More on the Renewable Fuel Standard

I haven’t been eager to talk about the Renewable Fuel Standard; I have friends who are farmers, I come from a family of farmers (although none are in the business anymore), and, if I had to choose any other occupation, I would like to farm.

The Renewable Fuel Standard is an EPA requirement that fuel sold in the United States include an increasing amount of  “renewable fuels”, ethanol, cellulosic alcohol (methyl alcohol), and biodiesel. From 9 billion gallons in 2008, the volume of renewable fuel is supposed to increase to 36 billion gallons by 2022. Production of cellulose-based fuel and biodiesel has proven unprofitable and unacheivable. Production of ethanol, mostly from corn, has given a huge boost to corn prices, causing farmers to shift from production of other crops to corn.

Because gasoline sales have leveled off (recession, improving fuel mileage), we have reached a “blend wall”; to continue meeting RFS requirements, refineries would have to blend more than 10% ethanol in highway fuel. This has proven to be damaging to engines, so the EPA has proposed to alter the requirements downward.

The ethanol industry is not happy, and the governors of 5 midwestern states have written a letter to the President.

In a joint letter to the president, Environmental Protection Agency Administrator Gina McCarthy and Agriculture Secretary Tom Vilsack, Iowa Gov. Terry Branstad, Kansas Gov. Sam Brownback, Minnesota Gov. Mark Dayton, Nebraska Gov. Dave Heineman, North Dakota Gov. Jack Dalrymple and South Dakota Gov. Dennis Daugaard argue in defense of the ethanol standard. The letter stresses the importance of ethanol as it diversifies America’s energy portfolio, gives consumers choices at the pump, supports economic development in rural communities and reduces harmful emissions across the nation.

Providing evidence of their claims, the governors point to an Iowa State University estimate that says “corn prices alone could drop 19 cents per bushel based on the proposed rule, which could bring corn prices below the cost of production for many farmers. The proposed EPA rule could also cause a ripple effect on agribusiness, our communities, and the entire economy.” …

“Specifically, we hope that you will encourage the EPA to increase the biodiesel volume to reflect current production levels, modify the cellulosic target to match production expectations, and reinstate the statutory conventional renewable fuel target since there is clearly no domestic supply shortage.” …

In other words, “Revising the rule will hurt a wealthy constituency, and we can’t have the free market determining the price of corn.” Keep in mind, 4 out of 5 of these governors are Republican.

The government needs to get out of the practice of subsidizing businesses of any kind. I am sure these governors would have denounced the Solyndra debacle, but “don’t mess with my corporate welfare!”

corn_field corn-1