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Ethanol industry dodges a bullet

The Environmental Protection Agency looked at the evidence and concluded that ethanol isn't hurting the economy enough to cut a government mandate to use ethanol in half this year.

But after some three months of studying the questions raised by Perry's late April request, "the research found that the RFS mandate is not causing severe economic harm," EPA Administrator Stephen L. Johnson said Thursday.

In order to roll back the mandate, the law requires EPA to show economic or environmental harm to a state, region or the entire country, Johnson said. Instead, EPA's analysis showed that the effect of ethanol on feed prices might be about seven cents a bushel, and that the RFS wasn't the cause of that increase.

Johnson said EPA sought input from the USDA and the Department of Energy in reaching its conclusion. The most recent price information from USDA was released on July 11.

The news was welcomed by ethanol and corn interests.

"We are very pleased -- not surprised -- but we are very grateful," said National Corn Growers Association president, Ron Litterer of Greene, Iowa.

Several economic studies, including analysis by Iowa State University and Texas A&M University have shown that ethanol is a small factor in rising food prices and that higher energy costs and fuel prices had more to do with recent food price inflation.

"If you look at some of the studies, the Renewable Fuels Standard wasn't driving corn prics as much as the high crude oil prices and the demand for energy," Litterer told Agriculture Online.

He agreed with EPA's conclusion that the RFS isn't a factor in prices.

"Actually, the ethanol production has been running ahead of the RFS requirement," Litterer said.

Bob Dinneen, President of the Renewable Fuels Association, said that consumers benefited from EPA's denial of the waiver request.

"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," Dinneen said. "Most economists now recognize the real severe economic harm is being done by the skyrocketing price of oil and not by ethanol production. In fact, without ethanol production the damage from high oil prices would be even worse. We applaud the EPA for keeping America squarely on the path toward greater energy independence."

Brian Jennings, Executive Vice President of the American Coalition for Ethanol in Sioux Falls, South Dakota, said cutting the waiver might not have had an immediate effect on ethanol use. Ethanol is cheaper than gasoline and fuel blenders in the oil industry are already set up to use about the same amount of ethanol as the industry's current 9 billion gallon capacity.

But approving the waiver would have been a serious blow to the industry's growth, he said. It would have sent a signal to investors, farmers and others that political influence could roll back the government's commitment to biofuels development, he said.

"It would have been just a chilling signal to farmers, investors, entrepreneurs, and frankly, scientists in research and development," Jennings said. "It would have told them we are abandoning our commitment to biofuels.

"This would have been damaging to future investment in corn ethanol. It would have been enormously damaging to cellulosic ethanol, because corn is a bridge to celluose," he said.

Litterer agrees. The first cellulosic ethanol is likely to be made from cellulose in corn kernels, corn cobs and other parts of the corn plant, he said. That's one reason why he doesn't think the ethanol industry will need the corn acres that its critics in the environmental community predict.

"A lot of the assumptions are that we're going to have to have additional acres for ethanol production and that's just not the case," Litterer told Agriculture Online.

Litterer said that he hopes that EPA's decision means there will be no more challenges to the Renewable Fuels Standard.

However, a disappointed National Cattlement's Beef Association indicated that this won't be the last request for a waiver.

"We will continue our efforts to ease the burden of tight feed supplies for our cattle producers, and will encourage other states to file for waivers from the RFS, NCBA president, Andy Groseta, said in a statement released Thursday.

"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. "Our industry has suffered a record of nearly $1.5 billion in cattle feeding losses between January and June of 2008, which we believe constitutes the severe economic impact necessary to prompt a waiver from the RFS mandate."

"With the ethanol mandate increasing from nine billion gallons in 2008 to 11.1 billion gallons in 2009, this situation will only worsen," he said. "The government is drastically increasing the demands on our corn supply in a time of record prices. Several million more planted corn acres will be needed in 2009 at a time when competition for acreage is already very tight."

The Environmental Protection Agency looked at the evidence and concluded that ethanol isn't hurting the economy enough to cut a government mandate to use ethanol in half this year.

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