A recent survey conducted by market research firm Penn Schoen for Ford Motor is being spun by the mainstream media to say that Americans are now more willing to pay more for a fuel-efficient vehicle. The survey really shows that only 25 percent of those surveyed would be willing to spend just $1000 more upfront on a hybrid car that would save money down the road through lower fuel costs. Consumer resistance to higher auto prices is the driver behind the Obama administration’s push to raise Corporate Average Fuel Economy (CAFE) higher and higher.  The new CAFE standard is 54.5 miles per gallon by 2025.

The National Automobile Dealers Association estimates that these new CAFE standards will lead to an average price increase of $3,000 per vehicle, which is $2,000 more than the survey shows that just  a quarter of Americans would be willing to spend. Ah, but the Environmental Protection Agency responds that this just shows that regulators know what’s better for consumers than consumers do.  Higher CAFE standards will force consumers to spend more on new cars that will eventually save them lots of money on gasoline.

NADA Chairman Bill Underriner doesn’t agree with EPA’s argument for higher fuel efficiency standards: “This increase shuts almost 7 million people out of the new car market entirely and prevents many millions more from being able to afford new vehicles that meet their needs”.

Currently, a hybrid can cost from $3,500 to $6,000 more than a comparable gasoline vehicle. A typical hybrid doesn’t come close to recouping this additional expense through fuel savings for many years. With an annual mileage of 15,000 miles and gas costing $4 a gallon, a hybrid would save between $650 and mid $700 a year in gas. If the hybrid saved $675 a year in fuel cost, it would take roughly 5 and half years for the hybrid to reach a fuel savings of $3,500, which is the low end of the additional cost incurred for owning a fuel-saving vehicle. The average American only owns a car for 6 years though. This means that gas would have to reach $8 a gallon for the hybrid to warrant spending the extra money.

Although harvesting season for corn is ongoing, there isn’t much hope from the Agriculture Department for a strong season. We know that production levels are already down 13 percent from 2011. Adding to the hurt caused by this year’s devastating drought on corn is the Renewable Fuel Standard (RFS). Under the Clean Air Act the RFS requires that in 2012, refiners sell 13.2 billion gallons of corn ethanol – this number equates to roughly 4.7 billion bushels of U.S. corn.  Corn estimates were down to 10.8 billion bushels last month; right now that means that at least 40 percent of corn production is being forced into the ethanol market.

The decline in corn production is already leading to rising prices in various farming sectors — cattle, swine, poultry — that use corn as feed. These economic effects will be intensified by the diversion of corn supply by ethanol requirements. This has prompted Congress, National Associations, and now individual state Governors to urge the EPA to permit a waiver for ethanol requirements in 2012-2013 under the Renewable Fuel Standard.

In Governor Deal’s August 20th letter to EPA Administrator Lisa Jackson describes the importance and scale of the livestock agriculture to the Georgia economy:

As Georgia’s largest industry, agriculture accounts for over 15.7 percent of the state’s economy in terms of sales and output and represents 11.2 percent of the state’s value added production. Georgia agriculture has an annual impact of $68.9 billion on the state’s economy and provides 380,000 jobs to citizens of the state.  Poultry and livestock are critically important components of the state’s economy, representing over 50 percent of Georgia’s farm gate value, while broilers alone account for over 40 percent of farm gate value. From a national perspective, Georgia ranks first in broiler production and third in value of eggs produced. For Georgia, the poultry industry alone accounts for over $20 billion in annual economic impact, and an estimated 98,000 jobs depend on poultry directly or indirectly.

He also points out the grueling effects the Renewable Fuel Standard will have on not only Georgia, but the whole country coupled with this drought:

According to the University of Georgia, the state’s poultry producers are spending $1.4 million extra per day on corn due to the drought and the upward pressure on corn prices caused by the demand created by the RFS for ethanol. This translates to over $516 million per year if these market conditions continue. These additional input costs are not sustainable, and I urge you to consider all options available to the agency to provide some relief in the coming year.

The ultimate impact on consumers in Georgia and throughout the United States in the form of higher food prices must also be fully considered. A recent analysis confirmed that food inflation, particularly for those food categories most impacted by grain costs, has risen much faster than overall inflation since 2005. The reality of this current crisis is that consumers will have to pay more for protein and other food items, or they will simply not be able to afford certain food items.

As I have outlined, Georgia is experiencing severe economic harm during this crisis, and important economic sectors in the state are in serious economic jeopardy. This harm is precisely of the type, character and extent that Congress envisioned when it granted EPA authority to waive RFS applicable volumes in both the original RFS enacted in 2005 and in the substantial revisions made to the law in 2007 by the Energy Independence and Security Act.

Other states such as; Arkansas, Texas, North Carolina, and others have also filled letter with Administrator Jackson.

On August 20th the EPA opened a 30 day comment period for the public on the waiver requests specifically from the Governors of Arkansas and North Carolina. This week, the comment period was extended another 30 days. After the comment period ends, EPA is afforded time to consider the public’s input. As a result, EPA won’t have to make a decision until after the election. How convenient.

When Congress created the RFS, it gave EPA the flexibility to waive part or all of the volumetric blending targets if the Administrator determines that implementation of a specific requirement would “severely harm” the economy of a State, region, or the U.S.  Well, we’re now in the worst drought of the past 50 years, and USDA projects the smallest corn crop in six years and the lowest corn yields per acre since 1995. Corn prices are at record highs, rising from $2.00 a bushel in 2005, the year before Congress created the RFS, to more than $8.00 a bushel this year.  The RFS is contributing to the spike in corn prices, which is detrimental to livestock producers and consumers.  If this is not a situation justifying a relaxation of politically-imposed (rather than market-driven) diversion of a major agricultural commodity from food to auto fuel, it is difficult to imagine what would qualify.

If the EPA denies the Governors’ petition, it will have a lot of explaining to do.