ETHANOL:

EPA denies waiver of corn-based fuel requirements

U.S. EPA rejected requests by governors of major livestock-producing states to waive federal corn-ethanol mandates in response to the searing drought.

In denying the requests, EPA said the governors had failed to show the renewable fuel standard had caused severe regional or statewide economic harm. The agency also declared it "highly unlikely" that waiving the volume requirements for corn ethanol would affect corn, food and fuel prices.

"We recognize that this year's drought has created hardship in some sectors of the economy, particularly for livestock producers," said Gina McCarthy, EPA's assistant administrator for air and radiation, in a statement. "But our extensive analysis makes clear that congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact."

EPA's decision, which drew almost 3,000 public comments, was in response to official petitions from Govs. Mike Beebe (D) of Arkansas and Bev Perdue (D) of North Carolina.

Several other livestock-state governors, 156 House members and 25 senators had also written EPA asking for at least a one-year waiver of the corn ethanol portion of the standard, arguing that it had devastated livestock producers by driving up corn prices during this year's drought. Corn is a major component in livestock feed in the poultry, pork and cattle industries.

"Put simply, ethanol policies have created significantly higher corn prices, tighter supplies and increased volatility," Beebe wrote in his letter to EPA Administrator Lisa Jackson.

The renewable fuel standard this year requires 13.2 billion gallons of traditional ethanol be blended into the nation's gasoline supply, and the number is expected to increase next year.

Livestock producers argue that the standard has caused 40 percent of the nation's corn crop to go toward ethanol production, though ethanol producers say that number is significantly lower because a byproduct of ethanol production goes back to livestock producers for animal feed.

For EPA to issue a waiver, the agency would have to find that the renewable fuel standard was itself causing economic harm, rather than just contributing to harm.

EPA said it analyzed 500 different market scenarios and found that in 89 percent, "we see no impacts from the RFS program at all" on corn, food and fuel prices. In the 11 percent where there was an impact, EPA said the renewable fuel standard on average increased the price of corn by 7 cents a bushel.

While today's decision was widely expected -- the agency denied a similar request in 2008 by Texas Gov. Rick Perry (R) in response to flooding -- it's sure to provide fresh ammunition for both supporters and opponents of the renewable fuel standard.

"We are extremely frustrated and discouraged that EPA chose to ignore the clear economic argument from tens of thousands of family farmers and livestock and poultry producers that the food-to-fuel policy is causing and will cause severe harm to regions in which those farmers and producers operate," a coalition of livestock producers said in a statement today.

Members included the American Meat Institute, Milk Producers Council, National Cattlemen's Beef Association, National Chicken Council, National Pork Producers Council, National Turkey Federation, and U.S. Poultry and Egg Association.

Opponents of corn ethanol said they would turn to lawmakers to push for changes to the standard. The renewable fuel standard is likely to be a major energy issue in next year's Congress after today's decision.

"If the worst U.S. drought in more than 50 years and skyrocketing food prices are not enough to make EPA act, it falls to Congress to provide relief from our senseless federal support for corn ethanol," said Michal Rosenoer, biofuels policy campaigner at Friends of the Earth.

The American Petroleum Institute, which has vowed to be a major player next year in debates of the renewable fuel standard, also weighed in. Senior policy adviser Patrick Kelly said that while API did not take a position on the waiver, he believed that EPA applied an "improper and unnecessary high bar" and that it was "questionable" whether a waiver would ever be granted.

"The RFS has become increasingly unrealistic and unworkable," Kelly said in a statement.

Ethanol groups, which argued that the standard has built-in flexibility to respond to market conditions and drought, praised EPA. In September, they formed a coalition with advanced biofuels, agriculture and national security organizations to rally support for the standard in response to the calls for a waiver and broader reform.

"The EPA made the right decision today," said Bob Dinneen, president and CEO of the Renewable Fuels Association. "We applaud the EPA for basing its decision on thoughtful analysis of the facts and not emotion or panic. The RFS is working as designed. The flexibility that is built into the RFS allows the marketplace to ration demand, not the government."

Advanced biofuel groups and companies had warned that a waiver would slow investments in the next generation of biofuels, or those that do not use corn as a feedstock.

"Today's decision means the renewable fuel standard remains strong and stable policy, and our industry can move forward with greater confidence," said Jeff Lautt, CEO of POET LLC, which is part of a joint venture to build one of the nation's first commercial-scale cellulosic biofuel facilities.

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