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New Energy Economics: Was EPA’s Recent Ruling That Great for Corn Ethanol?

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Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist
During the past two years, the EPA and the ethanol industry have been arguing whether corn grain ethanol reduces GHG by at least 20 percent and qualifies as a conventional biofuel.

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

On Feb. 2, the Environmental Protection Agency (EPA) finalized its regulations for the national Renewable Fuel Standard. The bottom line is that the EPA determined that corn grain ethanol reduces greenhouse gas (GHG) emissions by at least 20 percent and qualifies it as a conventional biofuel. The ethanol industry hailed this finding as a significant victory and a new market opportunity, while the livestock sectors stated that not much was new. Turns out both are partially correct.

One has to go back to 2007 to fully understand the market impact of the EPA’s decision. In December 2007, Congress passed the Energy and Independence Security Act, which is viewed as the nation’s guidepost for biofuel development. This legislation defined three specific types of biofuel: conventional, advanced and cellulosic. The difference among them is the extent to which they reduce GHG at 20 percent, 50 percent and 60 percent.

During the past two years, the EPA and the ethanol industry have been arguing whether corn grain ethanol reduces GHG by at least 20 percent and qualifies as a conventional biofuel. Without this designation, corn ethanol plants constructed after 2007 would have to compete solely on a commercial basis with other petroleum-based fuels in the marketplace and wouldn’t have a mandated market for its consumption. Existing corn ethanol plants already producing in 2007 were grandfathered in.

Initially, the EPA determined that corn ethanol plants reduced GHG by 16 percent following very preliminary research on the subject. In its first analysis, the EPA relied heavily on the “land-use” argument, which assumes that the growth of the U.S. corn ethanol industry displaces acreage used for food production. To sustain U.S. food consumption, more food is imported from other countries, especially South America, which is environmentally fragile.

Since 2007, more thorough analyses have been undertaken by a broad range of academic and government research institutions. Most conclude that additional impacts must be included. The most important consideration is technology growth, namely increasing corn yields. In essence, rising corn demand has stimulated greater research and investment in genetic research. Growers are expected to produce 300 bushels-per-acre corn in the next two decades. Since more corn is produced per acre, less South American farmland is needed to meet U.S. food consumption needs.

On Feb. 2, the EPA agreed and now finds that corn ethanol does reduce GHG emissions by at least 20 percent. The corn ethanol industry can claim victory in its two-year battle with the EPA. However, most researchers knew the EPA’s initial determination was incomplete and that the agency eventually would revise its finding. Consequently, the livestock industry also is correct in stating that this really doesn’t change the market outlook because the announced change was expected and that it didn’t affect existing plants already producing corn grain ethanol.

Here’s an interesting wrinkle. Even though the federal government has determined that corn grain ethanol reduces GHG by at least 20 percent, California’s Air Resources Board (CARB) has not come to this conclusion. Therefore, corn grain ethanol doesn’t qualify as a renewable fuel that qualifies under CARB’s requirements. This will exclude corn grain ethanol in that state. Moreover, it may not only be California. Eleven New England states recently have adopted GHG regulations very similar to CARB’s.


NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096, cole.gustafson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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