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Governor Rick Perry of Texas, representing a major livestock-producing state hammered by rising feed costs, has petitioned the Environmental Policy Agency to suspend half of the mandated level for blending ethanol in gasoline. The EPA has the authority under the Energy Independence and Security Act of 2007 to suspend all or part of the mandate for up to a year if there is a "significant renewable feedstock disruption or other market circumstance" and the administrator is supposed to respond to Governor Perry's petition by July 24. Surely the current food price crisis, exacerbated by this spring's flooding along the Mississippi, qualifies as a significant disruption.
If the administration and Congress do not revisit the ethanol mandate, it will rise from this year's 9 billion gallons to as much as 15 billion gallons in 2015, which would absorb 40-45 percent of total US corn production (depending on acres planted and yields) (see chart). While there is a debate over the contribution of ethanol to increasing prices for foods other than corn, there can be little doubt that diverting that much corn from food to fuel would have significant effects. The Organization for Economic Cooperation and Development has also just released a report underscoring the need to revisit policies supporting the current generation of food-based biofuels.
To date, administration officials and President Bush have minimized the potential impact of ethanol on food prices and they continue to support the various subsidies promoting its production. But the reasons for this are unclear since the President and his administration have been quite good in pushing Congress to reform other farm subsidy programs and in following through on his threat to veto the anti-reform farm bill passed by Congress last month.
While suspending this year’s mandate for ethanol use might have limited immediate impact on food prices (because demand for ethanol has risen in response to gasoline prices), it would give the next president and Congress time to review the policy and ensure that the planned increases in the mandate do not make things far worse.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.