Waiving biofuels mandate would have scant effect on corn prices — study

Source: Amanda Peterka, E&E reporter • Posted: Friday, July 27, 2012

Waiving the federal biofuels mandate won’t significantly ease skyrocketing corn prices, according to a study released today by an Iowa State University economist.

Bruce Babcock, the director of Iowa State’s Center for Agricultural and Rural Development, said waiving the renewable fuel standard would reduce corn prices by less than 5 percent. With corn prices currently above $8 a bushel, he said, the reduction will fail to provide relief to livestock industries that have demanded the government reduce or repeal the mandate .

“The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped,” Babcock wrote.

The paper comes a week after livestock groups released a study saying federal biofuels mandates have increased the price of food and fuel. Corn ethanol, they said, has exacerbated the effects of the drought that is taking its toll on Midwestern corn yields (E&ENews PM, July 19).

The groups, joined by Republican Rep. Bob Goodlatte of Virginia, called on Congress to adjust the yearly mandates for corn ethanol, which are set by U.S. EPA. The standard overall calls for the production of 15 billion gallons of corn ethanol a year by 2022.

Babcock’s report, however, suggests that removing the renewable fuel standard would reduce corn prices by 28 cents a bushel and cause a 5 percent reduction in ethanol production. Babcock analyzed 500 different scenarios of possible corn yields for the year.

“Ethanol plants will be a strong competitor for corn even without a mandate,” Babcock said.

The numbers take into account the flexibility in the standard that allows refiners to carry over renewable fuel credits to meet the mandate this year and in 2013. Currently, about 2.4 billion carry-over credits are available to refiners to meet the standard.

Renewable Fuels Association President and CEO Bob Dinneen hailed Babcock’s results and accused those calling for a waiver of trying to “incite panic rather than objectively review the facts.”

“All available market data suggests that the renewable fuel standard is working,” Dinneen said.

The study, though, is unlikely to stop critics of corn ethanol from urging the government to change the standard. On Tuesday, Goodlatte said he was drafting a letter to EPA Administrator Lisa Jackson asking her to use her authority to suspend the mandate.

EPA denied a similar request in 2008 from Texas Gov. Rick Perry (R), who asked for a waiver in response to floods in his state.

“It’s totally unfair to consumers and to livestock producers to not give them a level playing field,” Goodlatte said, “and having to compete with an already very limited commodity, corn, that is being unfairly mandated to produce a certain amount of ethanol when we need it desperately to feed people.”

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