This week the House Energy and Commerce Committee heard comments from livestock and poultry groups indicating that the Renewable Fuels Standard (RFS) has had a negative impact on their industries.
Current U.S. biofuels policy contains escalating corn-based ethanol blending requirements that do not automatically adjust to energy and corn market realities, says Thomas E. Elam president, FarmEcon LLC.
That same policy contains cellulosic ethanol requirements that do not reflect the fact that the biofuels industry, despite decades of effort and large subsidies, has failed to develop a commercially viable process for converting cellulosic biomass to ethanol, says Elam, who released a report to the committee, “The RFS, Fuel and Food Prices and the Need for Reform.” Following are excerpts from that report:
“Corn-based ethanol blending requirements have pushed corn prices, and thus ethanol production costs, so high that the market for ethanol blends higher than 10% is essentially non-existent. That same policy has also destabilized corn and ethanol prices by offering an almost risk-free demand volume guarantee to the corn-based ethanol industry.
“Domestic and export corn users other than ethanol producers have been forced to bear a disproportionate share of market and price risk.
“Consumers have seen food prices increase faster than general inflation since the current RFS was enacted in 2007. Food affordability has stopped the long term trend of improving, and is deteriorating.
“Job creation in the food sector has been substantially reduced by the diversion of corn to ethanol production. Almost one million potential food sector jobs that could have been created from 2007 to 2011 were not. Diversion of corn to ethanol production is one contributing factor to the prolonged recession in the U.S. labor market.
“Increases in ethanol production since 2007 have made little, or no, contribution to U.S. energy supplies, or dependence on foreign crude oil. Rather, those increases have pushed gasoline supplies into the export market. Domestic gasoline production and crude oil use have not been reduced. If the RFS is made more flexible, and ethanol production shrinks due to market forces, we can easily replace ethanol with gasoline currently being exported.
“This paper will argue that it is time to reform the current RFS. Corn users other than the ethanol industry need assurance of market access in the event of a natural disaster, and a sharp reduction in corn production. Ethanol producers should fully share the burden of market adjustments, along with domestic food producers and corn export customers.
“Ethanol prices should reflect the fuel’s energy value relative to gasoline, not a corn price that is both inflated and destabilized by the inflexible RFS.
“Finally, the RFS schedule should be revised to reflect the ethanol industry’s inability to produce commercially viable cellulosic fuels. Policy should reflect reality when that reality does not reflect substantial and undeniable barriers to achieving policy goals.”
Read the entire report at www.farmecon.com.
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