Ethanol Mandate Waiver: Decks Stacked Against Petitioners

by Marlo Lewis on September 10, 2012

in Blog, Features

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The Governors of Georgia, Texas, Arkansas, Delaware, Maryland, New Mexico, and North Carolina have petitioned EPA Administrator Lisa Jackson to waive the mandatory ethanol blending requirements established by the Renewable Fuel Standard (RFS). The petitioners hope thereby to lower and stabilize corn prices, which recently hit record highs as the worst drought in 50 years destroyed one-sixth of the U.S. corn crop. Corn is the principal feedstock used in ethanol production.

Arkansas Gov. Mike Bebe’s letter to Administrator Jackson concisely makes the case for regulatory relief:

Virtually all of Arkansas is suffering from severe, extreme, or exceptional drought conditions. The declining outlook for this year’s corn crop and accelerating prices for corn and other grains are having a severe economic impact on the State, particularly on our poultry and cattle sectors. While the drought may have triggered the price spike in corn, an underlying cause is the federal policy mandating ever-increasing amounts corn for fuel. Because of this policy, ethanol production now consumes approximately 40 percent of the U.S. corn crop, and the cost of corn for use in food production has increased by 193 percent since 2005 [the year before the RFS took effect]. Put simply, ethanol policies have created significantly higher corn prices, tighter supplies, and increased volatility.

Agriculture is the backbone of Arkansas’s economy, accounting for nearly one-quarter of our economic activity. Broilers, turkeys, and cattle — sectors particularly vulnerable to this corn crisis — represent nearly half of Arkansas’s farm marketing receipts. Arkansas poultry operators are trying to cope with grain cost increases and cattle familes are struggling to feed their herds.

Section 211(o)(7) of the Clean Air Act (CAA) authorizes the EPA to waive all or part of the RFS blending targets for one year if the Administrator determines, after public notice and an opportunity for public comment, that implementation of those requirements would “severely harm” the economy of a State, a region, or the United States. Only once before has a governor requested an RFS waiver. When corn prices soared in 2008, Gov. Rick Perry of Texas requested that the EPA waive 50% of the mandate for the production of corn ethanol. Perry, writing in April 2008, noted that corn prices were up 138% globally since 2005. He estimated that rising corn prices had imposed a net loss on the State’s economy of $1.17 billion in 2007 and potentially could impose a net loss of $3.59 billion in 2008. At particular risk were the family ranches that made up two-thirds of State’s 149,000 cattle producers. Bush EPA Administrator Stephen Johnson rejected Perry’s petition in August 2008.

In the EPA’s Request for Comment on the 2012 waiver petitions, the agency indicates it will use the same “analytical approach” and “legal interpretation” on the basis of which Johnson denied Perry’s request in 2008. This means the regulatory decks are stacked against the petitioners. As the EPA reads the statute, CAA Section 211(o)(7) establishes a burden of proof that is nearly impossible for petitioners to meet. No matter how high corn prices get, or how serious the associated economic harm, the EPA will have ready-made excuses not to waive the corn-ethanol blending requirements.

According to the EPA, Petitioners must show that the “RFS itself” would cause severe economic harm, not merely “contribute” to it. Petitioners therefore must also show that the relief sought would achieve a substantial reduction in the prices of corn, feed, and food.

This reading of the statute effectively prejudges the issue. “Severe” economic harm typically results from a combination of factors, not one single cause. An ethanol mandate that causes little economic harm when unemployment rates are low, corn production is high, and China’s demand for U.S. corn imports is low could inflict severe harm when the opposite conditions obtain — as they do today.

If Congress wanted the EPA to grant a waiver only when the RFS alone causes severe economic harm, it could have easily said so. The statute specifies no such limitation. CAA Section 211(o)(7) does not tell the EPA to ignore non-RFS factors that might also adversely affect food and feed prices, agricultural employment, and the competitiveness of U.S. livestock producers.

The EPA’s demand that the waiver be a “remedy for the harm” is the flip side of this same trick coin. By law, the EPA may grant a waiver for only one year at a time. Although a series of waivers might provide a complete remedy, a one-year waiver may have little impact on markets shaped by the RFS’s 17-year (2006-2022) production quota schedule. So the EPA could reject the waiver petitions on the grounds that a piecemeal solution is no solution at all.

Note: The EPA argues the exact opposite when the issue is whether or not to pull a regulatory trigger. In such cases, even small contributions to an alleged harm are considered sufficient grounds for regulation, and even minute regulatory contributions to the hoped-for solution are deemed fully justified and legally required.

Take, for example, the EPA’s heavy-duty truck greenhouse gas (GHG) emission standards. The EPA estimates that the standards for model year (MY) 2014-2018 heavy-duty vehicles will reduce atmospheric carbon dioxide (CO2) concentrations by 0.732 parts per million, which in turn will avert an estimated 0.002-0.004°C of global warming and 0.012-0.048 centimeters of sea-level rise by the year 2100 (Proposed Heavy Truck Rule, p. 74289). Such changes would be too small for scientists to distinguish from the “noise” of inter-annual climate variability. The EPA acknowledges no obligation to demonstrate either that heavy-truck GHG emissions alone harm public health and welfare or that regulating MY 2014-2018 heavy-truck GHG emissions would have a major impact on global warming.

Consider also the EPA’s Utility MACT Rule for coal-fired power plants. The agency acknowledges that U.S. mercury (Hg) emissions constitute only 5% of global anthropogenic Hg emissions and only 2% of the total global Hg pool, and that U.S. power plant emissions account for only 0.6% of the global pool. More importantly, the EPA estimates  — based on dubious epidemiological evidence and questionable demographic modeling — that the MACT Rule’s Hg emission reductions will avert the loss of 0.00209 IQ points per child in a guesstimated population of 240,000 subsistence fishing households. IQ points cannot be measured out to five decimal places. The MACT Rule’s microscopic mercury-related health benefits are literally undetectable and unverifiable. The EPA is completely undaunted by such facts. In the agency’s words (Proposed Utility MACT Rule, p. 24978):

However, as the U.S. Supreme Court has noted in decisions as recently as Massachusetts v. EPA, regarding the problem of climate change, it is not necessary to show that a problem will be entirely solved by the action being taken, nor that it is necessary to cure all ills before addressing those judged to be significant. 549 U.S. 497, 525 (2007).

In stark contrast, when the issue before the EPA is whether to grant regulatory relief, then the regulation itself must be shown to cause severe harm, and even temporary relief must be shown to cure all ills (or most of them). This is not surprising. Being a regulatory agency, the EPA does not accord the harms of over-regulation the same weight as the harms of under-regulation.

So in all likelihood, the EPA will deny the Governors’ waiver requests, even though a waiver would undoubtedly lower and stabilize corn prices to some extent.

This cloud may have a silver lining. If the EPA once again refuses to balance the interests of corn farmers against those of other industries and consumers, it will furnish new evidence that the RFS is a policy disaster. Especially if the drought persists into 2013, an EPA that won’t heed the reasonable requests of domestic livestock producers, seven governors, 156 House members, 26 Senators, the head of the UN Food and Agriculture Organization, and other food security advocates will build support for RFS reform — or repeal.



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