A rough road for Iowa’s ethanol industry?

Source: By John Steppe, The Gazette • Posted: Sunday, March 7, 2021

Pandemic, trade issues – and electric cars – present challenges

A Tesla Supercharger station is seen at the Coralville Hy-Vee in Coralville. (The Gazette)
A Tesla Supercharger station is seen at the Coralville Hy-Vee in Coralville. (The Gazette)

Seth Meyer has spent more than two decades in agricultural economics research, but he had never seen anything like what the ethanol industry experienced last year.“I was talking to somebody the other day that said, ‘In the summer, I had the same tank of gasoline in my car for three months,’” Meyer, the U.S. Department of Agriculture chief economist, said during an interview with The Gazette. “It was such an unusual circumstance.”

Iowa State University’s Center for Agricultural and Rural Development estimated coronavirus’ impact on the ethanol industry in 2020 to be about $2.5 billion.

Now, about a year after coronavirus first began to hinder the U.S. economy, the industry still is navigating challenging and uncertain times — including potential long-term dangers from electric vehicles, as Iowa’s U.S. Sen. Joni Ernst has warned.

The industry already faced challenges because of trade tensions and small-refinery exemptions granted under the Trump administration.

Coronavirus then put the industry in “really, really bad shape,” according to Iowa State economist Dave Swenson.

While many factors contributed to Iowa ethanol producers’ challenges, Meyer said ethanol’s comeback “is really going to be driven by motor gasoline consumption.”

In February 2020, Americans drove more than 275 billion miles, according to data from the U.S. Federal Highway Administration. In April 2020, that dropped to about 159 billion miles.

When people stopped driving, they stopped needing to buy gas and therefore stopped using ethanol.

In a matter of eight weeks, national fuel ethanol production dropped from about 1.1 million barrels to 537,000 barrels, according to U.S. Energy Information Administration data.

“We hit our lowest of the low in terms of everything from demand to emotional state,” said Monte Shaw, the executive director of the Iowa Renewable Fuels Association.

Ethanol producers then “slowly clawed their way back,” Swenson said.

The industry hardly is back to pre-pandemic levels of production, though.

Nationwide, ethanol producers produced 849,000 barrels of fuel ethanol in the week of Feb. 26, according to Energy Information Administration data. At that time a year ago, they produced 1,079,000 barrels.

Ingredion cut 35 positions in Cedar Rapids on Feb. 4 as it ceased ethanol production, instead turning on industrial starch production. Ten of the affected employees moved to other jobs at the Cedar Rapids factory.

Shaw said the Ingredion decision has been the exception, not the norm, among Iowa ethanol producers.

Opinions vary on how long it will take to get to pre-pandemic levels. Shaw anticipates a 2022 return to normal.

Swenson, however, doesn’t see it ever returning to pre-pandemic levels.

The Iowa State economist said ethanol “has probably reached peak production” well before the pandemic and has been “overproduced tremendously.”

At the same time, small-refinery waivers granted under the Trump administration’s EPA still have an ongoing impact, Meyer said. A “large supply” of credits that can be traded as part of the Renewable Fuel Standard remains, although the Biden administration’s EPA has not granted any new waivers.

“These policies absolutely have lasting effects,” Meyer said.

A change in foreign trade, Meyer said, could influence those projections.

Shaw is not optimistic about the trade market with China reopening considering the current tariffs in place.

“We definitely need to work with the Biden administration to see what we can do to open up some of the export markets we’ve lost,” Shaw said.

He is optimistic about new foreign markets, though.

“There is a tremendous amount of opportunity to grow ethanol demand around the world.”

Electric cars

Long term, ethanol faces another challenge with the proliferation of electric vehicles.

The United States’ electric vehicle stock, which includes both battery-electric and plug-in hybrid vehicles, has accelerated from about 290,000 in 2014 to about 1.45 million in 2019, according to a report from the Paris-based International Energy Agency.

General Motors announced a goal in January to no longer produce any gas or diesel-powered vehicles by 2035.

California Gov. Gavin Newsom enacted an executive order last September that requires all new cars and passenger trucks sold in the state to be zero-emission vehicles starting in 2035.

Swenson compared the incoming rollout of electric vehicles to the switch from flip phones to smartphones.

“Everybody had a reliable little flip phone that may or may not work if you drove down the interstate,” Swenson said. “Just 10 or 11 years ago, everybody started acquiring smartphones.”

Shaw prefers the comparison of Betamax versus VHS technology or Blu-ray versus HD DVD technology.

