Renewable fuel standard may cost restaurants billions; EPA denies repeal

December 3, 2012

The National Council of Chain Restaurants (NCCR) has released a report on the impact of the U.S. Environmental Protection Agency’s Renewable Fuel Standard (RFS) on the chain restaurant industry, commodity prices, and the food supply chain. The renewable fuel program was adopted in the Energy Policy Act of 2005, and was expanded in the Energy and Independence Security Act of 2007. This program requires that transportation fuel sold in the United States contain a minimum volume of renewable fuel. The production of ethanol and its byproducts represent the largest use of U.S. corn production with roughly 45% of all U.S. corn dedicated solely to ethanol production.

To study the impact of federal ethanol policies on the chain restaurant industry, NCCR commissioned PwC US to research, analyze, and estimate the potential cost and economic impact of the federal RFS mandate. PwC reviewed numerous public and private reports and combined these findings with chain restaurant survey data to calculate the overall cost of the RFS mandate to chain restaurants.

“Policies encouraging the use of ethanol not only impact the corn market, but have unintended consequences for other parts of the economy,” the PwC report said. “Corn is an input into the production of a wide variety of food products, from baked goods to meat production.”

PwC estimated the impact under several scenarios and concluded that the RFS mandate could cost chain restaurants up to $3.2 billion annually, with quick-service restaurants witnessing cost increases upward of $2.5 billion, and full-service restaurants seeing increases upward of $691 million.

This summer, in light of drought conditions affecting the country, Governors from several states requested a waiver of the national volume requirements for the RFS program. On Aug. 30, the EPA provided notice of the waiver requests and invited public comment on issues relevant to making a decision on the requests. The comment period closed on Oct. 11, with nearly 30,000 comments received. The Administrator of EPA, in consultation with the Secretaries of Agriculture and Energy, could waive the requirements of the RFS if it would severely harm the economy or environment of a state, a region, or the United States. While the EPA recognizes that this year’s drought has created significant hardships in many sectors of the economy, its analysis reveals that the Congressional requirements for a waiver have not been met and that waiving the RFS would have little, if any, impact on ethanol.

NCCR study

EPA notice