Iowa Public Television


Renewable Fuel Standard Cut Questioned

posted on June 27, 2008

Hello, I'm Dean Borg. Mark Pearson is off this Friday. Government and private reports were mixed this week in their assessment of the U.S. economy.

The Commerce Department reported this week that Gross Domestic Product, the broadest measure of the economy, grew at a 1 percent annualized rate in the first quarter, helped in large part by stronger sales of U.S. products overseas.

According to The National Association of Realtors, sales of existing homes rose 2 percent in May. Even with the small gain, sales were nearly 16 percent below the already depressed levels of last year. While existing home sales account for the bulk of the housing market, sales of NEW single-family homes fell 2.5 percent in May, marking the sixth decline in the past seven months.

Meanwhile, the New York-based Conference Board announced its Consumer Confidence Index, fell to 50.4 in June. That's its lowest tally in more than 16 years and just half of what it was one year ago.

And crude oil prices soared to a record close above $140 per barrel Friday after OPEC's president said prices could rise well above $150 a barrel this year.

Proponents of bio-based fuels claim their products help to alleviate America's "pain at the pump." But record corn prices and the clamor of critics are threatening expansion in the ethanol industry.

Renewable Fuel Standard Cut Questioned

Saying it's "hurting America", Texas Governor Rick Perry, continued his campaign this week to cut 2009 levels for the Renewable Fuel Standard, or RFS, in half. In late May of this year, the Republican governor petitioned the Environmental Protection Agency for a reduction in the amount of ethanol mandated in the 2007 Energy bill from 9 billion gallons to 4.5 billion gallons. Perry says, if approved, his request would lower gasoline and diesel fuel prices.

Ethanol producers are calling Perry's motives into question.

Bruce Rastetter, Hawkeye Renewables: "Isn't it really interesting that the governor of the second largest oil producing state in the country, who benefits most by high energy costs, and we know ethanol lowers energy costs, is concerned about corn input costs in Texas. I don't see him concerned about energy costs and wanting to lower the price of oil I see that he has concern that Iowa corn going to Texas should be cheaper."

Rastetter, the owner of the nation's fourth-largest ethanol-producing firm, believes biofuels have their place among all energy sources.

Bruce Rastetter, Hawkeye Renewables: "All of us in this industry have never believed that ethanol's a silver bullet. And certainly it can be a key component along with wind, biodiesel, biomass, additional oil production in the U.S., nuclear energy, as a key component of the nation's energy package not just ethanol solving the nation's energy problems. We know it won't but it can be an important part of it as we move to 10, 15, 20 percent of the nation's gasoline supply."

But Governor Perry is not alone in his assessment of ethanol. Preceding Perry with a plea to the EPA were 24 Republican U.S. Senators, led by presidential candidate John McCain of Arizona. The group sent a letter asking EPA Administrator Stephen Johnson to waive or restructure the rules pertaining to the ethanol mandate. And former USDA Chief Economist Keith Collins, also has submitted comments to the EPA calling for a reduction in the biofuels mandate. In his report, commissioned by Kraft Foods, Collins believes biofuels have exaggerated corn prices, put the livestock industry in jeopardy and caused an increase in food prices.

Oil industry advoncacy groups like the American Petroleum Institute, or API, did not take a side on the issue. Comments submitted last week to the EPA by the petroleum industry advocacy group only asked for a "complete, credible, and transparent analysis" of the Texas governor's request.

When the 2007 Energy Bill increased the renewable fuels mandate from 5.4 billion gallons of annual production to 9 billion gallons earlier this year, Congress included an out clause. If the Environmental Protection Agency, or EPA, determined that continued production would severely harm the economy or the environment of a state, a region or the United States it could curtail or eliminate biofuel production.

The increase in the cost of corn, ethanol's primary feedstock, appears to have influenced ethanol makers to reconsider opening new production facilities. VeraSun Energy Corporation, the industry leader, will delay the opening of three newly constructed plants due to what company officials are calling volatility in the market.

Despite the various arguments being made to cut or maintain the RFS, industry analysts are urging a cautious approach to the situation.

Chad Hart, Center for Agricultural and Rural Development: ""I still say we're in a look-and-see mode as opposed to actually needing to do something about it yet. Let's see how this corn crop's going to develop, let's see how much we are able to recapture, and go forward from here."

Chad Hart, an agricultural economist for the Iowa State University based Center for Agricultural and Rural Development, believes the EPA should watch market trends and wait until harvest before revising the current biofuels mandate.

Chad Hart, Center for Agricultural and Rural Development: "If it were a more normal year, if we were staring at more typical trend yields, normal weather patterns, getting that crop planted in the ground I don't think we would be having this discussion quite as strongly."


Tags: biofuels economy ethanol government news