 2005 to support biofuels production, he explained that “Using ethanol and biodiesel will leave our air cleaner. And every time we use a home-grown fuel, particularly these, we're going to be helping our farmers, and at the same time, be less dependent on foreign sources of energy.”

One measure of success is that with the RFS requiring the oil industry to blend increasing amounts of ethanol into the nation's gasoline supply, corn ethanol production has grown by 267 percent, from 3.9 billion gallons in 2005 to 14.3 billion gallons in 2014. As a result, ethanol now provides 10 percent of the nation's transportation fuel supply, lowering pump prices and significantly reducing the need for crude oil imports.

 

The even better news is that the 195 ethanol plants operating in the U.S. today have a total production capacity of some 17 billion gallons. The industry's untapped capacity could be unleashed to reduce both crude oil imports and gasoline prices further if the RFS volume requirements were raised to the levels set by Congress. For now, however, the EPA has proposed lowering the volume requirement from the law's 20.5 billion gallon mandate for 2015 to 16.3 billion gallons, with corn ethanol accounting for 13.4 billion.

 

Another measure of success is that the farm sector has been prospering, at least in part because ethanol use has boosted corn demand, production and prices, which in turn boosts wheat and soybean prices as well. But ethanol and agricultural interests see lowered projections for farm income and rural prosperity as direct consequences of EPA's proposal to reduce the RFS volume requirements.

A joint National Corn Growers Association/National Farmers Union statement warns that EPA's proposal to lower RFS volume requirements is having serious consequences: “Considering all U.S. crop cash receipts are projected to be down about $34 billion since 2012 and nearly $13 billion compared to 2014, it is easy to see why so many farmers so strongly support the RFS - it has been the most significant growth factor for agriculture since its inception in 2005.”

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The NCGA/NFU statement concludes that EPA's failure to maintain the biofuels levels set by Congress “continues to stifle the growth in the renewable transportation sector” and has “frozen investment in rural communities and new income streams for farmers related to advanced and cellulosic biofuels.”

To measure RFS and ethanol production impacts, POET, the world's largest ethanol producer, released a 60-page economic analysis in August on the Economic Contribution of POET Biofuels Production on U.S. and State Economies. The ABF Economics report shows that POET's 27 ethanol plants operating in South Dakota, Minnesota, Iowa, Missouri, Indiana, Ohio, and Michigan spent about $3 billion in 2014, including $2.5 billion to buy 620 million bushels of corn, providing a significant new market for farmers in those seven states. POET's plants turned the corn into 1.7 billion gallons of ethanol for fuel, 4.6 million tons of livestock feed, and 75 million pounds of corn distiller's oil. 

The POET report calculates that the ethanol plants' production and marketing in 2014 generated:


  • $13.5 billion in sales for U.S. businesses,
  • nearly $5.4 billion in national GDP,
  • $3.1 billion worth of income for U.S. households,
  • an estimated 39,378 full time jobs,
  • $464.6 million in state and local government tax payments, and
  • $1.5 billion in federal tax payments. 

 

“The biggest negative factor facing ethanol right now is the RFS,” National Farmers Union President Roger Johnson said in an Agri-Pulse interview. “We saw the growth of this industry really explode once the industry came to believe that the RFS was a long-term government policy that was going to be predictable, consistent, dependable and that they had a long-term horizon that they could plan for. They knew that if they produced the fuel, they would have access to the market.”

Johnson says Congress created the RFS to require the oil industry to buy ethanol because otherwise “the oil companies won't buy your product even if it is cheaper.” By backing down on that requirement, he says, EPA has “destroyed the investing community's belief . . . that if they produced the fuel, they would have access to the market.” The result, he adds, is that “billions of investment dollars have been turned away in this industry as a direct result of EPA's decisions.”

Growth Energy Vice President and Chief Economist James Miller tells Agri-Pulse that EPA's decisions have led directly to “a leveling off of domestic demand for ethanol” and the related plunge in commodity prices. He says that unless the EPA raises rather than lowers RFS volume requirements, EPA will cap ethanol production and further depress not only corn prices but the farm sector as a whole since “there is always a correlation between the major crop prices.”

Miller concludes that “If we had continued to follow the RFS, we'd be at the point where quite likely the domestic market would be consuming closer to 15 billion gallons of ethanol rather than 14 billion and that would have a significant impact all across the country.”

Nov. 30 is the deadline for the EPA to finalize its long-delayed RFS volume requirements for 2014, 2015 and 2016. When it proposed lower volumes in May, EPA explained it had the authority to set lower requirements based on “inadequate domestic supply.” EPA stated that lower volumes were appropriate “due to constraints in the fuel market to accommodate increasing volumes of ethanol” - a phrase that ethanol supporters view as EPA allowing the oil industry to constrain ethanol demand by refusing to install the filling station blender pumps needed to increase ethanol use.

As promoted in an eight-week series of Smarter Fuel Future TV and newspaper advertisements launched Monday targeting the Washington, D.C., area, the oil industry insists that EPA should either reduce or eliminate the RFS mandates based on the industry's controversial claim that “ethanol requires massive amounts of land and water to produce, and it generates more lifecycle emissions than gasoline.”

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