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Daniel Englander | May 6, 2008 at 1:56 AM 9 Comments

Ethanol’s Very Special Episode

Corn-based ethanol has jumped the shark. John McCain and 23 Republic senators have written a letter to EPA chief Stephen Johnson asking him to curb the Renewable Fuels Standard. The RFS, which Congress passed and President Bush signed into law in late 2007, requires the production of 36 billion gallons of ethanol in the U.S. by 2022. McCain, Sen. Kay Bailey Hutchinson (R-TX), and the rest wrote, “American families are feeling the financial strain of these food-to-fuel mandates in the grocery aisle and are growing concerned about the emerging environmental concerns of growing corn-based ethanol.” Though the RFS mandates that only 15 billion gallons of the total may come from corn - presumably the rest will come from cellulosic, that is the same production level as the interim target set for 2015.

While McCain has always been against ethanol subsidies, except when he wasn’t, the backing of the other Republicans may prove decisive. Seven of the 24 senators on the letter voted in favor of the RFS in June 2007: Susan Collins (R-ME), Bob Corker (R-TN), Mike Crapo (R-ID), John Ensign (R-NV), Lisa Murkowski (R-AR), Ted Stevens (R-AK), and John Sunnunu (R-NH). 16 of the 24 voted for final passage in December 2007. The senators now argue that the $0.51 per gallon subsidy has distorted domestic agricultural markets, leading farmers to expand corn planting at the expense of wheat, soybeans, and other important agricultural commodities. This, in addition to the amount of corn given over to ethanol production - 30 percent and growing, according to the Department of Agriculture - has squeezed animal and human food supplies, driving up consumer food prices.

Did somebody forget to tell the senators that the RFS only takes effect on January 1, 2009? This fact is beside the point, as most facts are for our Senate. What’s important here is that political will has swung against the ethanol mandate, and there isn’t much RFS stalwarts like Senators Tom Harkin and Chuck Grassley can do about it. The decision to reverse, curb, or restructure the RFS lies solely with Johnson - and maybe a little with his boss up the street. As Bush’s lame duck presidency winds down, nothing would bring him greater pleasure than screwing the farmers.

But these two guys, not ones usually known for the their strength of mind, may feel a little burdened by all the conflicting data. Joseph Glauber, the DoA’s chief economist, told a meeting of the Joint Economic Committee recently that corn ethanol increased corn prices four percent in 2007 - the fastest rate of growth since 1990. Glauber also told the Committee he expects the PopSecret-in-training price to rise another four or 4.5 percent in 2008. His assessment is that ethanol production has nothing to do with the price of wheat and rice, which is rising because of drought in Australia and Canada and growing food demand in China and India. Joachim von Braun, head of the International Food Policy Research Institute, and a team of researchers recently argued “if leading nations stopped biofuel use this year, it would lead to a price decline in corn by about 20 percent and wheat by about 10 percent from 2009-2010.”

The real beauty in this situation is that it doesn’t matter who’s right - the ethanol mandate is pretty much done for. One of Bush’s main themes is energy security, a topic he’s been harping on for years now. And one of his favored ways of achieving energy security is by granting development and exploration rights in the Alaskan Arctic, something that’s become even more feasible now with the increasingly large reductions in ice thickness and flow in that region. In the 2009 budget, Bush proposed leasing nearly 1.5 million acres of the Arctic National Wildlife Refuge beginning in 2010, for revenues of about $7 billion. This would be a good opportunity for Bush to rally support for Arctic drilling: like ethanol it has something vaguely to do with foreign oil, it would still allow the DoE to pursue development of switchgrass!, and it would paint the Democrats supporting a continuation of the ethanol mandate as baby-killing, America haters. A perfect plan.

I really hope none of this happens. But, if it does, it’s a great example of what happens when people with money to burn get excited about an inferior technology. It just isn’t that funny anymore.

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Comments [9]

  • daniel englander 05/6/08 3:28 AM

    AB - That EPA ruling refers to the RFS re-up for 2008, not the 36 billion gallon RFS extension.

    see here: http://www.senate.gov/~hutchison/pr050208b.html

    The senators were specifically objecting to the RFS extension, which doesn’t take effect until January 2009. Though both were passed as part of the Energy Independence and Security Act of 2007, only the RFS extension is subject to regulatory restructuring, and only then because it hasn’t taken effect yet.

