From The New York Times
The ethanol industry, until recently a golden child that got favorable treatment from Washington, is facing a critical decision on its future.
Gov. Rick Perry of Texas is asking the Environmental Protection Agency to temporarily waive regulations requiring the oil industry to blend ever-increasing amounts of ethanol into gasoline. A decision is expected in the next few weeks.
Mr. Perry says the billions of bushels of corn being used to produce all that mandated ethanol would be better suited as livestock feed than as fuel.
Feed prices have soared in the last two years as fuel has begun competing with food for cropland.
“When you find yourself in a hole, you have to quit digging,” Mr. Perry said in an interview. “And we are in a hole.”
His request for an emergency waiver cutting the ethanol mandate to 4.5 billion gallons, from the 9 billion gallons required this year and the 10.5 billion required in 2009, is backed by a coalition of food, livestock and environmental groups.
Farmers and ethanol and other biofuel producers are lobbying to keep the existing mandates.
O.K. Industries, a poultry company in Arkansas upset about rising feed costs, said this was the first year since the company was founded during the Great Depression that it could not afford to give its employees a wage increase.
An agency spokesman said the E.P.A. can approve the request, deny it or take a middle path. The deadline is Thursday, but the agency says it needs more time to review public comments and formulate a decision.
The agency’s authority derives from a 2005 energy law that sets some of the most important ethanol quotas. The law says states can petition the agency for a reduction in the ethanol mandates on the grounds of severe harm to the economy or environment. Decisions must be made after consultation with the secretaries of energy and agriculture.
Ethanol is under siege from other quarters. Senator Kay Bailey Hutchison, Republican of Texas, has introduced legislation calling for a freeze of the mandate at the current level, saying it “is clearly causing unintended consequences on food prices.” The measure is co-sponsored by 11 other Republican senators, including John McCain, the presumptive presidential nominee.
The Federal Reserve chairman, Ben S. Bernanke, testified last week that “it would be helpful” to remove a 51-cent-a-gallon tariff on imported Brazilian ethanol. If Brazilian ethanol enters the United States market, domestic producers argue, the industry will suffer.
In a new report, the Organization for Economic Cooperation and Development is critical of biofuels, saying further development will raise food prices while doing little for energy security.
But the attempts to undercut ethanol are proving divisive. Mr. Perry said he hoped the other 49 governors would join him, but was able to cite only one that had: Gov. M. Jodi Rell of Connecticut. (A spokesman for Mrs. Rell declined to offer a full-fledged endorsement of Mr. Perry’s initiative, saying she supported a modification of the mandate but had not made any specific proposals.)
In ethanol’s home ground of the Midwest, where much of the corn is grown and the additive is made, Mr. Perry’s petition was opposed by 12 governors. Senator Charles Grassley, Republican of Iowa, accused the Grocery Manufacturers Association, the group leading the public relations fight against ethanol, of “treasonous” acts.
Corn growers and ethanol producers believe they are being made scapegoats for failed economic and energy policies. Corn futures have already dropped sharply from the record highs set a month ago. Midwest weather has been favorable in recent weeks, raising expectations for the size and quality of the crop.
A cut in the mandate might be the beginning of a slippery slope that could mark the end for ethanol, said Lee Reeve, one of the pioneers of the industry. His Garden City, Kan., plant has been in operation since 1982. “If this goes through, I guarantee you that by next Thursday there would be arguments about how we should get rid of the mandate entirely,” he said. “And where are you going to find the oil to replace eight or nine billion gallons of ethanol?”