Date of this Version
Cornhusker Economics (September 12, 2012)
The short corn crop and soaring prices due to the drought have brought forth appeals to the Environmental Protection Agency (EPA) to use its discretionary power to waive the Renewable Fuels Standard (RFS) for 2012, 2013, or both. This, it is reasoned, would reduce ethanol production, therefore reduce corn consumption by the ethanol industry and reduce corn prices. The desirability of these objectives aside, there are some pitfalls in the reasoning, which will be reviewed here.
To provide perspective, this is another expression of the concern about using food for fuel, this time when grain supplies are limited by drought. It is true that grain shortfalls and price spikes in recent years have surely been exacerbated by the mandated use of corn for ethanol. It is also true that in the long-run we may have difficulty feeding the world's population, even if no grain is used for fuel. But the issue at hand is one of the short-run, whether less "food" should be used for fuel in this drought year. The impact of eliminating the RFS for just a year or so is quite different than the impact of eliminating it permanently.