Tags: Jason Simpkins

EPA Rejects Ethanol Waiver

By , Money Morning •

By Jason Simpkins
Associate Editor

The Environmental Protection Agency has denied a request from several U.S. policymakers to temporarily waive ethanol requirements for gasoline in hopes of bringing down corn prices.

A federal energy bill, the Renewable Fuel Standard (RFS), currently requires that 7.76% of gasoline products be blended with ethanol. That amounts to about 9 billion gallons that U.S. ethanol producers have to produce this year. Next year, they will have to produce 11.1 billion gallons of corn-based ethanol.

However, corn prices have more than doubled over the past two years, and there is a growing concern that the diversion of corn to ethanol production is a big reason why.

In late April, Texas Gov. Rick Perry petitioned the EPA to grant a 50% waiver on the nation's which calls for 9 billion gallons of corn-based ethanol to be added to gasoline supplies this year.

Several U.S. policymakers - including Republican presidential nominee John McCain - signed on, arguing that the diversion of corn for ethanol production is driving up the price of corn as well as livestock feed and therefore is a principle catalyst for soaring food prices.  But yesterday (Thursday) the EPA denied the request.

"The EPA's professional staff conducted a detailed analysis ... and found that the Renewable Fuel Standard mandate is not causing severe economic harm, but rather strengthening the nation's energy security and farm communities," Johnson EPA Administrator Stephen Johnson said on a conference call with reporters.

Governor Perry responded, saying he was "disappointed with the EPA's inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households."

"For the EPA to assert that this federal mandate is not affecting food prices not only goes against common sense, but every American's grocery bill," Perry said.

Perry may disagree, but a report from the Council of Economic Advisors in May said only 3% of the 40% increase in food costs worldwide could be attributed to the diversion of corn to ethanol production.

Furthermore the ruling will give a welcomed boost to U.S. ethanol producers, who are currently losing ground to biofuel companies in Brazil. Brazil uses sugarcane, rather than corn, to produce its ethanol.

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