During the month of August, governors of Texas, Arkansas, North Carolina, Georgia, and New Mexico petitioned the US EPA, asking for a waiver of the Renewable Fuels Standard. But while we’ve all heard this news on the TV and read it in the papers, what exactly does it mean?
The Renewable Fuels Standard (RFS) is a mandate to use increasing amounts of renewable fuel from year to year. The RFS includes descriptions of what sorts of renewable fuel are to be used, including up to 15 billion gallons of ethanol (maybe corn-based ethanol) and then increasing amounts of cellulosic and “advanced biofuels” which have to meet a certain carbon footprint and greenhouse gas threshold.
The problem is that livestock farmers view the mandate to use ethanol as the creation of an unlevel playing field for them as they compete for feedstocks. The ethanol industry and the livestock industry need to feed their end product the same thing, corn. When the government has forced more ethanol to be used, livestock producers fear that they won’t have corn left to feed their animals.
In most years, this isn’t true. In fact, so far in American history both before and after the RFS was passed, we have never run out of corn. American farmers continually grow more and more corn because of increasing efficiency of seed, fertilizers, and management systems so we have had more than enough to feed both industries. In fact, we’ve needed both industries to use up the extra corn and raise corn prices to a point where farmers are no longer reliant on government payments to stay afloat.
However, the drought could throw a kink in the system because agriculture expects significantly lower yields in 2012 than in 2011. Exactly how tight corn stocks get remains to be seen though because more efficient seeds actually create plants that utilize water more efficiently so our yields might not be as far off as some are guessing.
Regardless, during the creation of the RFS, Congress wrote an “off-ramp” into the legislation, suggesting that if the RFS ever caused a serious problem and eliminated feedstuffs for other industries, the RFS could be scaled back for a period of time. This is what the governors of the above-mentioned states have suggested … that the drought has minimized corn yields to the extent that livestock will go hungry without a reduction in the RFS mandate. They are literally asking for a waiver of the mandate for a period of time.
Will the EPA grant the request? This remains to be seen. The EPA has 90 days to respond to the request, but the ag industry doesn’t expect anything to happen prior to the election. Stay tuned!