Pivoting Ethanol Industry to Stay Relevant

October 25, 2023

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by Tom C. Doran (AgriNews) ... Illinois Corn recently hosted a series of meetings and a webinar that addressed “the crossroads of carbon and corn.”

The theme focused on the importance of reducing the carbon footprint that would create new market opportunities for ethanol.

Federal policies are encouraging carbon reductions — not just in ethanol production, but also across multiple sectors of industries.

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“We’ve seen several cumulative threats in the ethanol market today,” Lurkins (Lauren Lurkins, founder of Lurkins Strategies) noted. “Obviously, the U.S. EPA has the regulatory control over the RFS, but they also have other areas that touch the farm gate, including the recent proposals on electric vehicles.”

U.S. Environmental Protection Agency’s proposed Multi-pollutant Rule states by 2032 the federal government will require 67% of all new light duty vehicles and trucks be electric.

“There’s another proposal from the Department of Transportation from the National Highway Traffic Safety Administration that would go hand in glove with the EPA requirements,” Lurkins said.

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“Another proposal is the California electric vehicle mandate. Sixteen other states have adopted that policy. ... "

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The third threat to the ethanol market is states establishing low carbon fuel standards.

“California sort of set the stage with their low carbon fuel standard, but we’re seeing more of those happen particularly along the West Coast in Oregon, Washington. When those states are setting their low carbon fuel standard, they are not necessarily thinking about Midwestern agriculture and corn markets,” Lurkins said.

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Reducing carbon footprints, along with carbon capture and sequestration can create opportunities for the ethanol industry moving forward.

Federal and state carbon reduction tax incentives are now in place, several of which are focused on sustainable aviation fuel.

The federal Inflation Reduction Act incentives extended existing renewable energy tax credits and adopted several new ones.

Section 40B in the act provides a tax credit for the sale and use of sustainable aviation fuel that achieves a life cycle greenhouse gas emission reduction of at least 50% as compared to petroleum-based jet fuel.

The 40B tax credit is available from the beginning of 2023 though the end of 2024. It’s a base credit of $1.25 per gallon.

The tax incentive 45Z in the act will effectively replace 40B after it expires. It provides a very similar tax credit for the domestic production of clean transportation fuel, including SAF, and it will apply to fuels that are produced after 2024 and sold before the end of 2027.

Section 45Q in the Inflation Reduction Act is with regard to carbon dioxide sequestration.

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It gives tax incentives to those who own carbon capture equipment and can capture carbon dioxide from an industrial facility like an ethanol plant, and they sequester or use it for certain purposes.

“The state of Illinois also has a tax credit for SAF. That became effective June 1, 2023, and is in place until Jan. 1, 2033. There are some conditions in the Illinois tax credit with regard to needing domestic biomass,” Lurkins said.

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In 2021, the Biden administration announced the goal of producing at least 3 billion gallons of SAF per year by 2030, and also issued the “SAF Grand Challenge” to meet 100% of aviation fuel demand by 2050, close to 35 billion gallons per year.

As a reference point, the RFS accounts for 14.5 billion gallons of ethanol demand per year.

“It’s quite a jump, but a very different future for what things like corn-based ethanol can look like in the future,” Lurkins said.

Carbon Reduction

Ethanol must meet a 50% carbon reduction to qualify for the SAF tax credit incentives. The carbon footprint of ethanol can be reduced below 50% by combining carbon capture and sequestration technology.

The footprint would be reduced even greater using practices such as cover crops, the 4Rs of nutrient management and no-till, combined with carbon capture and sequestration.

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Potential new markets include:

• Brazil’s low carbon fuel standard and tariffs are keeping U.S. ethanol out of Brazil. With these changes, that entire market can be open.

• The international SAF markets and fuel markets, specifically in Japan.

• Higher blends of ethanol in fuel tanks with legislation such as the Next Generation Fuels Act.

• Future low carbon fuel standard markets including Canada and U.S. states with those standards. READ MORE

Related articles

Cancellation of Navigator CO2 pipeline raises critical issues for several industries (S&P Global)
ADM's Luciano: CO2 Pipeline Continues -- Archer Daniels Midland CEO Luciano Says Company Staying Course on Carbon Pipeline (DTN Progressive Farmer)
Valero Reports Strong Q3 For Biofuels (Ethanol Producer Magazine)

Excerpt from S&P Global: Potential impact of Navigator decision on US ethanol

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Many ethanol producers have been counting on reducing the carbon intensity of their fuel via carbon capture, utilization and sequestration, which would enable them to sell their product at a higher price in low carbon fuel standard markets such as California, Oregon, Washington and British Columbia. Likewise, there is plenty of excitement around new technologies being used to convert ethanol into sustainable aviation fuel from companies like LanzaJet and Honeywell. However, average ethanol CI scores must move lower, and many believe that CCUS is the most cost effective and obvious way to do so. As noted by a Valero spokesperson following Navigator’s announcement: "We still see carbon capture and storage as a strategic opportunity to reduce the carbon intensity of conventional ethanol, which would also qualify it as a feedstock for SAF. Without carbon capture and storage, conventional ethanol does not have a pathway into SAF under today’s policies."

