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Friday, December 6, 2013

Let the market work

by Pete Crow - Publisher

A couple weeks ago the Environmental Protection Agency (EPA) announced its plan to reduce mandated biofuel, mostly ethanol production, by 1.4 billion gallons, to a 2014 mandated production of 13 billion gallons. This move is creating a mixed bag of reactions across agriculture. 

EPA said that the lower consumption of gasoline was the reason for the reduction, which is true. But corn growers also saw the mandates as a green light to produce for an almost guaranteed market. There is no question that the drought last year pushed prices up to $8, and now that we have a record large crop we can see that the markets are working. Cattlemen wanted a waiver a year ago because they were losing bundles feeding very expensive corn and asked EPA for a reduction in ethanol production to no avail.

Now that we have a record large corn crop for 2013, with around 14 billion bushels of corn nationwide, most corn users are getting a break with today’s price of $4.30.

The Renewable Fuels Association (RFA) has been behind the push for raising ethanol blend levels and E85 fuels. RFA CEO Bob Dineen says that “the EPA is locked into maintaining ethanol demand at mandated levels. The EPA doesn’t have the statutory authority to lower the total volume requirements by more than the total reduction in advanced and cellulosic ethanol,” he said.

“By rewriting the statute and redefining the conditions upon which a waiver from the RFS can be granted, EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies. That would be the death of innovation and evolution in our motor fuel markets and will increase consumer costs.

“An administration intent upon seeing the next generation of biofuel technology commercialized cannot eviscerate the demand base that would allow those fuels to succeed,” Dineen said.

RFA says slashing the 2014 production targets could lead to negative impacts for America’s farmers and consumers and ultimately cut American jobs, harm the economy and discourage the future of biofuels. RFA suggests that the mandate reductions will free up a half a billion bushels of corn for other uses, such as livestock feed.

The American Petroleum Industry President and CEO Jack Gerard said, “For the first time the EPA has acknowledged that the blend wall is a dangerous reality that must be addressed to avoid serious impacts on America’s fuel supply and would be harmful for American consumers.

“While the agency took a step in the right direction, more must be done to ensure Americans have the choice of ethanol-free gasoline for boats and small engines and to bring their mandates closer to reality on cellulosic biofuels, which do not exist in commercial quantities. Ultimately Congress must protect consumers by repealing this outdated and unworkable program once and for all,” Gerard added.

Left untouched, the mandate could drive up the cost of diesel by 300 percent and gasoline by 30 percent by 2015.

According to David Ripplinger, Bioenergy Economist at University of South Dakota, “The bigger implications of the EPA’s plan are long-term. If the blend wall limits mandated use, the impacts of the RFS may be altered significantly. After falling during the 2007-2009 recession, the number of vehicle miles traveled has plateaued. If this continues and fuel efficiency continues to improve, the use of motor fuel will decline year after year. If the EPA sticks to its reasoning, mandated biofuel volumes could decline in coming years.

“This is bad news for renewable fuels. We already have more than 14 billion gallons of corn-based ethanol production capacity in the U.S. and more biorefineries to come online. And there are dozens of projects in the planning to use feedstocks other than corn or cellulose to produce ethanol. The good news is that EPA did state that it will continue to support the RFS and that change in the nation’s fueling infrastructure views of the blend wall and future mandated levels.”

There are legislative efforts to reform the laws governing RFS, but the entire situation is screaming for an open market on ethanol. The government has achieved its goal of ramping up production that is in line with demand. Now it’s time for the market to take over and tell us what these commodities are worth so we can begin to balance our resource use. If ethanol is so wonderful, there should be plenty of demand for the variety of ethanol products on the market, but no one, especially the government, should guarantee a demand base. Markets sort these things out better than politicians. — PETE CROW

 
 


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