Fate of RFS Waiver Lies in EPA's Hands

DC Dialogue

EPA comment period closes for Renewable Fuels Standard waiver request.

Published on: October 15, 2012

Well, just like we have to wait until November for the political commercials to go away, a decision from EPA on whether or not to reduce or waive the Renewable Fuels Standard also won't come until November.

Oct. 11 marked the final day for comments to be submitted to the EPA regarding the request sought by the livestock industry and nine governors. (Governors from Arkansas and North Carolina officially petitioned for the waiver, whereas governors from Virginia, Texas, Georgia, New Mexico, Delaware and Maryland voiced support for a RFS waiver.)

During a previous comment period in 2008 for a partial waiver of the RFS, EPA received more than 15,000 submissions from throughout the country.

This time around the numbers could be much higher. The National Chicken Council said it "hand delivered almost 10,000 individual comments from those whose livelihoods depend on the chicken industry, almost three quarters of which came from chicken farmers." The National Turkey Federation (NTF) in collaboration with its members, submitted over 1,500 comments.

Both sides cited three analyses on the effects of the RFS – ones from the Food and Agricultural Policy Research Institute at the University of Missouri, Iowa State University and Purdue University which have detailed the impact of a waiver. The studies all confirm that the industries have experienced economic harm, but also explain there is little technical flexibility and economic incentive for gasoline refiners to change current practices.

Reduce RFS

The livestock industry's comments all focused on the dramatic increase in feed costs they've experienced as well as the need to reduce the mandate due to this year's short corn crop resulting from the drought.

NCC's comments cite an August 2012 report prepared for the Farm Foundation by three Purdue University economists that evaluated how an EPA waiver of the ethanol mandate would affect the corn and ethanol markets. Calculations from their model found that reducing the amount of ethanol blended into gasoline in 2013 would reduce corn prices by $2.00 per bushel, a nearly 25% reduction. 

"A California poultry company just this week filed for bankruptcy citing rising feed costs, making it the eighth company in the last two years to file for bankruptcy, be sold or simply close its doors," said NCC President Mike Brown.
“The single most challenge for all of agriculture is Mother Nature. Coupled with an inflexible mandate the federal government adds another level of uncertainty into a market place that is not market-driven,” said NCBA President J.D. Alexander, a Nebraska cattleman and corn grower. “This further shows the need for Administrator Jackson to use the authority granted by Congress and waive the mandate for corn ethanol production.”

NTF noted in their comments that EPA’s waiver has inflicted severe economic harm to their industry, even causing one California turkey processor, to file for Chapter 11 protection, citing increased feed costs as a key factor in the company’s financial struggles.

With the RFS, National Pork Producers Council pointed out in its comments, a weather-driven supply shock no longer simply results in higher prices for feed grains but causes “explosively higher prices, crippling credit and liquidity shortfalls and the frightening prospect that some producers ... cannot assure stable access to ... corn to feed their animals.”

Keep RFS

The Governors of Iowa, Illinois, Minnesota, South Dakota and Oregon have written to the EPA in support of sustaining the RFS as is, with no waiver.

letter in opposition to an RFS waiver signed by 22 chief executive officers, presidents, and other top executives of companies active in the bioenergy and agriculture sectors was submitted to EPA, which outlined the contribution ethanol has to the U.S. economy and the benefits of the RFS.

Several recent studies have analyzed potential impacts on the feed markets from reductions in the RFS. While a waiver may modestly lower corn prices, reduced distillers grains availability and increased soybean meal costs will negate a significant portion of the savings from reduced corn prices, ethanol supporters noted.

An analysis conducted by Cardno-ENTRIX and commissioned by the Renewable Fuels Association (RFA) shows that if ethanol and biodiesel production were each reduced 500 million gallons in 2013 under a waiver of the RFS, total feed costs would increase 4.1% for dairy, 0.8% for layers, 0.5% for hogs, and 0.2% for broilers. For beef cattle, feed costs might fall by just 0.6% with a waiver.

Wally Tyner countered that herd sizes will shrink due to higher feed prices. "That could counter any move to higher protein prices," he said.

In response to a 2008 waiver request, EPA had established that severe harm to the economy attributed to the RFS was one of only two grounds for granting a waiver. "We believe the burden of proof for severe harm to the economy falls on the petitioner," said National Corn Growers Assn. president Pam Johnson. "Since higher feed prices are only one piece of a complicated economic puzzle we believe the petitioners have failed to establish this proof."

POET, the nation's largest ethanol producer, submitted comments which noted that the RFS has built-in provisions for temporary supply disruptions such as this year's drought; ethanol's use of corn is overstated, explaining that once the distillers grains return is taken into account only 17.5% of corn acres are used to produce ethanol; and a waiver would have a serious impact on efforts to commercialize cellulosic ethanol.

The EPA is scheduled to rule on the waiver request by Nov. 13.