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Why the EPA is backing off on ethanol requirements, and why that has Midwesterners upset

For much of the country, the EPA’s new ethanol standards represented good news about American energy consumption. But in the heart of corn country, producers and politicians are crying foul.

Corn is dumped into a chute at the Lincolnway Energy ethanol-producing plant in the town of Nevada, Iowa.
REUTERS/Jason Reed

WASHINGTON — Every good Midwesterner knows the secret to excellence, whether you’re raising prize-winning hogs or Big Ten basketball players: They have to be corn fed. So who can blame them if they want to same for America’s automobiles?

Well, this week, the Environmental Protection Agency wasn’t having any of it: On Monday, the agency announced long-awaited details of the Renewable Fuel Standard, the federal law that mandates the volume of biofuels, including corn-based ethanol, in the country’s energy supply.

The Renewable Fuel Standard is the reason why, when you go fill up your car, you might see a notice that your gas “may contain ethanol.” Blending ethanol into gasoline is one of the primary ways refining companies meet the federal standard.

And while the agency raised the amount of ethanol required in the nation’s energy supply compared to previous years, the new standard fell short of the total amount lawmakers envisioned for 2015 when they originally passed the law creating the standard in 2005.

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To many in the country, the EPA’s move was good news — among the reasons for the lower target was reduced total consumption of fuel in the U.S. as a result of more efficient cars and other economic factors, as well as a reduced dependence on foreign oil, thanks to greater domestic production.

Not so much in the Midwest, where thousands of acres of cornfields feed the ethanol plants that produce a large percentage of the nation’s biofuel supply. Minnesota’s politicians and biofuel backers across the Midwest voiced their disappointment and concern after the announcement, casting it as a blow to the economy, the environment, and national security.

Once a beloved, bipartisan-touted energy solution, ethanol is increasingly on the ropes for federal support — but Minnesota and its neighbors are among the few, not many, protesting.

Ethanol policy: from a different era

In the mid-2000s, when the current foundation for biofuel policy was constructed, Midwesterners were hardly the only cheerleaders for ethanol. Then, the rationale for encouraging biofuel cultivation was clear. U.S. gasoline consumption was at its historical peak in 2004, with around 140 billion gallons consumed that year. Top exporters of oil were Russia, Saudi Arabia, and Venezuela, countries on whom leaders in the U.S. — which was buying nearly two-thirds of its oil abroad — did not want to be so dependent. And climate change was beginning to emerge as a major issue.

Considered to be cleaner than fossil fuels, ethanol was touted as an alternative to foreign oil that would be a boon to U.S. farmers, help the environment, and bolster the country’s geopolitical hand. That’s partly why lawmakers were initially bullish in forecasting steady growth in ethanol consumption over the next few decades — in addition to strong lobbying from corn growers and Midwestern politicians.

In 2007, when it devised the initial standards, Congress required that, by 2016, the U.S. guzzle 22 billion gallons of biofuels. At the time, gas consumption was at record highs and there was no reason to believe it would taper off.

But that growth didn’t quite materialize, thanks to two phenomena few predicted. For one, at the beginning of the Obama presidency, U.S. consumption of gas began to decline in a big way. By 2014, the country was using as much petroleum as it did in 1997, despite the economy nearly doubling in size. The increased fuel efficiency of cars, along with the Great Recession and its lingering effects, are believed to be the main culprits.

U.S. gasoline consumption, January 2000 – April 2014
Demand for gasoline in the U.S. peaked around 2007, just as lawmakers were setting the Renewable Fuel Standard, when the trend in consumption pointed to continuous yearly increases. But soon after, gas demand plummeted and has not returned to 2007 levels.
gas demand chart

At the same time, U.S. domestic oil production has increased since the tail end of the last decade, thanks to a major boom in hydraulic fracturing, or fracking, techniques. U.S. wells are projected to produce 9.3 million barrels of oil every day this year, up from 5 million in 2008. Since 2011, the U.S. has been a net exporter of oil and natural gas, and in 2015 was the world’s top oil and gas producer.

