Petition to waive ethanol mandate may come next week

At least one of four states hoping to ease requirements on adding grain-based ethanol to gasoline is expected to petition the federal government as soon as Monday as the worst drought in 50 years spikes corn prices and lowers profits for livestock producers.

Governors from states that may petition the Environmental Protection Agency to waive the mandate known as the Renewable Fuel Standard, or RFS, include Republicans Nikki Haley of South Carolina, Dave Heineman of Nebraska, Rick Perry of Texas and Democrat Mike Beebe of Arkansas, an ethanol industry source said.

The RFS was signed into law by former President George W. Bush to help cut dependency on foreign oil by requiring that increasing amounts of ethanol be blended into gasoline each year. President Barack Obama has also embraced ethanol as part of his “all of the above” energy strategy.

But politicians in agricultural states that do not grow large amounts of corn worry the mandate raises the costs of animal feed for meat producers. About 40 percent of the corn crop is used to make ethanol, although distillers do recycle some byproducts to make animal feed.

Matt DeCample, a spokesman for Beebe, said the governor is “working on getting the word out to the EPA and others” that the mandate is hurting ranchers and poultry farmers with extra costs, but he has not yet signed on to a specific campaign to petition the agency.

Perry’s office said the governor had no plans to request a waiver “at this point,” but he was watching the situation.

The other governors were not immediately available for comment.

Meat groups, including the National Cattlemen’s Beef Association, the National Chicken Council and The National Turkey Federation, complain the RFS threatens their profits by boosting prices for livestock feed, one of their top expenses.

The groups have said they want governors from both major political parties to push the EPA for a waiver, to strengthen their case.

“Another short corn crop would be devastating to the animal agriculture industry, food manufacturers, food service providers and consumers,” they said.

Two-thirds of the country is suffering from moderate to exceptional drought, with 40 percent of U.S. counties listed as agricultural disaster areas, the government has said.

The severity of the food price impact on consumers is unclear. The Department of Agriculture forecast this week that food prices would rise as much as 3.5 percent this year and another 3 percent to 4 percent next year, outpacing other consumer costs, as the drought destroys crops and hits supplies. Still, analysts do not expect the increase to have a lasting impact on inflation.

The country produced 13.9 billion gallons of ethanol, mostly made from corn, last year. The RFS requires that 15 billion gallons of ethanol be blended into gasoline in 2015, up from 13.2 billion this year. It requires the 15 billion gallon level until 2022.

The meat groups, who are holding a news teleconference on Monday about the mandate, support bills on Capitol Hill to do away with the RFS or have it automatically adjusted when corn supplies tighten. The bills face uphill battles as ethanol remains popular for the jobs it brings in many agricultural states.

Petitioning the EPA could also prove hard. In 2008, another drought year, Perry asked the agency to waive half of that year’s mandate of 9 billion gallons of ethanol to be mixed into fuel.

The EPA turned the request down saying economic damage would have to be severe. In addition, the EPA signaled that future petitions would have to demonstrate that implementation of the mandate itself was causing the economic harm, not just contributing to it.

An EPA spokeswoman said on Friday the agency had not received any waiver petitions. If the EPA does get a request, it could take months for it to decide, as a public comment period and assembling a case for or against any petition takes time.

Even if the EPA granted a waiver, it is not certain that would have a big impact on corn prices. Bruce Babcock, an agricultural economist at Iowa State University of Iowa, said removing the mandate may only cut corn prices about 28 cents per bushel, or about 4.6 percent, due to flexibilities in the RFS. Those include the ability for fuel blenders to tap an overhang of ethanol stocks from last year.

By Timothy Gardner

WASHINGTON (Reuters) – (Additional reporting by Ayesha Rascoe, Charles Abbott, and Michael Hirtzer in Chicago; editing by Alden Bentley, Andrew Hay and Andre Grenon)