Lawmakers seek to cut ethanol mandates
12:12 PM, Oct 5, 2011 | by Philip Brasher | .
The biofuel usage mandates that underpin the ethanol industry could be rolled back sharply under legislation introduced in the House today
The bill, which is backed by meat processors and livestock producers, is aimed at putting a break on feed prices. The legislation would add a trigger to the annual ethanol usage mandates to lower the targets when corn supplies are tight. If the policy were in place now, the mandate would be reduced by reduced by 25 percent. A 2007 law requires refiners to use 12.6 billion gallons of ethanol this year and 13.2 billion gallons in 2012. The mandate tops out at 15 billion gallons in 2015.
“With the increased use of food and feed stocks diverted for ethanol, the higher cost for these crops is passed on to livestock and food producers,” Rep. Bob Goodlatte, R-Va., who is cosponsoring the bill with Rep. Jim Costa, D-Calif. “In turn, consumers see that increased price reflected in the price of food on the grocery store shelves.”
The price of corn for livestock feed is the key cost of raising poultry as well as hogs and cattle and the price has risen dramatically over the last few years as ethanol production has increased along with global grain demand. The Agriculture Department estimates that farmers will earn about $7 a bushel for corn this year, up from $5.20 on last year’s crop and $3.55 in 2009.
The reductions in the annual mandates could range from 10 percent to 25 percent depending on the ratios of corn stocks to usage. The 10-percent reduction would be triggered when the stocks-to-use ratio ranged between 7.5 percent to 10 percent. The 50-percent cut in the ethanol mandate would kick in if the stocks-to-use ratio were to fall below 5 percent. The reductions would be based on estimates of corn supplies made by August 1 and Nov. 30 of each year.
The ethanol industry already is braced for losing its 45-cent-per-gallon subsidy, which is set to expire Dec. 31, and is working to preserve the mandates, known as the Renewable Fuel Standard, or RFS. Allies of the industry in Congress say that the RFS is much less vulnerable than the subsidy has been. The usage mandates have come in for less criticism than the subsidy, which was a target for budget cutters.
The ethanol industry argues that demand for corn from their producers is only one of several factors driving increases in grain prices and that the stocks-to-use ratio fluctuates too widely to be a fair way of adjusting the ethanol mandates.
“If waiving a portion of the RFS did in fact lead to less ethanol production, as some have suggested, consumers would undoubtedly suffer through higher fuel prices,” warned a letter to the lawmakers signed by ethanol industry groups and several farm organizations, including the American Farm Bureau Federation and the National Corn Growers Association.
Goodlatte hopes the bill will move through Congress on its own but said he couldn’t speculate on what will happen to it.
Read the bill here: GOODLA_039_xml
