Published: May 07, 2008 12:17 am            

Senators: Reconsider ethanol mandate

WASHINGTON — Senate Republicans have asked environmental regulators to use their power to halt the country’s plans to expand ethanol production amid rising food prices.

Twenty-four Republican senators, including presidential candidate Sen. John McCain of Arizona, sent a letter Friday to the Environmental Protection Agency suggesting it waive, or restructure, rules that require a fivefold increase in ethanol production over the next 15 years.

Congress passed a law last year mandating a ramp-up to 15 billion gallons of corn ethanol by 2015 and 36 billion by 2022. But McCain and other Republicans said those rules should be suspended to put more corn back into the food supply for animal feed, and to encourage farmers to plant other crops.

“This subsidized (ethanol) program — paid for by taxpayer dollars — has contributed to pain at the cash register, at the dining room table, and a devastating food crisis throughout the world,” said McCain, in a statement.

A spokesman for the Environmental Protection Agency said regulators will consider economic impact of renewable-fuel requirements when deciding whether to suspend the rules.

The agency has the power to waive or restructure federal requirements if they cause harm.

Spokesman Jonathan Shradar said the Bush administration remains committed to ethanol as an alternative fuel because of its potential to “get our nation off its addiction to foreign oil.”

But lawmakers are questioning the unintended consequences of using corn for fuel amid a global food crisis that has led to riots abroad and higher grocery bills at home.

Analysts say lawmakers are unlikely to roll back popular ethanol subsidies during an election year.

Congress will not “turn on the corn belt” because of the significant number of votes held by ethanol-producing states, Friedman, Billings, Ramsey & Co. analyst Kevin Book argued in a recent note to clients. Ethanol subsidies could face greater risks, however, in 2009 and going forward, according to Book.

Republican Sen. Charles Grassley of Iowa said Monday “ethanol is unfairly taking the brunt of the criticism” for escalating food prices. Grassley’s home state is expected to produce a quarter of all U.S. ethanol this year.

Farmers have responded to federal ethanol incentives by planting the largest crop of corn in 60 years, leaving fewer acres for soybeans, oats and other agricultural staples.

Tighter crop supplies means higher production costs for food processors of all types. In one recent example Pilgrim’s Pride Corp., the nation’s largest chicken producer, said costs rose $200 million in the quarter on higher corn and soybean feed.

And Americans are paying those higher costs at the grocery store, where egg prices have jumped 40 percent in the last year and flour prices have risen 50 percent since January, raising the price of bread, cereal and other groceries.

Ethanol, which is blended with gasoline, currently accounts for roughly 5 percent of the nation’s vehicle fuel mix. Under renewable fuel mandates that percentage would wise to about 22 percent by 2022

Texas Governor Gov. Rick Perry asked EPA last month for a 50 percent waiver from renewable fuels standards, citing high food costs.

The letter sent by McCain and Sen. Kay Bailey Hutchinson, R-Texas, could encourage more states to seek similar exemptions.

“We don’t think it’s the right move to make,” said Liz Friedlander, a spokeswoman for the National Farmers Union.

The group has defended corn-based production of the alternative fuel, saying its impact on the rising food prices has been relatively small. Instead, it points to higher fuel prices, poor weather conditions and dwindling stockpiles of wheat and other crops.

The ethanol industry said Monday altering the biofuels mandate “would drive the price of oil and gasoline through the roof,” according to Matt Hartwig, a spokesman for the Renewable Fuels Association.

Ethanol is “one of the only solutions for holding down the price of oil in the long-term,” according to Jeff Broin, president and chief executive of Sioux Falls, S.D.-based Poet, the nation’s largest ethanol producer.

While nearly all experts agree increased biofuel production by companies such as Archer Daniels Midland Co. and Pacific Ethanol Inc. has contributed to the run-up in food prices, there is little consensus on the scope of its role.

The ethanol industry says ethanol and other biofuels account for just 4 percent of the price surge, while the Department of Agriculture says the figure is closer to 20 percent.

Last week a group of international scientists recommended halting use of crops for biofuel, saying it would cut corn prices 20 percent.

Shares of VeraSun Energy Corp. fell 66 cents, or 9.6 percent, Monday to $6.21. Shares of Archer Daniels Midland Co. rose 15 cents to $44.09. Pacific Ethanol shares fell 8 cents to $3.40.

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AP Business Writer Dan Caterinicchia contributed to this report.

        

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