Fri November 16, 2012
EPA Says Its Ethanol Rules Aren't Driving Up Food Prices
Originally published on Sun November 18, 2012 3:47 pm
The ethanol industry is happy with the Environmental Protection Agency today. If you're worried about the price of meat, though, you may not be so pleased.
Even though corn is in short supply, because of this summer's historic drought, the EPA just announced that it will keep in place a federal rule that requires more than a third of the nation's corn to be converted into ethanol and blended into gasoline.
Meat producers and anti-hunger advocates were outraged. Because the law protects the flow of corn into fuel, they say, it drives corn prices higher for everyone else. Kristin Sundell, from ActionAid USA, predicted that "people around the world will go hungry due to spiking food prices while the EPA stubbornly clings to its misplaced faith in biofuels as a sustainable energy solution." A coalition of dairy, poultry, and livestock producers asked "how many more jobs and family farms have to be lost before we change this misguided policy."
Critics and supporters of the "ethanol mandate" both believe that, for better or worse, the law matters. So the most surprising thing about the EPA's announcement today was that it flew in the face of that belief. The agency rolled out economic analyses showing, essentially, that the federal rules don't actually accomplish anything. According to the EPA, gasoline companies would use just as much ethanol even without a federal rule. They're doing it because a) ethanol still is an affordable additive to gasoline, and b) even if ethanol got more expensive, oil companies can't easily reconfigure their refineries to replace ethanol with something else.
Two leading economists who've studied this question — Bruce Babcock at Iowa State University and Wally Tyner at Purdue — agree with the EPA's analysis. "If you look at where gas prices are right now, it looks like it's in the interest of the gas companies to use ethanol," says Babcock.
Babcock says the agency made one additional assumption: That ethanol would have to get a lot more expensive before gasoline company decided to use less of it. The companies are locked in, at least for the short term, by their technical infrastructure: "The oil companies were told that they faced this mandate. They've done the best job possible to comply. They've configured their refineries to use that amount of ethanol, and it's costly for them to switch out of it."
So if this is all true, maybe you can't blame ethanol for that expensive pork or milk at your supermarket. Blame the drought. Oh, and your car, for its contribution to high oil prices.