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New Biofuel Standards Could Help and Harm Indiana Farmers

Ben Loehrke

After more than a year of delays, the Environmental Protection Agency has released numbers for the Renewable Fuel Standard, or RFS—the amount of biofuel which must be to be blended into the nation’s gas supply —for the years 2014, 2015 and 2016.

The numbers are up, and that’s big news in Indiana, one of the largest ethanol-producing states in the nation.

Because of the unrelenting march of time, the 2014 and 2015 standards will retroactively reflect the actual amount of biofuels used in those years. The amounts are bigger than the ones the EPA proposed last spring—2016’s 18-billion gallon requirement is about 4 percent higher than expected—but less than congress originally had in mind when it drafted the standard’s guidelines in 2007.

How much each refinery needs to contribute to the RFS is dictated by its market share, but how exactly it blends the biofuel is up to the maker. A refinery receives a certain number, and it’s up to it to choose how it distributes the biofuel. For example, gasoline makers could choose to focus on E85 (the special 85 percent ethanol blend) instead of the traditional unleaded gasoline, which would mean the majority of its gas would contain a lower amount of renewable fuel.

However, with gas at a record low, especially in Indiana, more expensive E85 isn’t as attractive of an option for many drivers.

Even though the law doesn’t explicitly specify what sort of biofuel is required for the majority of the fuel, most biofuels are made from corn—and as Ken Parrent, director of biofuels for the Indiana Corn Marketing Council says, the greater the requirements, the happier the state’s corn producers are.

Thanks to the RFS, the state’s corn growers have seen a turnaround in profits in the past decade, he says.

“Really, from 2007 on till this year,” he says, “we’ve had demand to support higher corn prices and it’s made it profitable again.”

According to Parrent, a little less than half of the state’s corn goes directly to the state’s 14 ethanol plants. “It’s played a critical role in making corn a profitable commodity for Indiana farmers to grow,” he says.

The issue has pitted environmentalists, corn growers and oil companies against each other. Purdue economist Wally Tyner says while the 2016 standard’s value for renewable fuel is 11 percent higher than the actual 2014 amount, the decision has no clear-cut winner.

“I think they threaded the needle they found a balance,” he says. “They found something that’s attainable not too costly and I think they’re doing the best job they can.”

Tyner says the increased demand for corn, thanks to the RFS, will mean higher prices for everything from beef to gas prices – one of the big objections to the rules. While the legislation helps out corn producers, it can be harmful for livestock farmers, who bear the brunt of higher demand in the form of increased feed prices.

He says the current low gas prices and higher ethanol prices will mean prices will go up at the pump, but only by a few cents:

“With crude oil prices and gas prices being so low particularly right now, and ethanol prices being higher, requiring that it be blended means that price, that cost will be passed on to consumers,” he says. “[But] not much.”

“Some people would argue that we’re better off as a country having fuels at the pump that produce less greenhouse gas emissions that are more environmentally sound, and that the small price we pay either at the pump of the supermarket is worth it,” Tyner continues. “Others would say no, that’s a political decision and not purely an economic decision.”

Opponents of the renewable fuel standard say the new numbers exceed the so-called “blend wall,” which refers to the maximum amount of ethanol that can be realistically blended into gasoline before production prices start to increase.

Other objectors say the RFS actually is harmful to the environment, because corn eats up so much land and destroys native habitats.

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