Ethanol rule holds up decision on gas blend

The U.S. Environmental Protection Agency is more than seven months late in deciding how much ethanol will be blended into the nation's gasoline supply this year.

A Congressional Budget Office report released last week said the delay stems from the predictions made when the Energy Independence and Security Act of 2007 was written.

That act mandates a certain volume of renewable fuels -- such as ethanol -- be used for transportation. To comply with the 2013 requirement, refineries produced a 90 percent gasoline, 10 percent ethanol mix known as E10.

At the time the act was written, Americans were using more gas. But fuel consumption dropped during the recession and ethanol alternatives haven't been developed at the rate the act envisioned. That's making it impossible to blend ethanol into gasoline at the volume the act intended.

"The standards don't make sense," said James Williams, an energy economist who owns WTRG Economics near Russellville. "It's really not preferable unless you're growing corn in Iowa." Most ethanol is made from corn.

Food producers say they are disadvantaged by the mandate. About 40 percent of the nation's corn becomes ethanol and is mixed with gasoline, according to the CBO. The producers say that's driven up prices.

"The ethanol mandate has been a contributing factor to sharp increases in corn prices and price volatility since 2008," said Dan Fogelman, a spokesman for Tyson Foods. "Because feed costs are a substantial part of livestock production, we've seen our costs go higher, which means higher prices for our customers and ultimately consumers end up paying more, too."

According to Tyson's 2012 sustainability report, corn, soybean meal and other feed ingredients accounted for about 70 percent of the cost of raising a chicken.

Tom Super, spokesman for the National Chicken Council, said the renewable fuels mandate accounted for more than $44 billion in higher feed costs.

Super said producers had to cut back on chicken production when supplies were scarce or expensive because the mandate didn't take into account drought or other market forces on the cost of or availability of corn. In 2009, chicken production decreased almost 4 percent for only the third year since 1950, he said.

If the EPA were to follow the standards set by the Energy Independence and Security Act, the CBO would expect corn prices to increase an additional 6 percent by 2017.

But the CBO said it is more likely that ethanol blending will continue at current rates. And even if the mandate were repealed, the CBO said oil producers wouldn't change the ethanol mix, leaving food prices unaffected.

Carlton Carroll, a spokesman for the American Petroleum Institute, agreed with the CBO's assessment.

"A 10 percent ethanol makes sense for most vehicles on the road today, and ethanol will likely continue to be blended at that level with most gasoline even without a mandate," he said in an email. "Ethanol boosts octane and helps refiners comply with environmental requirements."

But biofuel companies were nervous about the possibility of decreasing or eliminating the renewable fuels mandate.

"Our industry has invested billions of dollars in the development and commercial deployment of ultra-low carbon biofuels during your Administration alone," said the Advanced Ethanol Council and Biotechnology Industry Organization in a letter to President Barack Obama. "These investments were made based on the expectation that when we succeed, the [Renewable Fuels Standard] will be maintained as a mechanism to create a market for our fuels.

"The current proposal would break that promise by handing the [Renewable Fuels Standard] to incumbent industries that want to see it fail," the letter said.

Business on 07/02/2014

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