Misbegotten Ethanol Policy

This year’s drought should highlight the importance of ending the corn-ethanol program. The USDA originally forecast a record crop of 14.8 billion bushels for 2012.

They have been cutting the forecast since the effects of the drought have become apparent.

Now a prestigious consulting firm, Muse Stancil & Company, forecasts a corn crop of only 10 billion bushels in 2012. A recent USDA forecast is for 10.8 billion bushels.

There is concern in China over potential food shortages. The August 30 edition of the China Daily newspaper ran a full-page spread on grains, their rising prices and fear of shortages. The paper reported on the first signs of hoarding by older people who have lived through past famines. It also reported on poor grain harvests in Russia, the Ukraine and Kazakhstan. The main emphasis of the article was on rising prices.

In 2010 and 2011, we used nearly 5 billion bushels of corn to produce ethanol, which was nearly 40% of the corn crop in those years.

Congress has mandated we use 15 billion gallons of ethanol by 2015, which is just slightly over the amount produced in 2011. But the supply of corn in 2012 won’t support using nearly 5 billion bushels of corn for ethanol without significantly cutting the amount of corn available for use in foods or for feeding livestock.

The ethanol industry must cut its production this year by about 2 billion gallons or its use of corn for ethanol will cut available food supplies for American families.

Because of the convoluted nature of the law, there are what is known as RINs. These are credits companies can use to meet their legal obligations for using ethanol in gasoline. The EPA estimates there are around 3.8 billion RINs left over from 2011, so that the industry can meet its legal obligations even if actual ethanol production is cut by 2 billion gallons.

But this means that 2013 looms as a year where there won’t be surplus RINs and the corn supply will be dangerously tight unless there is a record corn crop.

Now is the time to eliminate the ethanol program, or at least begin to steadily cut back on requirements for using ethanol in gasoline.

This is doubly important because the law also requires using another 20 billion gallons of cellulosic ethanol by 2022. However, cellulosic ethanol doesn’t exist as a viable product. Some cellulosic ethanol has been produced experimentally, but at least one plant, using government subsidies, has gone bankrupt.

We already have the absurd situation where refineries are being fined for not using cellulosic ethanol – a product that doesn’t exist.

Cellulosic Ethanol Requirement

 

This chart shows the requirement for cellulosic ethanol (yellow) which is a product that doesn’t exist.

Barring record crops in 2013, we will see where corn used to produce ethanol actually cuts into America’s food supply – assuming the government doesn’t change the law.

 

Note:

RIN refers to Renewable Identification Numbers. RINs are created by the producer or importer of the renewable fuel. The EPA has developed a system called the EPA Moderated Transaction System (EMTS) to manage RIN transactions. EMTS screens RINs and provides a structured environment for conducting RIN transactions.

A pdf describing the bureaucratic RIN system is available at http://www.ers.usda.gov/media/138383/bio03.pdf

 

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