     Reply
  • AB 05/6/08 3:55 AM

    It doesn’t take affect until Jan. 2009…except for the part about the doubling of the renewable fuel requirement for 2008. The 2007 EISCA amended the 2005 RFS to require 9 billion gallons of renewable fuel to be used in 2008 instead of the 4.3 billion gallons found in the original RFS. From the law itself:

    (2) Until January 1, 2009, the Administrator of the Environmental Protection Agency shall implement section 211(o) of the Clean Air Act and the rules promulgated under that section in accordance with the provisions of that section as in effect before the enactment of this Act and in accordance with the rules promulgated before the enactment of this Act, except that for calendar year 2008, the number `9.0’ shall be substituted for the number `5.4’ in the table in section 211(o)(2)(B) and in the corresponding rules promulgated to carry out those provisions. The Administrator is authorized to take such other actions as may be necessary to carry out this paragraph notwithstanding any other provision of law.

    And from the EPA’s Feb 2008 EPA Ruling:

      On November 27, 2007, EPA published a Notice in the Federal
    Register announcing a renewable fuel standard for 2008 of 4.66%. This
    standard was designed to result in the use of 5.4 billion gallons of
    renewable fuel in 2008, as required by CAA section 211(o) at the time
    EPA published the standard. On December 19, 2007, President Bush signed
    into law the Energy Independence and Security Act of 2007 (EISA),
    which, among other things, amended CAA section 211(o) to
    require the use of 9.0 billion gallons of renewable fuel in 2008.
    Today’s Notice announces the recalculated standard for 2008, based on
    the volume of renewable fuel that amended section 211(o) now requires.

    I get the sense that the Senators are up to speed on the law.

     Reply
  • AB 05/6/08 3:55 AM

    5.4, not 4.3. Mea culpa.

     Reply
  • daniel englander 05/6/08 5:20 AM

    Right. The double is outside of the purview of the EPA because the calendar year has already started tolling. This is why they specifically objected to the 2009 RFS extension, not the 2008 doubling. Congress authorized the EPA to restructure or waive the RFS through an amendment to Section 211(o)(7) of the Clean Air Act, though this amendment does not come into effect until January 1, 2009.

    see, EISA 2007, Sec. 210 (c): “Effective Date- The amendments made by this title to section 211(o) of the Clean Air Act shall take effect January 1, 2009, except that the Administrator shall promulgate regulations to carry out such amendments not later than 1 year after the enactment of this Act.”

    Except, of course, as you pointed out, “that for calendar year 2008, the number `9.0? shall be substituted for the number `5.4? in the table in section 211(o)(2)(B) and in the corresponding rules promulgated to carry out those provisions.”

    Therefore, amendments to the waiver provision in the Clean Air Act do not affect the 2008 doubling. The senators are indeed up to speed on the law, which is they object specifically to the RFS extension - its the only part of the RFS that the EPA can waive.

     Reply
  • AB 05/6/08 6:59 AM

    The 2005 EPAct gave the EPA Administrator the right to waive all or part of the national RFS if petitioned by a single State. That wasn’t changed by the 2007 law except to allow for waiver requests to also come from ‘any person subject to the requirements of this subsection, or by the Administrator on his own motion.’

    Govs. Perry and Rell have requested waivers as is their right under the currently-enforced 2005 law. The Senators are just cheerleading at this point and even if it were Jan 1, 2009 they still wouldn’t have any say in the matter unless they passed a law or were blending gasoline for retail sale in their spare time.

    Either way, I think we can all agree that this was a stupid, stupid law passed by shortsighted, pandering, imbeciles.

     Reply
  • daniel englander 05/6/08 7:22 AM

    I agree with you on the last part. This was truly an awful law. But, I think it’s important to make clear the EPA’s authority in terms of its waiver authorization. The EPA’s final rule on the waiver limits its role “to reducing the total national volume required under the RFS program. Thus, the renewable volume obligation would still apply to all obligated refiners, blenders, and importers, including those in the state that request the waiver.”

    The waiver requests from Perry and Rell, in granted, would therefore extend to the entire national requirement after January 1, 2009. The senators’ contributed isn’t so much legislative as communicating their sentiment that Johnson out to act on his authority under CAA sec. 211(o)(7). Also, since Congressional oversight extends to the EPA, their request probably carries a little more weight than a waiver request coming from an individual state. See the denial of California’s waiver for a CAFE exemption.

     Reply
  • AV 05/10/08 2:23 AM

    El Mexicano:
    Instead of using corn to produce distilled ethanol, agave or other non-food crop should be used. On an annual basis, one hectare of Agave can produce over five thousand gallons of ethanol and around one hundred and fifty tonnes of biomass, with a

     Reply
  • AV 05/10/08 2:30 AM

    El Mexicano:
    Instead of using corn to produce distilled ethanol, agave or other non-food crop should be used. On an annual basis, one hectare of Agave can produce over five thousand gallons of organic ethanol and around one hundred and fifty tonnes of biomass, for cellulosic ethanol production, the current price for producing one galllon of distilled ethanol is belowone US dollar. Incredible, isn’t it?
    More? (JavaScript must be enabled to view this email address)

     Reply

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