The EPA, though it was meant to abide by Congress’ initial requirements, made the decision that the robust standard lawmakers envisioned was simply unrealistic. The new mandate requires that 18 billion gallons of biofuel be used by American automobiles in 2016. That would make one out of every 10 gallons of gas consumed in the U.S. from biofuel. But it’s 4 billion gallons short of what Congress envisioned back in 2007.

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But as states like North Dakota and Pennsylvania profited from the shale boom, much of the Midwest remains as tied to corn-based biofuel as before — if not more so. As of August 2015, Minnesota produced 1.2 billion gallons of ethanol annually, making it fourth in the nation in production, behind only Iowa, Nebraska, and Illinois. That’s an all-time high: In 2012, the state produced 800 million gallons of ethanol fewer.

Annual ethanol production capacity for top producers, August 2015
Midwestern states dominate ethanol production in the U.S., occupying the top 10 places in terms of production capacity.
Source: Renewable Fuels Association via Nebraska Energy Office

With crop prices slumping, however, farmers in Minnesota are finding growing corn to be increasingly a losing proposition. In February, MPR reported that that prices for bushels of corn had fallen by half in the last few years, and that Minnesota farmers have been losing as much as $300 on each acre of corn planted. Reduced demand for biofuel will mean reduced demand for the corn that is used to make it, which can only mean downward pressure on the crop’s price.

In states like Minnesota and Iowa, then, the biofuel mandate is as much an economic lifeline as ever. The ethanol industry supports many thousands of jobs and billions of dollars of economic output. And top agriculture companies operating in the Midwest have lobbied hard to keep the mandate intact: Biofuels industry groups spent a total of $158 million lobbying federal lawmakers from 2007 to 2013.

Because of that, biofuels have grown into perhaps the most untouchable regional issue in the country. Nearly every politician in the Midwest, regardless of party, supports a strong standard; in Iowa, where the industry is dominant, presidential candidates have historically been required to tout the program to have even a remote shot at that state’s first-in-the nation caucuses.

Ethanol’s critics

Outside the Midwest, ethanol isn’t always regarded as a panacea. With a relatively limited regional footprint, the fuel has come under fire from a diverse array of groups.

The oil and gas industry has lobbied heavily against the renewable fuel standard and biofuel subsidies, and advanced research critical of biofuels, as fossil fuel producers are wary of the growing biofuels sector cutting into their market share. Republican Sen. Bill Cassidy, who represents Louisiana, a stronghold of the oil industry, has introduced some of the strongest anti-biofuel legislation.

Many environmental groups have grown disillusioned, too, because of concerns that biofuels aren’t as green as they were meant to be. Some studies have suggested that the biofuel cultivation and consumption process as implemented can be very damaging to the environment — including contributing to climate change — and that changes need to be made before biofuels present a clearly superior option to fossil fuels.

Public polling on the ethanol issue is murky: The ag industry and the oil industry each sponsor polls that they use to validate their points of view. But fiscal hawks on both the right and left have recently attacked the renewable fuel standard for being a major government subsidy. Tellingly, presidential candidates this cycle are not falling in line to support ethanol. In October — and in Iowa of all places — Jeb Bush said, “We need to get to a point where there aren’t winners or losers based on subsidies or mandates.”

And in Congress, top lawmakers have taken aim at the ethanol component of the standards. Sen. Dianne Feinstein, D-California, and Sen. Pat Toomey, R-Pennsylvania, have introduced legislation to repeal the ethanol requirement in the renewable fuel standard, arguing the program will remain viable if other biofuels are prioritized.

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Particularly, many see promise in what’s known as next-generation biofuel, especially cellulosic ethanol, which is made from parts of plants that are not edible. Environmentalists and others have grown increasingly concerned that the cultivation of corn and other edible crops for fuel, and not food, drives up food prices and harms availability.

