EPA's RFS Proposal Risks Ending America's Rural Renaissance

by Jonathan H Harsch (Agri-Pulse) When President George W. Bush signed the law creating the Renewable Fuel Standard (RFS) in 2005 to support biofuels production, he explained that “Using ethanol and biodiesel will leave our air cleaner. And every time we use a home-grown fuel, particularly these, we're going to be helping our farmers, and at the same time, be less dependent on foreign sources of energy.”

One measure of success is that with the RFS requiring the oil industry to blend increasing amounts of ethanol into the nation's gasoline supply, corn ethanol production has grown by 267 percent, from 3.9 billion gallons in 2005 to 14.3 billion gallons in 2014. As a result, ethanol now provides 10 percent of the nation's transportation fuel supply, lowering pump prices and significantly reducing the need for crude oil imports.

Another measure of success is that the farm sector has been prospering, at least in part because ethanol use has boosted corn demand, production and prices, which in turn boosts wheat and soybean prices as well. But ethanol and agricultural interests see lowered projections for farm income and rural prosperity as direct consequences of EPA's proposal to reduce the RFS volume requirements.

To measure RFS and ethanol production impacts, POET, the world's largest ethanol producer, released a 60-page economic analysis in August on the Economic Contribution of POET Biofuels Production on U.S. and State Economies. The ABF Economics report shows that POET's 27 ethanol plants operating in South Dakota, Minnesota, Iowa, Missouri, Indiana, Ohio, and Michigan spent about $3 billion in 2014, including $2.5 billion to buy 620 million bushels of corn, providing a significant new market for farmers in those seven states. POET's plants turned the corn into 1.7 billion gallons of ethanol for fuel, 4.6 million tons of livestock feed, and 75 million pounds of corn distiller's oil.

The POET report calculates that the ethanol plants' production and marketing in 2014 generated:

“The biggest negative factor facing ethanol right now is the RFS,” National Farmers Union President Roger Johnson said in an Agri-Pulse interview.

Johnson says Congress created the RFS to require the oil industry to buy ethanol because otherwise “the oil companies won't buy your product even if it is cheaper.” By backing down on that requirement, he says, EPA has “destroyed the investing community's belief . . . that if they produced the fuel, they would have access to the market.” The result, he adds, is that “billions of investment dollars have been turned away in this industry as a direct result of EPA's decisions.”

Growth Energy Vice President and Chief Economist James Miller tells Agri-Pulse that EPA's decisions have led directly to “a leveling off of domestic demand for ethanol” and the related plunge in commodity prices. He says that unless the EPA raises rather than lowers RFS volume requirements, EPA will cap ethanol production and further depress not only corn prices but the farm sector as a whole since “there is always a correlation between the major crop prices.”

Miller concludes that “If we had continued to follow the RFS, we'd be at the point where quite likely the domestic market would be consuming closer to 15 billion gallons of ethanol rather than 14 billion and that would have a significant impact all across the country.” READ MORE