Livestock-industry-funded study blasts corn ethanol

Source: Amanda Peterka, E&E reporter • Posted: Monday, July 23, 2012

Federal ethanol mandates have increased the price of food and fuel and should be revised to reflect the fact that advanced biofuels have not yet reached commercial scale in the United States, according to a livestock industry-funded study released today.

Conducted by agriculture consultant Thomas Elam of Indiana-based FarmEcon LLC, the study is one of several competing analyses of ethanol’s impact on gasoline and food prices that have been released amid calls by several lawmakers to roll back or repeal the renewable fuel standard (RFS). It also comes in the middle of record drought in the Midwest in which 78 percent of the corn crop is in an area designated as “drought impacted.”

The study found that corn price volatility has doubled since 2007, the year a revision to the RFS required that the country produce 36 billion gallons of biofuels by 2022, 15 billion of which must come from corn ethanol. It also found that ethanol has raised the price of gasoline for consumers by about 10 cents a gallon.

“The increases we’ve seen in commodity prices are strongly associated with the RFS mandate,” Elam said in a statement. “At the same time, we haven’t seen the promised benefits on oil imports or gasoline prices. This means that while Americans are forced to pay more for food, they’re also not seeing lower prices at the pump; it’s a lose-lose situation.”

The study also found that ethanol now uses 40 percent of the country’s annual corn supply, or 5 billion bushels a year. The cost of ethanol production has also risen, making the industry unable to produce enough ethanol to replace 10 percent of the nation’s fuel supply, the study says.

Ethanol production last week averaged 802,000 barrels per day, down 19,000 barrels per day from the week before, according to the Energy Information Administration. Daily ethanol production was at about 9.3 percent of daily gasoline demand.

Livestock industries that funded the study today used it to call on Congress to repeal at least part of the RFS. They backed legislation by Rep. Bob Goodlatte (R-Va.) and Jim Costa (D-Calif.) that would waive the mandate should corn supplies fall below certain levels.

Goodlatte has also sponsored legislation to repeal the entire biofuels mandate. In one of the briefings today held for the study’s release, Goodlatte called the RFS a “broken policy.”

There are “real concerns about having enough corn supplies to satisfy the RFS and the needs of our food producers,” Goodlatte said.

The ethanol industry was quick to react to the study, which was funded by the American Meat Institute, California Dairy Inc., the Milk Producers Cooperative, the National Cattlemen’s Beef Association, the National Chicken Council, the National Pork Producers Council and the National Turkey Federation. The livestock industries have seen feed prices go up with the increase in corn prices.

Tom Buis, CEO of ethanol trade group Growth Energy, called the livestock producers’ study an “orchestrated attempt” to blame high food prices on the ethanol industry.

“The reality of the situation is the recent rise in commodity prices is a result of Mother Nature and a lack of rain,” Buis said.

Corn prices are up 38 percent since June 1, Agriculture Secretary Tom Vilsack said yesterday. Growth Energy also blames high energy costs for the increase in food production, noting that Vilsack has also taken that view in recent public appearances.

The ethanol industry has rallied behind a study earlier this year by researchers from Iowa State University and the University of Wisconsin that found ethanol decreased the price of gasoline by more than $1 a gallon in 2011. Without ethanol blended into gasoline, prices at the pump would have averaged $4.61 a gallon in 2011 instead of $3.52, according to the study (Greenwire, May 15).

Last week, a pair of economists from the Massachusetts Institute of Technology and the University of California, Davis, questioned the results of that analysis, saying it was based on “implausible economic assumptions” and “spurious statistical correlations.” The researchers found no correlation between ethanol and lower gas prices (Greenwire, July 18).

In his study, Elam found that the low energy content of ethanol and its negative effect on fuel mileage have actually increased the cost of automobile motor fuel.

The study also calls on U.S. EPA to re-examine the schedule laid out in the RFS for cellulosic ethanol production and to adjust the mandates for corn-based ethanol. The request is similar to one Elam made in 2008, when he called on EPA to roll back the standard in response to high corn prices due to flooding in the Corn Belt.

At that time, EPA rejected a study done by Elam that made the case for the agency to grant Texas a 50 percent waiver from the corn ethanol mandate.

“Many of the assumptions used by Elam’s model do not appear to accurately reflect market forces,” EPA said at the time.

In a briefing with reporters yesterday on the drought, Vilsack maintained that the administration was committed to biofuels and said EPA would not be assessing the corn ethanol mandate.

“There’s no need to go to the EPA at this point in time,” Vilsack said. “Based on the quantity of ethanol that’s currently in storage, there’s no problem in that area at this point in time.”