EPA denies Texas' call to cut ethanol requirement EPA denies governor's request to lower ethanol requirement

The Environmental Protection Agency today denied Texas Gov. Rick Perry's request to reduce federal ethanol requirements this year.

The decision dealt a blow to Perry and a broad consortium of industry groups that claim rising U.S. ethanol output is inflating corn prices, hurting livestock and food producers and boosting grocery bills.

But in a noon conference call, EPA Administrator Stephen Johnson said the federal Renewable Fuel Standard that sets the ethanol requirement isn't causing "severe economic harm," which would be required to justify a waiver, and is improving national security and benefiting farmers.

In a statement, Perry said he was "greatly disappointed with the EPA's inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households."

"For the EPA to assert that this federal mandate is not affecting food prices not only goes against common sense, but every American's grocery bill," he said.

The decision was seen as a critical test of the Renewable Fuel Standard, which calls for huge increases in ethanol in coming years and is central to a Bush Administration effort to reduce U.S. dependence on foreign oil.

That program has come under fire in recent months as corn prices have hit new peaks and global concerns have grown about the wisdom of using food to make a transportation fuel.

Ethanol, primarily made from corn in the U.S., is blended with gasoline at low levels to extend the nation's fuel supply and improve air quality.I

In April, Perry injected himself into the center of the debate by sending a letter to the EPA requesting a waiver to cut this year's federal ethanol mandate from 9 billion to 4.5 billion gallons.

In the letter, he said ethanol production was putting "artificial upward pressure on corn prices," hurting the state's $75 billion livestock industry and increasing food prices for U.S. families.

The EPA's public comment period on Perry's request, which ended in late June, attracted more than 22,000 letters in support of the proposed waiver, Perry said.

Ranchers, poultry growers, restaurateurs and bakers are among those in the food industry who have backed the waiver.

The EPA initially said it would make its ruling on the request by late July but then postponed the decision amid the deluge of input from groups on both sides of the issue.

The Renewable Fuels Association, the leading ethanol trade group in Washington, had vigorously opposed Perry's waiver request. It argued the request didn't show sufficient evidence that increased ethanol production was causing severe harm to the U.S. economy.

The group has cited studies by Texas A&M University, Purdue University and other policy and research groups that found record oil prices have had more to do with the rising price of corn and other commodities than ethanol.

What's more, the association claims that cutting the federal ethanol program in half this year would only drive fuel prices higher.

That claim was echoed today by the Consumer Federation of America, a consumer group in Washington, which sent a letter to the EPA opposing Perry's request.

"Independent studies show that ethanol production is keeping gasoline prices form going much higher than they already are by providing an important global source of incremental non-OPEC fuel, reducing the pressure on U.S. refinery capacity that has been severely strained in recent years, and providing a low cost source of supply that is being blended with gasoline," said Mark Cooper, the group's research director.

In a June report, the Energy Department said gasoline prices would increase 25-30 cents per gallon if ethanol were not blended into the fuel supply.

Perry's request sought relief from the ethanol mandate for a year starting Sept. 1, saying the temporary suspension was needed to help cool down corn prices and avert a widening crisis.

``Congress specifically created an emergency waiver provision for situations like these and EPA refuses to implement it,'' Perry said.

He said the Renewable Fuel Standard has had a negative economic impact of $1.17 billion on Texas since the law was enacted in 2004.

If corn prices average $8 a bushel for the 2008 crop, as some project, the impact would rise to $3.59 billion, he said.

Texas cattle feeders haven't reported profits since June 2007, and small family ranches, which make up two-thirds of Texas cattle producers, face potential bankruptcy, Perry said.

But questions have been raised about Perry's motivation for requesting the waiver.

The Houston Chronicle reported in July that Perry made the ethanol waiver request after a March meeting with poultry producer Lonnie "Bo" Pilgrim. Just days after the meeting, Pilgrim donated $100,000 to the Republican Governors Association, which Perry heads as chairman.

Pilgrim also spent more than $9,000 on airfare in June so Perry could attend a news conference in Washington promoting the waiver and donated $25,000 to Perry's political committee about a month after the waiver request was made, the Chronicle reported.

Pilgrim's Pride, based in the East Texas city of Pittsburg, is the nation's largest producer of poultry products.

Ethanol production in 2007 was about 6.5 billion gallons, consuming about a quarter of the nation's corn crop.

Federal law requires that the nation use 9 billion gallons of renewable fuel this year and 11 billion gallons in 2009, most of which is expected to come from corn-based ethanol.

In December, President Bush signed energy legislation that expanded the Renewable Fuel Standard to 36 billion gallons by 2022, yet more than half of that target is supposed to be met with fuels made from non-food sources, including crops like switchgrass and agricultural waste.

brett.clanton@chron.com