Cellulosic ethanol is more desirable because it won’t create competition with food plants, explains Anu Ramaswami, who studies renewable energy at the University of Minnesota’s Humphrey School. “You don’t want to have competition with food,” she says. “The food price issue is something that, the more and more cellulosic ethanol is used, that angle will go away. The thing with cellulosic ethanol is that we need to scale it.”

Indeed, the RFS mandate only requires that 230 million gallons of cellulosic ethanol be used as fuel in 2016 — 0.12 percent of fuel consumed nationally. That number is expected to rise as the technology improves, and Ramaswami forecasts it will one day supplant traditional ethanol.

Minnesotans line up behind ethanol

Though a bill to reform the fuel standards would likely garner bipartisan support, it’s still considered virtually dead on arrival, given the staunch opposition from Minnesota and other Midwestern representatives.

When lawmakers like Arizona Republican Sen. Jeff Flake say that the Renewable Fuel Standard is a “lemon” and that “Congress can no longer justify a policy that props up the ethanol industry at the expense of taxpayers, consumers, the hungry, and the environment,” corn country representatives come rushing with an opposite set of talking points.

In statements to MinnPost, many Minnesota members of Congress touted ethanol as a critical asset in the American energy portfolio, one that will help fight pollution and climate change, boost the Minnesota and U.S. economies, and protect the country from foreign oil.

Sen. Amy Klobuchar has cast herself as a leading advocate for biofuels, and took partial credit for pushing the administration to boost the original standard it released in May. That announcement called for 17.4 billion gallons of biofuel in 2016, about 600 million gallons fewer than this week’s numbers.

“The Renewable Fuel Standard has helped create American jobs, drive innovation, and boost local economies across Minnesota and the country,” Klobuchar said. “I’ll continue to call on the administration to promote biofuels to the extent that Congress intended in the law.”

Sen. Al Franken, who serves on the Senate Energy Committee, said the government made the “wrong decision” and pledged to get the RFS “back on track.”

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“I believe we’re on the cusp of a renewable energy revolution,” Franken said in a statement. “But this announcement sends the signal to our producers and to our ag communities that there’s no interest in making important energy investments. … While I’m glad they raised levels from what was proposed, these final numbers just don’t cut it.”

Representatives from Minnesota’s rural, corn-growing districts — Democratic and Republican alike — were predictably not pleased. Seventh District Rep. Collin Peterson, the top Democrat on the House Agriculture Committee, said that the rule was still disappointing, but “the administration deserves credit for listening to our concerns and now needs to immediately start work on the numbers and get the program back on track. … A strong biofuels industry is an essential component of the rural economy.”

In a statement, First District Rep. Tim Walz echoed Peterson in crediting the administration, but added “Homegrown energy from the heartland is critical to eliminating our dependence on foreign oil and to maintaining our national security. … I will continue to look for ways to move us toward a clean energy future.”

Sixth District Rep. Tom Emmer hammered the EPA in a statement, saying “When farm income is down by 38% – the lowest level in a decade – it is not the time for the EPA to be diluting a law that provides farmers with better access for their goods, allows consumers more choices at the pump, and leads to a cleaner, more affordable, domestic energy supply.”

Looking ahead

Even if the corn belt and the rest of the country are at odds on the importance, effect, and proper role of biofuels, most everyone agrees that the Renewable Fuel Standard program is in need of some major changes. When it released 2016 standards on Monday, the EPA also retroactively announced standards for 2015, and, confoundingly, 2014. Rep. Ed Whitfield, a Kentucky Republican who chairs the Energy and Power Subcommittee, told Politico that this was a clear sign the program needs to be fixed.

Given the situation, it’s unlikely Congress will take meaningful action to reform the program anytime soon,  so big decisions will continue to rest with the White House and the EPA — at least until 2017.

But ethanol’s cheerleaders in Minnesota and elsewhere may need to begin managing their expectations. “It has a place in the renewable fuels landscape,” Ramaswami says, “but it’s one piece of a larger puzzle, and it won’t be limitless.”

Correction: This article originally misstated total U.S. oil consumption in 2004.