As drought conditions intensified across many corn and livestock producing states in the US during the summer of 2012, many of the governors, state and national legislators in these states as well as industry associations asked the Environmental Protection Agency (EPA) for assistance. In particular, these groups requested the EPA waive volume requirements specified in the Renewable Fuel Standards (RFS) statute for ethanol production and use in 2012 and 2013. After considering their arguments, the EPA denied the requests.
Those who requested the waivers argued higher prices were putting farmers out of business. Mike Beebe, Governor of Arkansas, wrote in his petition: “While the drought may have triggered the price spike in corn, an underlying cause is the federal policy mandating ever-increasing amounts of corn for fuel. Because of this policy, ethanol production now consumes approximately 40 percent of the US corn crop, and the cost for use in food production has increased by 193 percent since 2005. Put simply, ethanol policies have created significantly higher corn prices, tighter supplies, and increased volatility.”
The EPA, in evaluating the request, modeled the impact a waiver would have on ethanol use as well as corn and food prices. It ran 500 scenarios through that model to assess the effect. In 89 percent of those scenarios, the EPA saw no impacts from the RFS program. In the remaining 11 percent, the average impact on corn prices was seven cents per bushel. This was not significant enough, in the agency’s opinion, to warrant a waiver.
While we may still be five to ten years away from large-scale wood-based biofuels production, this particular corn-based ethanol case may have ramifications for wood-based biofuels going forward.
First, the food versus fuel debate strengthens the case for wood-based biofuels. Second, the EPA has demonstrated it will interpret the waiver provision set forth by the RFS statute strictly. Those requirements, according to the EPA, include :
- "EPA would have to determine that the implementation of the mandate itself would severely harm the economy; it is not enough to determine that implementation of RFS would contribute to such harm;
- “EPA would also have to find that there is a generally high degree of confidence that the RFS is severely harming the economy; and
- “This requirement calls for a high threshold for the nature and degree of harm that would support the issuance of a waiver based on “severe harm” to the economy of a State, region, or the United States.”
The EPA set a high standard of proof in this case and was systematic in determining whether that level of proof was met. According to the EPA standards, seven cents per bushel did not constitute “severe” harm to the economy. In addition, the EPA determined it was the drought—not the RFS mandate—that was responsible for the harm done in this case.
The good news for the biofuels industry? This ruling should increase confidence among investors and project developers who are working to establish new technologies for commercializing biofuels made from non-food sources.
[...] EPA Denial of Waiver a Positive Sign for Wood-Based Biofuels Development. [...]