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Midwest Floods Bring New Opposition to Ethanol

Friday, September 18, 2009

Environment and Energy Daily, Allison Winter
Published June 20, 2008

Devastating floods and bad weather in the Midwest are raising the tide of opposition against the renewable fuels standard.

Groups that have been pressing lawmakers to reconsider federal supports for ethanol are now pointing to flooded fields in the nation’s cornbelt as further evidence the United States may struggle to meet the standard.

The record floods have soaked more than 1 million acres of cropland in the Midwest and swallowed nearly 10 percent of the corn crop in Iowa.

The Agriculture Department estimated yesterday that 12 percent of the U.S. corn crop — or about 3 million acres — is in poor to very poor condition, up from 9 percent last week.

Commodities markets responded with climbing prices for corn, settling yesterday at $7.45 a bushel for July delivery on the Chicago Board of Trade. The high prices are not only hard on livestock farmers, but also ethanol plants. The ethanol industry is seeing more narrow profit margins because of the price increases.

Groups that have consistently criticized the renewable fuels mandate and subsides for ethanol are tying their message to this event too. They say the floods and expected poor crop yields could cause further strain on food and feed supplies.

The Environmental Working Group released a report this week describing what they call a “perfect storm” for the “ill-conceived” corn ethanol mandate. The report cites agriculture economists and state climatologists who have said problems with the crop in Illinois or Iowa could cause skyrocketing prices.

“Our ethanol policy requires perfect weather, and not surprisingly, we aren’t getting it,” said EWG analyst Michelle Perez. Since Congress cannot control the weather or global food and fuel demand, Perez called on lawmakers to scale back the biofuels mandate.

It remains to be seen whether the flooded fields will gain more traction to force U.S. EPA or lawmakers to revisit the standard. Many are waiting on the next comprehensive estimates on this year’s corn crop — expected from USDA in late June and August.

“The mandate has a waiver authority to deal with changes in circumstances that are significant … but we need to find out the extent of the damage and the reduction of the crop,” Sen. Jeff Bingaman (D-N.M.) said yesterday.

Bingaman noted that regardless of EPA’s decision to go forward with a waiver, it may not change much in corn prices. Agriculture economists told his panel last week that a waiver would likely do little to relieve the strain from high corn and commodity prices. They said the mandate is not driving the market right now (E&E Daily, June 13).

Sen. Kay Bailey Hutchison (R-Texas) — who introduced legislation to freeze the corn ethanol mandate at its current level of 9 billion gallons a year — said poor crop yields give increased pressure for a waiver.

“This is a very important factor to consider. Once the damage is assessed and we know if the American corn crops are going to suffer, that may spur the EPA, which is what I have been pushing for,” Hutchison said.

Thus far, USDA has supported keeping the biofuels mandate in place. USDA chief economist Joe Glauber said last week that the department would wait on its June 30 crop report to make any further recommendations.

Last year the ethanol industry used 24 percent of the corn crop, according to USDA. It is predicted to use 34 percent of the U.S. crop this year.

Last December’s energy bill expanded the national biofuels mandate to 36 billion gallons by 2022, including 15 billion gallons of corn ethanol. The law calls for at least 9 billion gallons of biofuels, nearly all ethanol, to be blended into the motor fuel mix this year.

A group of GOP senators and two Republican governors have submitted a waiver request to U.S. EPA, asking it to cut in half the mandate for 2007. EPA is taking public comment and consulting the Energy Department and USDA. The agency is expected to make a decision by the end of next month.

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