High stakes for Iowa in ethanol waiver debate

Source: Dave Dewitte, The Gazette • Posted: Tuesday, September 4, 2012

 Closure of ethanol plants? Higher pump prices? Or global food crisis?

Worries that many Iowa ethanol plants will close if the U.S. Environmental Protection Agency approves requests to waive the Renewable Fuel Standards due to drought may not be far off base, experts say.

Renewable fuel advocates contend that the economics of producing ethanol tilted sharply against producers in July due to a jump in corn prices caused by the drought. If the Renewable Fuel Standard is waived entirely, they say, ethanol producers would lose a large part of the market they serve.

It also could raise prices at the gas pump.

But their opponents argue keeping the waiver ultimately could lead to a world food crisis.

Here in Iowa, more ethanol is produced than in any other state, and by a wide margin. The 41 ethanol refineries located here can produce nearly 3.7 billion gallons per year.

The Renewable Fuel Standard also affects demand for biodiesel. Iowa has 13 biodiesel facilities capable of producing about 3.7 billion gallons per year.

“Ethanol plants lost so much money in July I’m really worried,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association.

Shaw said he’s aware of four or five Iowa ethanol plants that have taken “chunks of production offline” to curb losses.

“At times like this you’re not worried about maximizing production,” Shaw said. “You’re looking at how do you squeeze the maximum amount of ethanol from each bushel of corn.”

Ethanol production nationally has dropped by 20 percent since the beginning of the year and is at a two-year low.

“I would be fooling myself to think Iowa will be immune to what’s happening in the industry,” Shaw said on Thursday. “Just last week a plant shut down in Minnesota.”

The governors of Arkansas, Delaware, Maryland, North Carolina, Texas, Georgia and New Mexico — but not Iowa’s Terry Branstad — have petitioned the EPA to temporarily lift or “waive” the Renewable Fuel Standard.

At least one anti-hunger group, the Washington, D.C.-based International Food Policy Research Institute, has sided with the industry groups that would benefit from the waiver and favors lower corn prices. The institute has recommended the United States immediately stop using corn to make ethanol for fuel “to prevent a potential global food price crisis.”

The standard is a complex law that sets volume requirements for cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel that must be used for transportation. It requires 13.2 billion gallons of corn-based ethanol to be produced in 2012 and 13.8 billion gallons in 2013.

Those supply requirements would use about 4.7 billion bushels of corn in 2012 and 4.9 bushels in 2013.

The Fiberight cellulosic ethanol plant in Blairstown. (Dave DeWitte photo)

The governors maintain that a drought-induced spike in grain prices will cause food prices to rise and imperil livestock producers who rely on corn to feed cattle, swine and poultry. They argue that 40 percent of the corn acreage now goes to produce ethanol rather than food, largely due to the Renewable Fuel Standard.

A bipartisan group of 25 senators also have asked EPA administrator Lisa Jackson to waive the Renewable Fuel Standard.

The governors and senators have been encouraged by major trade organizations representing the livestock industry, food producers and the petroleum industry.

The EPA opened a 30-day comment period on the waiver during the week of Aug. 19. The 90-day timetable for an EPA decision means that the issue will be decided after the November presidential election.

The Iowa Pork Producers Association is one of the group’s favoring the waiver. Ron Birkenholz, the group’s communications director, said pork producers already are being affected by higher grain prices and water rationing by some rural water districts due to the drought.

Pork producers have shown their ability to adapt to changing economic winds in the past, Birkenholz said. Some producers with farrowing operations have begun to cull their least productive sows, sending them to market because they don’t see demand for as many feeder pigs

Birkenholz said young pork producers with higher debt levels don’t have as much financial flexibility as many of their peers, however, and could be forced out of the business.

“It’s a question of whether they’re going to be able to buy enough to feed their animals and whether they’re going to be able to ride this thing out,” Birkenholz said.

Shaw argued that the waiver requests are just the latest round in an ongoing crusade against the Renewable Fuel Standard by the groups representing industries that benefit from cheaper corn.

“This has nothing to do with the drought for these groups,” Shaw said. “They’re politicizing the drought to achieve the goal they have been going after for seven years.”

Shaw contended that waiving the renewable fuel standard won’t lower food prices by much, but could cause the average motorists fuel prices to go way up.

Renewable fuel advocates also dispute the position of waiver advocates that 40 percent of the nation’s corn is going to ethanol. Ethanol production uses only the starch from the corn.

The protein content of the corn, while lower than the starch content, still is recovered in distillers dried grains, a livestock feed supplement.

Birkenholz said the protein argument is only partly effective as it pertains to hog production. Hog producers can use only distillers dried grains for a portion of their livestock’s diet, he said.

Even with corn prices at $8 per bushel, Shaw said the cost of producing ethanol is still economically viable against petroleum-based fuel. He said the world’s corn harvest for 2012 is forecast to be the second highest on record, regardless of the North American drought, and the United States corn harvest is expected to be the eighth-largest.

The Iowa Renewable Fuels Association tried to turn the tables Tuesday by asking President Obama to use emergency powers to allow retailers to use higher ethanol blends than currently allowed.

The group argued that allowing higher ethanol blends than the maximum 15 percent ethanol blend for newer model cars would help keep fuel prices low by making up for petroleum production lost due to Tropical Storm Isaac, which was then brewing in the Gulf of Mexico.