Kansas Fed Economist Says Markets, Not Mandates, Drive Ethanol

by Susanne Retka Schill (Ethanol Producer Magazine) Markets shape ethanol production, Nathan Kauffman, an economist with the Federal Reserve Bank of Kansas City, argues in the most recent issue of the Main Street Economist. In a seven-page analysis, Kauffman takes a look at the mandates in the renewable fuel standard (RFS), the ethanol blend wall and market incentives to examine the concerns raised in the recent requests for a waiver of the RFS.
In “Markets, Not Mandates, Shape Ethanol Production,” Kauffman concludes a temporary waiver would not relieve the pressure on current ethanol production needed to build credits to satisfy future mandates. “In addition, the ethanol industry has become more market-based as production has exceeded the mandates in recent years. If energy prices rise faster than agricultural commodity prices, ethanol profits could expand and production soar regardless of mandated levels,” he writes. “Finally, ethanol is the primary octane enhancer and fuel oxygenate, and there are few alternatives for U.S. oxygenate blends. Thus, it is markets, not mandates, that ultimately will determine the scale of ethanol production and its use of scarce corn.” READ MORE and MORE (Federal Reserve Bank of Kansas City)