Auto Outlook: Drought-shrunken crops fuel ethanol debate

By AL SWANSON, UPI Auto Writer  |  Aug. 19, 2012 at 5:30 AM
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Use of ethanol in the nation's gasoline supply has always prompted debate, but this year's drought has increased calls for the government to end the corn ethanol requirement.

Depending on where you buy gasoline, as much as 10 percent of the fuel you put into your tank could be derived from U.S. corn. In good times, the ethanol requirement is a boon for farmers, ensuring a market even if there is a bumper crop.

This season is just the opposite. The summer drought in the grain belt has hit the corn crop especially hard with the U.S. Agriculture Department forecasting the smallest harvest in 17 years -- 123.4 bushels per acre. The prospect of a much diminished harvest has led to calls for suspension of the ethanol mandate that would require 40 percent of the 2012 corn crop be converted to biofuel.

The 10.78 billion bushel corn harvest forecast by the Department of Agriculture would be the smallest since 2006 and since corn is the most used grain, food prices are expected to soar.

The governors of Maryland and Delaware want the U.S. Environmental Protection Agency to waive the ethanol requirement, known as the 2007 Renewable Fuel Standard.

While the Obama administration has made no decision on waiving the ethanol requirement, Congress is considering bills that would let states opt out of the corn ethanol requirement, permit the EPA to revise the requirement when corn supplies are low or end the biofuel mandate entirely.

"The EPA has made it clear that they're working closely with the Department of Agriculture to keep an eye on yields, and they will evaluate all the relevant information when assessing that situation," White House Press Secretary Jay Carney said. "The president is committed to ensuring that his administration is taking every step possible to help farmers and ranchers who have been affected by this disaster."

In 2008, the EPA rejected a request from Gov. Rick Perry for a waiver from the biofuel requirement because of a drought in Texas. The weather changed and subsequent rain boosted crop yields easing the economic damage to farmers and ranchers.

Ranchers, who because of the drought are paying higher prices for animal feed to fatten cattle, hogs and pigs for slaughter, said federal regulations that require refiners to blend billions of gallons of ethanol for use as fuel is putting too much pressure on corn, which is selling for around $8 a bushel on the Chicago Board of Trade, up about $2 from six months ago but only slightly higher than prices last year at this time.

"This just kind of confirms our concerns that shortages of corn are not out of the question," Colin Woodhall, the National Cattlemen's Beef Association's vice president of government affairs, told The Hill.

Some environmentalists have never liked the notion of using food for fuel, contending the renewable fuel standard adds to soil erosion, water pollution through runoff of fertilizers, herbicides and pesticides, and overharvesting that raise food costs in developing countries.

"If the U.S. only produces 10.8 billion bushels of corn and 5 billion bushels still goes to make ethanol, a shrinking percentage of corn is left for food and feed," ActionAid USA senior policy analyst Marie Brill said in a statement.

"Millions of people in impoverished countries have not been able to recover from the last price spike -- and they are being hit again only two years later. Irresponsible incentives to produce biofuels and excessive speculation in commodities are causing destabilized food prices ..."

The ethanol mandate has increased steadily rising from 5 billion gallons in 2007, to 15.2 billion gallons this year reaching 36 billion gallons by 2022 when 15 percent of a gallon of gasoline could be corn-derived ethanol, The Detroit News said.

Test drive not necessary for some

Veteran tire kickers may wince but test driving a new vehicle may be old-fashioned.

The Detroit Free Press says many Internet savvy motorists are skipping the test drive and are ordering vehicles based on online research without actually sitting in the car let alone putting it through its paces on the road.

A study by Maritz Research found more than 10 percent of new car shoppers close the deal without taking a test drive.

One cited his visceral dislike for the new-car buying experience saying in an e-mail: "Honestly, I hate dealing with car salesmen."

Maybe that's why GM revived a no-haggle pricing policy this summer with its "Chevrolet Total Confidence" campaign.

Maritz found 11.4 percent of the 80,219 new vehicle buyers in its survey skipped a test drive, but 9.5 percent of those buying a 2012 used the Internet to set up a test drive and 80 percent said they did research online before making a buying decision.

'Black Box' requirement on for Sept. 1

The National Highway Traffic Safety Administration has rejected a one-year delay in regulations setting standards for event data recorders -- the so-called "black boxes" -- in U.S. vehicles.

Beginning Sept 1, all new passenger vehicles sold with the devices will have to have programming that collects data in the seconds leading up to a crash. The cost to manufacturers won't be much of an issue since 91.6 percent of new vehicles sold in the United States already have a "black box."

The Alliance of Automobile Manufacturers -- a trade group representing GM, Ford, Chrysler, Toyota, Volkswagen and seven other automakers -- supported making the devices mandatory in 2010 but recently asked NHTSA to delay the recording requirement until next September.

NHTSA said it had delayed the new rules, finalized in 2006, for two years and had changed the rules in 2008 to appease automakers. The government has not mandated "black boxes" be installed in all vehicles but is expected to push for that in a proposal, The Detroit News reported.

"NHTSA remains committed to proposing a standard in the coming months that will help save lives by ensuring both automakers and the agency have the necessary data to make continued improvements in vehicle safety," said safety agency spokeswoman Lynda Tran.

Auto industry bailout costs rise

In a monthly report to Congress, the U.S. Treasury Department estimates the federal government would lose more than $25 billion if it wrapped up the auto industry bailout now.

The Treasury spent $85 billion to save General Motors and Chrysler in 2008 and 2009. Chrysler repaid the $12.5 billion in loans it received at a $1.3 billion cost to taxpayers, but the government would lose big if it sold its 500-million-share stake in GM at less than $53 per share.

GM Co. stock closed at $20.01 Friday.

The report said bailout losses to the government would amount to $25.1 billion, up $3.3 billion from the last quarter.

The government has said Treasury will not sell any GM stock before the presidential election. Treasury still has a 26 percent stake in GM and a 74 percent interest in Ally Financial Inc., formerly General Motors Acceptance Corp., The Detroit News said.

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