- Reduction, revision, or repeal of the Renewable Fuel Standard (RFS) would not achieve the stated goals of those industries calling for such action, new analysis suggests.
New analysis from the Center for Agriculture and Rural Development (CARD) at Iowa State University suggests that calls for the immediate reduction, revision, or repeal of the Renewable Fuel Standard (RFS) would not achieve the stated goals of those industries calling for such action.
“The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped,” wrote Iowa State Professor Bruce Babcock, author of the study.
Babcock analyzed 500 different scenarios assuming varying levels of corn yield this year. In his research, Babcock determined that a total waiver of the RFS would reduce corn prices less than 5 percent and cause less than a 5 percent reduction in ethanol production.
Babcock states the modest results are due to flexibilities in complying with the RFS in 2012 and 2013. Specifically, an estimated 2.4 billion excess Renewable Identification Numbers (RINs) can be used in place of physical gallons to demonstrate RFS compliance.â€¨ â€¨“[T]he flexibility built into the Renewable Fuels Standard allowing obligated parties to carry over blending credits (RINs) from previous years significantly lowers the economic impacts of a short crop, because it introduces flexibility into the mandate,” wrote Babcock.
Removing the mandate altogether decreases corn prices by only $0.28 per bushel relative to the case where excess RINs are used for compliance. This is equivalent to roughly 3.5 percent of recent corn prices and 4.6 percent of the CARD study’s projected season-average.
In a blog post, Renewable Fuels Association (RFA) Vice President of Research and Analysis Geoff Cooper outlined the flexibility that exists in the RFS and how it can be used to ensure the RFS works as designed. Cooper’s blog can be read here.
“All available market data suggests that the Renewable Fuel Standard is working,” said RFA President and CEO Bob Dinneen. “Strong supplies of ethanol in storage and an abundance of RINs combine to make the RFS a workable and achievable program in 2012 and 2013. Let’s be clear; the weather impacting much of the country is a very real cause for concern. The ethanol industry, like any other end user of corn, understands this point and the industry has significantly reduced its corn consumption in recent weeks. However, some appear to be trying incite panic rather than objectively review the facts. The final crop is not yet in the bin. There will be corn available this fall and the market will ration its use. The questions will be how much and how will farmers respond during next year’s planting season.”
Currently, weekly ethanol production has fallen below 800,000 barrels per day – a level not seen since June 2010. This reduction in production clearly shows that the market is responding by rationing demand.
“Now is not the time to implement knee-jerk reactions that arbitrarily reduce RFS requirements based on historically variable corn supply estimates or waive portions of the RFS,” said Dinneen. “Such actions would likely do more to disrupt the fuel market than alleviate concerns over high corn prices. If given a chance to work, the RFS will demonstrate itself to be a thoughtful energy initiative with the kind of flexibility to absorb situations like the one we are in and still achieve its goals.”