Ethanol proponents and commodity grower groups nationwide urged Congress to extend the ethanol and biodiesel incentives and tax credits throughout the months leading up to their Dec. 31, 2011 expiration, citing their end would threaten thousands of existing jobs, prevent the creation of new jobs and prohibit the United States from meeting the Renewable Fuel Standard (RFS) and achieve energy independence.
In spite of their efforts, both the 54-cents/gallon tax on imported ethanol and the VEETC (Volumetric Ethanol Excise Tax Credit) of 45-cents/gallon for blenders expired at the close of the year. Now the United States is able to import less costly fuel alternatives to corn ethanol, such as sugarcane ethanol from Brazil.
In 2007, when the RFS was amended, it mandated 36 billion gallons of renewable fuel to be blended into transportation fuel by 2022, and created market certainty for the domestic corn ethanol industry. The end of these credits has shaken that certainty.
Additionally, two recently introduced pieces of legislation aim to either adjust or eliminate the RFS, ensuring that energy policy will continue to be hotly debated throughout 2012. Industries relying on corn, such as the feed industry, argue the RFS is responsible for higher corn — and ultimately food — prices, while the ethanol industry views the regulation as a pathway toward home-grown renewable fuel and an alternative to dependence on foreign petroleum. While both sides seek solutions to meet the rising global demand for energy and food, each has a different idea of how to get there.
RFS changes proposed
In September 2011, the Subcommittee on Dairy, Livestock and Poultry held a hearing on feed availability. Phillip Greene, vice president of Foster Commodities and Foster Poultry Farms, testified on behalf of the American Feed Industry Association that the RFS’ mandating of food crops for biofuels feedstock at annually increasing levels negatively impacts feed production costs.
Animal feed represents one of the largest uses of corn, a major ingredient in livestock and poultry feeds, and the industry strongly supports any legislation that may ease the challenges that result from taking food crops for biofuels production.
H.R. 3097, the Renewable Fuels Standard Flexibility Act, would give the Department of Energy and the Department of Agriculture authority to adjust the RFS for corn-based ethanol when national corn stocks fall below specified levels. The bill was introduced in October 2011 by Reps. Bob Goodlatte (R-VA) and Jim Costa (D-CA).
If passed, the RFS Flexibility Act would allocate grains by market demand rather than government mandates, and could reduce the RFS by as much as half. A major component of the bill is a semi-annual requirement to review the corn stocks-to-use ratio. If the ratio remains above 10%, there would be no adjustments. But if the ratio falls below 10%, adjustments would be made to ensure enough corn supply to meet both the demand for ethanol and feed, as well as other end-users’ needs. Goodlatte’s proposed reductions based on the stocks-to-use ratio are as follows:
• 10% to 7.5% — 10% reduction
• 7.49% to 6% — 15% reduction
• 5.99% to 5% — 25% reduction
• Below 5% — 50% reduction
Goodlatte’s second piece of legislation, H.R. 3098, the Renewable Fuel Standard Elimination Act, was introduced the same day and was referred to the committee on energy and commerce. It would altogether do away with the Renewable Fuel Standard.
Feed industry supports RFS flexibility
In a statement regarding H.R. 3097, the AFIA voiced support of “any effort to eliminate government mandates and equalize market competition for corn.”
Through Greene’s testimony, the association noted that since feed represents about 70% of the cost of production of meat, dairy and poultry, reduced feed supplies and increased prices heavily impact the average consumer.