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PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

Reviewing the RFS waiver process

Jul 06, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Corn planted acres up, harvested acres down

July 6, 2012

With drought spreading across the Midwest and robbing pollinating corn of yield potential, prices shot higher this week. In the 13 days from the June 15 low in December corn at $5.06, the new-crop contract gained $2.07 to the July 5 high of $7.13. Even after today's price setback, December corn futures are still up $1.87 since June 15.

 

The strong price advance generated what we call "crazy" rumors about how the government might step in to help make sure we've got an ample supply of corn. The craziest of all the rumors was talk of an export embargo. That won't happen. It's the market's responsibility to sort out "who gets what" of old- and new-crop corn supplies and the government getting involved in the process would be disastrous.

 

The other rumor was that EPA is considering cutting the renewable fuels use mandate by 20%. That raises a lot of questions. First, EPA does have the ability to adjust mandated usage levels -- it does it every November when it ratchets down the level of cellulosic ethanol "required" to be used under the Renewable Fuels Standard (2). That decision is made and announced in November and set mandated usage levels for the next year.

 

The current RFS2 requires use of 13.2 billion gallons of conventional (corn-based) ethanol in 2012; 13.8 billion gallons in 2013; 14.4 billion gallons in 2014; and 15 billion gallons in 2015.

 

We asked Pro Farmer Washington consultant Jim Wiesemeyer to review the process for requesting a waiver from RFS2 mandated ethanol usage levels. Here's what he found:

 

"This question hasn’t come into focus since the 50% waiver request by Gov. Rick Perry (R-Texas) in 2008 that was rejected by EPA – a day before USDA's August Crop Production report that year.

 

"According to a report from the Congressional Research Service, a waiver can be requested by a state or a fuel provider, or the EPA administrator can waive the overall RFS requirement for a given year. The administrator can undertake the waiver at their own discretion – no request would be required.

 

"If a waiver is granted, then all fuel suppliers’ quotas would be reduced by a similar percentage. 'As the law is written, EPA may not waive the requirement for an individual state or supplier within a state, but must reduce the entire national mandate,' CRS noted.

 

"But to grant the waiver, certain conditions must be met. The EPA administrator, along with the Secretaries of Agriculture and Energy must determine that one of the two following conditions are met:

  • there is inadequate domestic renewable fuel supply; or
  • implementation of the requirement would severely harm the economy or environment of a State, a region,  or the US.

 

"But, as CRS points out, it’s not exactly clear how EPA will interpret the aforementioned conditions. When EPA published its final rule for the RFS, they specified they would not set specific criteria for any such waiver.

 

"Within 90 days of receipt of the waiver petition, EPA must act to approve or disapprove the petition, after public notice and opportunity for comment. If EPA does grant a waiver, the waiver expires after one year, but may be extended by the EPA administrator in consultation with the Secretaries of Agriculture and Energy."

 

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