Carbon emissions can still be captured from ethanol plants, and the CO2 might be stored or transported in ways less economic than interstate pipelines. CO2 from ethanol plants has historically been shipped via truck and rail for use in medical facilities, for food processing and shipping, and for municipal water treatment systems. Decisions around whether ethanol CCUS projects will still be economically viable need to be evaluated on a case-by-case basis.

Using CO2 to produce eFuels is a new development, with companies such as HIF Global and Infinium setting up operations in Texas and 12 breaking ground on a commercial scale eJet facility in Washington. Neither Navigator nor Summit had plans to develop CO2 pipelines in either of those states. Setting up an eFuel facility in the heart of ethanol country is a business model that may be worth considering.

What, if anything, can or will the federal government do to intervene?

In July, President Joe Biden made a bold prediction regarding SAF in a speech in Auburn, Maine: "[M]ark my words -- the next 20 years, farmers are going to be providing 95% of all the sustainable airline fuel." Note the word "farmers." Biden’s statement cannot happen -- using currently available technology -- without low CI corn-based ethanol being used for SAF. In light of the latest development with Navigator, will the Biden administration do anything to intervene? Right now, the US Department of Treasury is close to issuing guidance pertaining to which life-cycle model will be used to measure emissions under the Inflation Reduction Act. Will it be inclined to lean toward the more favorable Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model or the more stringent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) model?

Navigator’s announcement is a signpost, but the business model to capture high-concentration CO2 from rural ethanol plants is not at a crisis stage yet. Following Navigator’s press release, Summit took a hospitable approach to those left stranded: "Summit Carbon Solutions welcomes and is well positioned to add additional plants and communities to our project footprint. We remain as committed to our project as the day we announced it." Other CO2 pipeline projects receive less press attention but are still pending (e.g., Wolf Carbon Solutions and the Trailblazer Conversion Project), and some ethanol facilities already have CCUS capabilities.

The US ethanol industry is resilient and is expected to continue to move forward. Without carbon capture, US ethanol production at the average CI score still qualifies for federal renewable identification numbers, state LCFS credits, and can be used for exports, industrial applications, etc. But the road to net zero just got a little bumpier. READ MORE

Excerpt from DTN Progressive Farmer: Just days after Navigator CO2 Ventures canceled its $3.5 billion carbon pipeline project, Archer Daniels Midland CEO Juan Ricardo Luciano said during a quarterly earnings call Tuesday that his company is continuing with its carbon pipeline plans.

In June 2023, Wolf Carbon Solutions filed an application with the Illinois Commerce Commission to seek approval to build a 260-mile pipeline to send carbon dioxide from two ADM plants in Clinton and Cedar Rapids, Iowa, to a sequestration location below ADM's plant in Decatur, Illinois.

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"Of course, with any industry that is breaking ground, the pioneers suffer sometimes with the regulatory environment and having to adjust," he said. "So, we're working closely with the authorities across the different states and in terms of trying to align the regulatory framework to the needs of decarbonization of the desires of the Department of Energy and Department of Agriculture.

"We have seen the news that you do, and you can take two tacks: that we may suffer a similar fate or that we will have less competition. We don't have any bad news to report other than we continue forward."

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"This is a very important initiative for ADM," he said. "And it's something that, as you know, we started less than 10 years ago. So, it's something that we have a lot of experience in, and we're leveraging that experience on our ability to inject carbon into the lower surfaces in our facility applicator."

Luciano said ADM remains on track to complete the pipeline project in Illinois and Iowa.

"We found that the government was planning to create far more injection wells over the next few years," he said.

"We've already submitted permits for that. Those permits have been accepted. So, they are complete. They are in the process of being studied and analyzed, and we are reviewing also with our partners, right-of-way acquisitions and all those types of agreements." READ MORE

Tags

Washington Transportation Fuels Policy--State Transportation Fuels Policy tax policy tax credits Sustainability renewable volume obligation (RVO) Renewable Fuel Standard (RFS and RFS2) Regulations-State Regulations-Federal Oregon National Highway Traffic Safety Administration (NHTSA) markets/sales market forces LCFS (Low Carbon Fuel Standard) Illinois ethanol/bioethanol EPA (Environmental Protection Agency) environmental policy Electric Car/Electric Vehicle (EV) Department of Transportation (DOT) Corporate Average Fuel Economy (CAFE) standards corn/maize corn ethanol co-products carbon/CO2 sequestration Carbon Intensity (CI)/Carbon Footprint carbon capture and storage (CCS) California BioRefineries/Renewable Fuel Production BioChemicals/Renewable Chemicals aviation fuel (SAF) tax credit Agricultural Policy 45Z Clean Fuel Production Tax Credit 45Q Carbon Oxide Sequestration Tax Credit 40B Sustainable Aviation Fuel Tax Credit

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