A sharp drop in the price of U.S. ethanol credits signals trouble for American corn farmers, after an Environmental Protection Agency (EPA) memo outlining plans to slash the amount of ethanol required in gasoline was leaked.
The Financial Times reports that the market for ethanol credits, purchased by petroleum companies to stay within legislatively mandated minimums for ethanol usage, fell a full 25 percent on Monday. The dip was in reaction to the EPA’s intention to cut the amount of ethanol and biodiesel used in American fuels by nearly 3 billion gallons in 2014.
“This potential reduction is more than what many in the market were expecting,” said Jason Bordoff, a researcher at Columbia University’s Center on Global Energy Policy. Christina McGlone, director of agricultural research at Deutsche Bank, said the EPA’s proposition “sends an interesting signal, if they are really cutting it this low, that support has waned for biofuels.”
Concerned about carbon emissions and America’s dependence on foreign oil, in 2007 Congress passed a law requiring oil companies to blend a total of 18.15 billion gallons of ethanol or other biofuels into motor fuels each year. Distilled from corn and cleaner-burning than fossil fuels, ethanol promised to enhance energy security, support America’s farmers and reduce the risk of global warming.
But oil companies balked at blending more than 10 percent ethanol into their fuel, otherwise known as the blend wall, preferring to purchase ethanol credits rather than risk damaging customers’ engines.
The vast amount of corn now used for ethanol production (35 percent of the total U.S. corn crop in 2013) triggered worldwide food shortages.
Fossil fuel emissions from factories that refine ethanol did little to decrease carbon output. And the advent of fracking promised to transform America’s natural gas industry, making it unnecessary to rely on biofuels.
The EPA’s leaked plan to reduce mandated ethanol usage from 18.15 to 15.21 billion gallons was met with criticism from both sides of the Ethanol Wars. Patrick Kelly, a spokesman for the American Petroleum Institute, said that “directionally [the EPA] is doing the right thing, although we just think they could have gone a little further.”
But the Renewable Fuels Association, a lobbying group heavily funded by the agriculture industry, threatened a lawsuit if the EPA tries to violate congressional law. “Let me be clear,” said Bob Dinneen, the group’s president. “Any plan to roll back the targets . . . under the guise of addressing the ‘blend wall’ would be patently unlawful.”
The White House’s Office of Management and Budget must approve the EPA’s proposed rule change before the regulation can move forward.
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