Albert Einstein is said to have observed, “Insanity is doing the same thing over and over, and expecting different results.” Were he around to see it, Einstein might call our current renewable-fuel policy insane.
Every year since 2009, the Environmental Protection Agency (EPA) has missed its deadline to set the required volumes of ethanol and biodiesel that must be blended into the nation’s motor-fuel supply under the schedule known as the Renewable Fuel Standard (RFS). Every year, economic chaos is the result.
The volumes are required by statute to be set by Nov. 30 of the preceding year. Last year, however, the volumes were set in August — eight months into the year to which the RFS applied. This year, the EPA released a proposed RFS with significant reductions to the prescribed volumes, but has since hinted they might subsequently raise those volumes when the final standard is set, sometime in June — halfway into the compliance period.
Nonetheless, ethanol will consume about 40 percent of the 2013-14 U.S. corn crop. Despite the EPA’s proposed adjustment this year, under the statute providing for the RFS — the Energy Independence and Security Act of 2007 — corn ethanol is still mandated to grow further.
EPA Administrator Gina McCarthy said in April that the final rule will “definitely use the most up-to-date data, and it will make a difference” in the final volumes. For the record, she is referring to data that came in after the fuel market was to be in compliance. It’s like the EPA is playing a high-stakes game of “pin the tail on the donkey.”
The moving deadlines and the speculation about where the volumes may ultimately be set is where the economic chaos comes in. According to a recent report from the Government Accountability Office, these late rulings impact the energy industry. They “contribute to industry uncertainty, which can increase costs because industry cannot plan and budget effectively.”
It is not just the energy industry that is impacted, though. This seesaw process by which the EPA proposes an up-and-down, now-and-later moving target as the compliance year unfolds also leaves poultry and livestock producers unable to “plan and budget effectively.”
Even if administered properly, the RFS is not without costs to the economy. There is no annual protein standard that guarantees a certain level of consumption for chicken, pork or beef like the RFS guarantees the demand for biofuels. In fact, since the RFS has been in place, per-capita consumption of meat and poultry has gone down.
From 2007 through 2013, owing in large part to high and volatile feed costs brought on by the RFS, at least a dozen chicken companies have ceased operations, filed for bankruptcy, or have been acquired by another company. While corn prices have moderated from their recent record highs, the chicken industry is only one drought away from another economic crisis. Volatility and uncertainty are the true business-killers.
Since the RFS was enacted, chicken growers have incurred more than $44 billion in higher actual feed costs. Adding together the higher cumulative feed costs for chicken, turkey, table eggs and hogs, the total is almost $100 billion in additional feed costs. Higher feed costs for other agricultural animal producers, such as dairy and beef cattle, would add measurably to that cost.
To put this $100 billion of added feed cost in perspective, consider that ethanol production has totaled a cumulative 85.4 billion gallons since the RFS was expanded in 2007. Spreading the $100 billion over the 85.4 billion gallons of ethanol means poultry and livestock producers have been forced through higher feed costs to subsidize ethanol to the tune of $1.35 per gallon. That is the food versus fuel situation.
The RFS — and the administration of it — is broken beyond repair. The issues of blend walls, food versus fuel, mandates for nonexisting cellulosic ethanol and other issues will not go away until Congress deals with the reality of the unworkable, unsustainable and imbalanced RFS.
There is good news: A majority in the House — 218 members from both sides of the aisle, representing communities across the nation — have spoken out against the current RFS and called for reform. Twenty-three senators are currently co-sponsoring legislation in the Senate to repeal or reform the RFS.
What they know, too, is that it is insanity to think this process can continue year after year with any different outcome.
Mike Brown is president of the National Chicken Council.