Bipartisan Representatives Introduce RFS ‘Safety Valve’ Bill

DC Dialogue

Practicality of changing RFS levels twice a year would be an administrative nightmare and may not lower corn prices.

Published on: October 7, 2011

Just days after the National Academies of Sciences released its report questioning the nation’s ability to meet the cellulosic component of the Renewable Fuels Standard, Congressional members introduced the Renewable Fuels Standard Flexibility Act of 2011, which will tie the amount of corn ethanol production required under the RFS to U.S. corn supplies.

The legislation was introduced by Rep. Bob Goodlatte, R-Va., and Jim Costa, D-Calif., and a news conference was held Oct. 5 alongside livestock groups who have been hit with higher corn prices in recent years.

Goodlatte, who also introduced a bill to completely eliminate the RFS but noted there “may not be the political will to eliminate mandate,” said the RFS Flexibility Act provides a “commonsense solution” to ensure enough corn supplies to meet demand.

Livestock groups praised the legislation as a way to level the playing field. R.C. Hunt, president-elect for the National Pork Producers Council said the legislation acts as a “safety valve” if the supply of corn relative to the total usage falls below certain levels.

Specifically, the legislation will set up a process to require the administrator of the Environmental Protection Agency to review twice yearly the U.S. Department of Agriculture’s (USDA) report on the current crop year’s ratio of U.S. corn stocks-to-use in making a determination on the RFS. In years with tight stocks-to-use ratios, a reduction to the RFS could be made.

Goodlatte said under the supply situation unveiled in the latest supply and demand estimates from the U.S. Department of Agriculture, the bill would require a 25% reduction of the corn ethanol mandate. Had the RFS been in place since 1969, according to an analysis by Paragon Economics, a reduction in the RFS would have only been triggered five times. 

Wally Tyner, Purdue University expert in biofuels policy, said the legislation would “wreak havoc” on the RIN market – which each gallon of biofuels is given a Renewable Identification Number and those are traded by blenders.

“I don’t see how administratively you could change the RFS twice a year,” and it would be “almost impossible” for EPA to administer, Tyner added. “Either the ethanol producer or gasoline blender would be trying to figure out the target that needs to be met. And if that target changes every six months, you’re going to have increased volatility.”

A July 2011 analysis commissioned by the International Centre for Trade and Sustainable Development, found that corn prices would have been exactly the same in 2009-10 if both the RFS and Volumetric Ethanol Excise Tax Credit (VEETC) had not existed.

Tyner added with corn at $5.90 and oil prices at $78, if the RFS is eliminated it would have some impact on prices. However, if oil goes up to $85-$90 and corn is in the $6-$6.50 range, changing the RFS may have a negligible impact.

Growth Energy, an ethanol lobbyist group, also warned that “corn stocks-to-use ratios is an inconsistent and imperfect economic indicator and should not be used to manage the RFS.”

Goodlatte said he’s “willing to listen to better options” if the industry has an improved trigger that helps in times of short supplies.

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  1. JacquiFatka says:

    Thank you for your interest in what I see as the latest divide between livestock and corn producers. There is much debate over the amount of corn used for ethanol and livestock and without USDA tracking DDGS use unfortunately some of those uncertainties likely will continue. NASS announced this week because of budget cuts it will cancel plans to begin tracking DDGS use for feed, which is unfortunate. And USDA also admitted it’s had a hard time estimating demand properly because of ethanol use. I estimate approximately 30% of the U.S. corn supply goes to ethanol once one accounts for the offset of DDGS for livestock rations. I do believe moving forward we will see fewer acres put into CRP, which will allow for additional acres to come back into production. But it’s important to remember that these will not be the super-fertile grounds that produce high yields, but will likely bring increased production into the picture as we move ahead. As I said in my blog, I do not believe this approach will fly. Livestock groups have tried many different ways to slow down ethanol’s gain on the supply of corn. Before ethanol many livestock producers benefited from cheap corn in areas that were corn-deficient areas. Now, livestock producers in areas near ethanol plants benefit greatly from the cheaper feed source of DDGS. Ethanol efficiencies will improve at the plant level, ethanol production will slow down as we near the blend wall and as mentioned in another comment, hybrids will also help improve. Please feel free to email me at jfatka@farmprogress.com or continue posting comments here.

  2. Anonymous says:

    Safety Valve? Really? Campaign contributions talk. This is the height of hypocrisy. As if we were hurting for corn. Maybe we don't want to spend any money on buying corn but there is plenty of corn for people that will pay the going rate. The Gov has no business sticking it to the farmers - this is a cheap lobbying trick by Big Oil and Big Chicken (Big Food). Bawk Bawk.

  3. Anonymous says:

    How about a safety valve for the cost of production? Let's have legislation so that I am guaranteed a profit if I sell my corn at a lower price because there is no ethanol. Love to see Monsanto, Pioneer, etc. and the fertilizer companies get discounted if my grain will be lower price.

  4. JacquiFatka says:

    Thank you for your interest in what I see as the latest divide between livestock and corn producers. There is much debate over the amount of corn used for ethanol and livestock and without USDA tracking DDGS use unfortunately some of those uncertainties likely will continue. NASS announced this week because of budget cuts it will cancel plans to begin tracking DDGS use for feed, which is unfortunate. And USDA also admitted it’s had a hard time estimating demand properly because of ethanol use. I estimate approximately 30% of the U.S. corn supply goes to ethanol once one accounts for the offset of DDGS for livestock rations. I do believe moving forward we will see fewer acres put into CRP, which will allow for additional acres to come back into production. But it’s important to remember that these will not be the super-fertile grounds that produce high yields, but will likely bring increased production into the picture as we move ahead. As I said in my blog, I do not believe this approach will fly. Livestock groups have tried many different ways to slow down ethanol’s gain on the supply of corn. Before ethanol many livestock producers benefited from cheap corn in areas that were corn-deficient areas. Now, livestock producers in areas near ethanol plants benefit greatly from the cheaper feed source of DDGS. Ethanol efficiencies will improve at the plant level, ethanol production will slow down as we near the blend wall and as mentioned in another comment, hybrids will also help improve. Please feel free to email me at jfatka@farmprogress.com or continue posting comments here.

  5. Anonymous says:

    How much corn really goes to ethanol production? There are some very misleading numbers even quoted by corn growers. I have heard that 40% of our corn goes to ethanol plants. But how much corn goes to the plants and how much is used for ethanol production are two different questions, and we need to ask the right question. The real question is: How much corn comes back to the feedlots in the form of ethanol by-product? If it is half, than the real number that needs to be quoted is that 20% or less goes for ethanol production. If farmers can't get these numbers right, how do we expect the politicians to?

  6. Anonymous says:

    Shortage of Corn? Shortage of crop acres? I don't think so, not with over 30 million acres of CRP in this Nation, much of which was and would again be productive cropland. What would 5 or 10 million more crop acres do to prices? We could produce a lot more ethanol without shorting livestock. But what would the environmentalists say?? Maybe we all need to just get a horse! And recent news articles tell us that ethanol production is going to get at least 10% more efficient with the development of new hybreds that more readily convert starch to sugar, which will also reduce the amount of natural gas used.