Changes to EPA gasoline rules may shake U.S. ethanol industry
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U.S. ethanol producers are shipping their fuel overseas, while taking in Brazilian imports, in a trend that could be exacerbated by expected changes to federal gasoline policies.
At issue are proposed reductions to the Renewable Fuel Standard, a federal ethanol mandate created by Congress in 2005 and expanded in 2007. Coupled with tweaks to a part of the mandate that is reserved for "advanced" biofuels, the U.S. ethanol market could end up taking a hit.
Brazil’s sugar cane-based fuel is considered "advanced," so refiners are importing it to boost their percentages of that level of ethanol. Until recently, the United States, which mostly relies on *corn for ethanol, made little fuel that qualified for that level.
Congress established the standard as a way to wean the United States off foreign fuels, develop a domestic industry and reduce greenhouse gas emissions. But now, the Environmental Protection Agency is proposing several changes that U.S. producers worry could drive even more Brazilian ethanol to American shores and hurt a fledging U.S. advanced biofuels industry.
First, the agency is changing the way it counts the amount of biofuels available for blending into gasoline this year — for the first time leaving out Brazilian sugar cane ethanol and other foreign fuels. But since the EPA isn’t disqualifying those fuels from being used by U.S. refiners to meet their advanced biofuel marks, some U.S. companies say their fuel could get edged out.
EPA also has proposed reducing the amount of advanced biofuels that refiners would need to blend into gas this year from 2.7 billion gallons to 2.2 billion. In all, it recommended a target of up to 15.21 billion gallons total for all biofuels, a sharp cut from the scheduled 18.15 billion. EPA sent its final proposed amounts to the White House on Aug. 22.
That proposal shocked the biofuels industry, as it marked a retreat from past Obama administration support for the mandate, which has served as a linchpin for development of renewable fuels.
The United States imported $4.2 billion of oil and gas products from Brazil in 2013, according to Commerce Department statistics. But the United States is importing less of it lately. The U.S. Energy Information Administration said imports fell by 40 percent to 242 million gallons last year — a mixture of a poor production season in Brazil and a ramp-up of domestically made biodiesel that meets the advanced biofuel standard.
"Our biggest complaint is the inefficiency of this shuffling that we have seen. And it has subsided, but there still is some occurring," Geoff Cooper, senior vice president with the Renewable Fuels Association, told the Washington Examiner.
If EPA maintains its proposed target for advanced biofuels, it could forestall U.S. investment in next-generation fuels, said Tim Cheung, vice president and research analyst with consulting firm ClearView Energy Partners LLC. That’s because refiners are still likely to import Brazilian sugar cane ethanol that can be cheaper than domestic options.
"To the extent that the fuel industry would continue to import Brazilian ethanol even in the rollback of the advanced target, that could deter other advanced biofuel development," Cheung told the Examiner.
Bob Dinneen, president of the Renewable Fuels Association, told Platts that exports of U.S. ethanol could top 1 billion gallons under the EPA-proposed changes while curtailing investor interest in U.S.-made advanced fuels. Platts noted exports from January to June are at 416 million gallons, up 56 percent over the same period last year.
Even if the Renewable Fuel Standard is cut, other factors are driving the market for Brazilian sugar cane ethanol and even domestic advanced biofuel manufacturing.
Many U.S. companies have project-specific contracts with advanced biofuel-makers, Cheung noted, and the airline industry a big player. The Defense Department also has a number of initiatives aimed at building domestic advanced biofuel capacity. And California’s gasoline standard aims to reduce the state’s transportation-sector carbon intensity by 10 percent by 2020.
The standard gives Brazil’s product a better greenhouse gas rating than corn ethanol, and as such, California has become a huge importer. Between 2010 and 2013, the state brought in 20.6 percent of U.S. oil and gas imports from Brazil, accounting for $5.8 billion, according to Commerce Department statistics.
Even accounting for deforestation and emissions from shipping, Brazilian sugar cane ethanol is still rated cleaner than domestic corn ethanol under California’s system. And some environmental groups now say corn ethanol is worse for the climate than gasoline because of the energy-intensive process and land-use changes necessary to make it. While California’s standard may be the future for Brazil’s ethanol, advanced biofuels manufacturers are still lobbying to get EPA to scuttle its cuts, with Brazil touting its fuel’s lower greenhouse gas emissions rating.
"I think that obviously we don’t want to see these volumes reduced. Nobody does," said Leticia Phillips, North American representative for Brazilian sugar cane ethanol industry group UNICA.
Although environmental groups view Brazilian sugar cane ethanol more favorably than corn, they’re not willing to give it a free pass. Much of the problem rests with the way the EPA standard is structured, said Emily Cassidy, a biofuels research analyst with the Environmental Working Group.
"The issue with the ethanol trading that’s going on is that emissions are not something that just happens in one country and then they go away. Carbon emissions are a global issue," she told the Examiner. "Trading up ethanol to satisfy carbon emissions standards is kind of like rearranging deck chairs on the Titanic."
By Zack Colman | September 8, 2014 | 5:00 am
