Uncertainty in RFS Sends the US Ethanol Industry to Overseas Markets: A Report from the National Ethanol Conference, "Going Global"

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February 26, 2015

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Renewable Fuels Association's Bob Dinneen introduces scholarship winner, Lais Thomaz at the National Ethanol Conference.

by Lais F. Thomaz* (Advanced Biofuels USA) Last week, from February 17 to 21, the 20th National Ethanol Conference "Going Global" was held in Grapevine, Texas, with the participation of several representatives of the ethanol production chain in the States and other countries such as Brazil, Germany, Canada, Italy, Peru, Ireland, Mexico, England, India and Ghana.

One issue was clear: the delayed disclosure of the renewable fuels volume obligation (RVO) of the Renewable Fuel Standard (RFS) has the sector concerned about the US market, which further boosts initiatives to explore the international market.

Bob Dinneen, President of the Renewable Fuels Association (RFA), said in his opening speech that included the 10 points of ethanol agenda, the fact that the association works together with the US Grains Council and Growth Energy in an Ethanol Exports Program.

The goal is to maintain the level of exports which reached a record 1.2 billion gallons of ethanol in 2011. Sixtyone countries have been mapped that possess ethanol mandates and can be exploited, and the organizations have trade missions planned for Brazil, Peru, Panama, the Philippines, Japan, South Korea and China.

This proposal is reinforced by the former US Trade representative Ron Kirk's speech in the conference too. Kirk emphasized the importance of the ethanol industry supporting the approval of the Trade Promotion Authority (TPA) which will facilitate the conclusion of agreements such as the Transpacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Jim Galvin, President of Lakeview Energy, also pointed out that among the sector's challenges is to not be left out of such agreements.

RFS "Back on Track"?

RFA's Bob Dinneen listens as US Environmental Protection Agency's Christopher Grundler repeats EPA's promise that the RVO numbers for 2014 will be announced in the Spring.

Christopher Grundler, Director in the Office of Air Quality and Transportation at the US Environmental Protection Agency (EPA), said that the RVO numbers for 2014, 2015 and 2016 are not yet finalized. The commitment is that by the end of June this year the EPA should disclose them. His justification for the delay highlights the analysis of the various comments received and orders linked to new ideas and new types of raw materials for renewable fuels.

Nevertheless, the RFA intends to work for a growth trajectory overcoming the restrictions of the percentage of ethanol in gasoline (blend wall) and encouraging the market for renewable identification numbers (RINs), which are used to track the renewable fuels used for transport.

No matter what happens with the RFS, the sector aims to increase market opportunities for mixtures of top-level ethanol, including E15 and E85.

Cellulosic Ethanol Technology

Representatives of trade organizations: NCGA, API, AAM, Fuels Institute, and the Advanced Ethanol Council

Representatives of cellulosic ethanol plants that are now operating in the US presented their initial results and future prospects.

Abengoa began operations at its Hugoton Plant in Kansas in October 2014. This plant is expected to produce 25 million gallons per year from corn stover and other cellulosic feedstock using enzymatic hydrolysis.

Dupont's cellulosic ethanol project, located in Nevada, Iowa—with capacity of 30 million gallons per year—has a partnership with USDA Natural Resources Conservation Service and Iowa State University. Dupont and Procter & Gamble recently announced a partnership to produce liquid soap "Tide" from cellulosic ethanol. Dupont is also working to produce cellulosic ethanol in Macedonia.

Beta Renewables, represented by Paollo Carollo, partners with GranBio in a Bioflex facility which was inaugurated in October 2014 in Alagoas, Brazil. It is expected to produce 21 million gallons per year.

The RFS encourages investment in new technologies using cellulose, however, in the industry's view it is also necessary to create a level playing field for cellulosic biofuels, which implies long-term tax incentives. Therefore, the RFA should work together with the Advanced Ethanol Council. Their strategy includes reaching members of Congress to ask for the end of oil industry incentives and to renew incentives for cellulosic ethanol, which, up to now, have only been used last year.

For the US, the development of cellulosic ethanol can be a huge political gain since future installations can be found in states that are not located in the Corn Belt. This makes the regional issue become national, gaining more weight in Congress.

Challenges for Brazilian Ethanol

Owen Wagner of LMC International focuses on ethanol from a Brazilian perspective.

The presentations highlighting Brazil were those by Pedro Paranhos, Vice President of Eco-energy and Owen Wagner of LMC International. Wagner pointed out that although Brazilian ethanol processing costs are lower than in the US, total production costs (including costs of raw material) in the US were lower than in Brazil over the past years. This is one reason why the Brazilian ethanol industry has been less profitable in the US since 2011.

This contributes to the fact that Brazil and the United States have shifted position in the international market. Paranhos pointed out that in 2014, US exports accounted for 70% of the ethanol exports market and Brazil had only 30%. In 2004, the US accounted for 10% and Brazil had 90%.

On the other hand, Wagner emphasized that there can be improvements in production efficiency. On the demand side, the adoption of 27% ethanol in gasoline in Brazil should also contribute to more incentives in the industry. Another highlight is the fact that the government of Minas Gerais has reduced the value-added tax on sales and services (ICMS) for ethanol to 14%, which decreases ethanol prices in that state. In any case, Wagner argues that this opened a window of opportunity for the US to increase ethanol exports to the Brazilian market.

DomesticFuel.com's Cindy Zimmerman meets with Lais Thomas at NEC

Paranhos stressed that the Japanese and South Korean markets still favor Brazilian ethanol due to regulations that restrict the market to cane ethanol. It is noteworthy that Brazilian industry representatives have been successful in the defense of Brazilian ethanol in the state politics of California (Low Carbon Fuel Standard - LCFS). In this sense, more than a hundred Brazilian mills are registered with the California Air Resources Board (CARB), and during the harvest of 2013/14 a quarter of Brazilian ethanol exports went to the California market. Thus, California reinforces itself as an option for Brazilian exports.

* Contributing author, Laís Thomaz, is a Visiting Researcher at Georgetown University, Department of Government and Ph.D. candidate at San Tiago Dantas Graduate Program in International Relations, Unesp/Unicamp/PUC-SP, São Paulo, Brazil. She was the winner of the scholarship to attend NEC 2015 promoted by RFA and the Renewable Fuels Foundation (RFF).

Photos courtesy of Lais Thomaz