According to the Center for Agriculture and Rural Development (CARD) located at Iowa State, calls to reduce, revise or repeal the Renewable Fuel Standard (RFS) would not achieve the goals of the industries who are demanding the action.
“The desire by livestock groups to see additional flexibility in ethanol mandates may not result in as large a drop in feed costs as hoped,” said Iowa State Professor Bruce Babcock, author a new research brief, “Preliminary Assessment of the Drought’s Impacts on Crop Prices and Biofuel Production.”
As part of the research, Babcock analyzed 500 different scenarios using various levels of corn yield for the 2012 crop. He then determined that a total waiver of the RFS would reduce corn prices less than 5 percent and cause less than a 5 percent reduction in ethanol production.
At first glance this seems like a mistake. But Babcock says the lower than expected results are due to the flexibility in complying with the RFS in 2012 and 2013. For example, during this timeframe, an estimated 2.4 billion excess Renewable Identification Numbers (RINs) can be used in place of purchasing actual gallons of a renewable fuel to demonstrate compliance. This allows obligated parties to carry over RINs and lowers the economic impact of a short crop such as what we are expecting this year due to excessive drought conditions affecting nearly 75 percent of crops across the country.
The research shows that if the mandate is completely rescinded corn prices would decrease by only $0.28 per bushel relative to the case where excess RINs are used for compliance. This is equivalent to roughly 3.5% of recent corn prices and 4.6% of the CARD study’s projected season-average.
“Now is not the time to implement knee-jerk reactions that arbitrarily reduce RFS requirements based on historically variable corn supply estimates or waive portions of the RFS,” said Bob Dinneen, President and CEO of the Renewable Fuels Association (RFA). “Such actions would likely do more to disrupt the fuel market than alleviate concerns over high corn prices. If given a chance to work, the RFS will demonstrate itself to be a thoughtful energy initiative with the kind of flexibility to absorb situations like the one we are in and still achieve its goals.”