EPA ethanol waiver denial favorable for Nebraska's ethanol industry

In a ruling favorable to Nebraska's growing ethanol industry, the U.S. Environmental Protection Agency on Thursday denied a request by the state of Texas to reduce the nationwide renewable fuels standard (RFS).

As a result, the EPA said the required total volume of renewable fuels, such as ethanol and biodiesel, mandated by law to be blended into the fuel supply will remain at 9 billion gallons in 2008 and 11.1 billion gallons in 2009.

 The RFS, passed by Congress last year, is designed to expand annual biofuel use to 36 billion gallons by 2022, with 21 billion gallons from switch grass, wood chips, municipal garbage, and other cellulosic sources.

According to the Energy Information Administration (EIA), American ethanol facilities were producing 598,000 barrels per day in May. On an annualized basis, that represents more than 9 billion gallons of ethanol production.

Nebraska has 22 operating ethanol plants capable of an annual production of 1.6 billion gallons, which is second in the nation behind Iowa. About 500 million bushels of corn, or about 40 percent of the state's corn crop, is needed to meet the ethanol demand.

"After reviewing the facts, it was clear this request did not meet the criteria in the law," said EPA Administrator Stephen L. Johnson. "The RFS remains an important tool in our ongoing efforts to reduce America's greenhouse gas emissions and lessen our dependence on foreign oil, in aggressive, yet practical ways."

Johnson said current law authorizes EPA to waive the national RFS if the agency determines that the mandated biofuel volumes would cause "severe harm" to the economy or the environment. 

He said the agency recognized that high commodity prices were having economic impacts, but after an extensive analysis of Texas' request, EPA found no compelling evidence that the RFS mandate is causing severe economic harm during the time period specified by Texas. 

 Along with the ethanol industry, motorists are also expected to benefit from the ruling, according to the Renewable Fuels Association.

"EPA's decision is a benefit to the U.S. economy, because increasing domestic ethanol production is keeping gasoline and oil prices lower than they otherwise would be, thereby saving the average American household as much as $500 a year in lower transportation costs," said RFA president Bob Dinneen.

The Energy Policy Act of 2005 established the RFS program and included amendments to the Clean Air Act to set strict criteria for RFS-related waivers. RFS nationwide volume mandates were increased in the Energy Independence and Security Act, which was signed into law in December 2007. 

According to Johnson, the EPA conducted detailed analysis, consulted with the departments of Energy and Agriculture, and considered more than 15,000 public comments in response to the Texas request.

This was the first RFS-related waiver request, Johnson said.

Sen. Ben Nelson, D-Neb., said he applauded and supports the EPA's decision to deny Texas' request.

Nelson said the RFS provides an important, substantive goal for the country to increase its use of renewable fuels.

"The use of renewable fuels is an essential element in helping to better ensure our energy security," he said.

Farmers are producing enough corn for food, feed and fuel needs, he said, and the growing ethanol industry is reducing the U.S.'s dependence on foreign oil.

According to the USDA, Nebraska corn growers planted 9 million acres for all purposes this year, down 4 percent from last year's record crop, but still the second-largest planted area since 1936.

"It (ethanol) is helping to hold down our high gas prices and it is providing home-grown economic growth in many states, including Nebraska," Nelson said.

Nebraska AAA reported that Grand Island had a record price for regular gas on July 16 at $4.10 per gallon. Since then, gasoline prices have dropped by more than 50 cents per gallon.

According to Todd Sneller, administrator for the Nebraska Ethanol Board, Texas Gov. Rick Perry had written to the EPA asking it to waive the RFS after meeting with Texas poultry and livestock interests who claimed the new federal biofuels policy was affecting their respective sectors. The Texas request called for a national rollback of the RFS to one half of current domestic biofuel use.

Andy Groseta, president of the National Cattlemen's Beef Association, expressed disappointment in the EPA decision.

"We had hoped that the administration would recognize the hardship cattle producers are facing with tight corn supplies and high prices for feed," Groseta said.

He said the cattle industry has suffered a record of nearly $1.5 billion in cattle feeding losses between January and June of 2008.

Corn prices have declined to under $5 per bushel after reaching record highs this summer of more than $7 per bushel. 

"With the ethanol mandate increasing from 9 billion gallons in 2008 to 11.1 billion gallons in 2009, this situation will only worsen," Groseta said.

On Thursday, USDA's National Agricultural Statistics Service, Nebraska Field Office reported that last year's the farm and ranch production expenditures for Nebraska totaled $14.6 billion in 2007, up 14 percent from a year earlier. 

Livestock expenses, the largest expenditure category, at $4.17 billion, increased by 10 percent from 2006. Feed, the next largest total expense category at $1.78 billion, increased by 22 percent from 2006. 

Sneller commended the EPA for its "diligent review of the facts."

"It was clear from the outset that the waiver request could not meet the legal test required, and that renewable fuels like ethanol are actually benefiting the economy by lowering fuel prices and stimulating economic activity," Sneller said.

The Nebraska Corn Board and Nebraska Corn Growers Association also both welcomed the EPA decision to not grant a 50-percent waiver of the renewable fuels standard.

Randy Uhrmacher, president of NeCGA and a corn producer from Juniata, said, "The system worked and determined that there is no crisis being driven by corn-based ethanol."

Jon Holzfaster, chairman of the Nebraska Corn Board and a corn and cattle producer from Paxton, said reducing the RFS would send the wrong signal to ethanol producers and investors.

"In the end, the waiver would not have significantly lowered food prices because high petroleum prices are the main driver in today's food costs," Holzfaster said. "EPA's decision was right on, and it keeps us on the path to a more diversified fuel supply."