Tags: Ethanol | drought | corn | prices

WSJ: Support for Ethanol Mandate Singed by Drought

By    |   Monday, 27 August 2012 03:53 PM

The Environmental Protection Agency (EPA) is considering a review of the so-called ethanol mandate as bipartisan support for policies favoring the biofuel is fraying as a severe drought in the United States drives up food prices, The Wall Street Journal reported.

Four Democratic and three Republican governors this month asked the EPA to waive the ethanol mandate, which calls for increased blending of the alternative fuel into U.S. gasoline.

"[E]thanol policies have created significantly higher corn prices, tighter supplies and increased volatility," Gov. Mike Beebe, R-Ark., wrote in an Aug. 13 letter to the EPA.

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The EPA began a review of the request last week. The agency says it must see evidence the mandate is causing severe harm to the economy before it can waive it, The Journal reported.

More than 150 House members and 33 senators have also requested an EPA waiver. While few of them are from the upper Midwest, where most U.S. corn is produced, some have joined with Corn Belt lawmakers in the past to support ethanol subsidies.

Farm-state lawmakers and voters have defended the ethanol mandate since it was established in 2005, and the Iowa primary generally forces presidential candidates to support the mandate from the beginnings of their campaigns.

The ethanol industry says less than one-fourth of the U.S. corn supply is used to make ethanol, and ethanol producers are already reducing output. "It is not the ethanol industry that is causing the economic harm; it is Mother Nature," Tom Buis, president of the ethanol trade group Growth Energy, said in a statement responding to Beebe's letter.

"Food should trump fuel at the end of the day," Buis said, adding that he would seek to lower the mandates for corn ethanol in the future to avoid further “pressure on food prices.”

Ethanol will account for 42 percent of this year’s corn crop, according to government estimates, up from 41 percent last year, according to Bloomberg Businessweek.

The November elections could diminish the ethanol lobby's power. Sen. Herb Kohl, D-Wis., an ethanol supporter and chairman of the Senate Appropriations Committee's agriculture panel, is retiring. Wisconsin's former governor, Republican Tommy Thompson, who has said he no longer supports ethanol, is leading in the race for the senate seat.

President Barack Obama and presumptive Republican nominee Mitt Romney both have said they support the ethanol mandate, although Romney has voiced skepticism of renewable-energy subsidies in general.

Despite diminished political support for ethanol, its cheap cost relative to gasoline will ensure that refiners continue to use it even if the administration ends the mandate to do so, according to Bloomberg Businessweek.

Ethanol’s $0.49 per gallon discount to gasoline provides companies such as Exxon Mobil an incentive to blend it into gasoline, which also lowers prices at the pump for consumers, Businessweek reported.

“It’s just ingrained in the supply and distribution and it’s having a moderating effect on pump prices,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said in an interview with Businessweek. “As long as they were still allowed to use it, most would.”

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

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Monday, 27 August 2012 03:53 PM
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