“I’m old enough to admit that there’s lots of times where I thought, ‘Well, this technology will beat that technology,’ and it didn’t for some reason,” Shaw said.

“Right now a lot of people think battery electric vehicles are the way to go, and what I’m saying is they may not be the way to go. But more accurately, they may not be the only way to go.”

As electric vehicles gain popularity, that means less ethanol-blended gas is going into fuel tanks.

Current research shows battery electric vehicles as a more carbon-efficient option than ethanol-powered vehicles.

Data from the U.S. Department of Energy’s Alternative Fuels Data Center says an electric car uses less than 4,000 pounds of carbon dioxide equivalent per year compared to more than 11,000 for a gasoline-powered vehicle — about a 75 percent difference.

The 4,000 number is lower in some states where electricity is cheaper, such as Iowa where it is less than 3,000 pounds of carbon dioxide equivalent annually.

A study published in the peer-reviewed Environmental Research Letters indicated corn-based ethanol has 46 percent lower carbon emissions as gasoline.

But Shaw disputed reports that suggest electric vehicles are more efficient, saying the scientists are giving “extra credit” to electric vehicle providers.

“If you cook the science books that way, then we’re in trouble,” Shaw said.

Shaw pointed to electric vehicles’ decreased performance in the cold during Iowa winters as a limitation of electric vehicles.

Rob Wozny, Alliant Energy’s senior product manager for electric transportation and innovative solutions, said he hasn’t experienced any issues driving an electric vehicle in minus-30 and minus-40 wind chill days in Iowa and Wisconsin.

“Just like any other technology, EVs do experience reduced range in extreme cold weather temperatures, but you still have decreased efficiencies with combustion technologies,” Wozny said.

He sees “tremendous potential for EVs in Iowa.”

“They’re cheaper to own and operate than combustion technology,” Wozny said.

“From a consumer standpoint, you have fewer service schedules or preventative maintenance that needs to be done on the vehicles, and you have fewer parts that can go bad and be replaced.”

Obstacles keeping more electric vehicles off the road, Wozny said, include a lack of vehicle inventory and Iowans’ familiarity with combustion-based vehicles.

“Once people get behind the wheel and actually drive and experience an electric vehicle, they have a different viewpoint and appreciation for what it actually is,” Wozny said.

“The EV range that’s currently available today is sufficient for the majority of drivers that are out there to be able to commute to and from work and run errands.”

The threat of electric vehicles for ethanol has caught the attention of many Iowa politicians.

Sen. Ernst penned an op-ed column sent to news outlets in February that said if the United States moved to all-electric cars, “say goodbye to Iowa-grown biofuel and the livelihoods of the hardworking folks who labor night and day to provide these clean fuel options.”

Gov. Kim Reynolds proposed legislation requiring all gas sold in Iowa to have at least 10 percent ethanol. The bill also would give the governor the option to up the requirement to 15 percent in four years.

The legislation faces fierce opposition from the Fuel Choice Coalition, a group of retailers including Casey’s and Kum and Go, that are concerned about an estimated $1 billion price tag for upgrading fuel infrastructure to comply with the law.

If it becomes a law, Swenson anticipates a “marginal” impact on the state’s ethanol industry.

“Just a small fraction of Iowans don’t burn gasoline with ethanol,” Swenson said.

Best-case scenario, Swenson said, is that the law has a “break-even” effect on the state’s economy because of the additional costs for retailers that would then get passed on to consumers by way of higher gas prices.

Shaw from IRFA acknowledged the limited impact of state-level action on an industry relying on national and international demand. He sees another opportunity coming from the legislation, though.

“Just like we export ethanol, we like to export ethanol policy,” Shaw said.

“When we prove that there’s a path forward — that here’s a policy recipe that works — then we hope that, hey, maybe Illinois takes notice.

“With Chicago and everything, they sell a lot more fuel in Illinois than we do.”

Meyer said policy changes also do not necessarily make an immediate impact. That includes federal action, such as the next Renewable Volume Obligation that determines how much ethanol will be blended into motor gasoline.

“Folks shouldn’t expect that when we get the long-overdue RVO for 2021 that’ll translate into ethanol production immediately,” Meyer said. “It takes a little bit of time for that policy to motivate a response.”

While not immediate, the new RVO still makes a big difference eventually.

“If we’re following (declining) motor gasoline consumption, it means you need increasing blend rates to have the same aggregate volumes that you started with,” Meyer said.

A report commissioned by IRFA said the ethanol industry accounts for about 37,000 jobs in Iowa and about 2 percent of the state’s gross domestic product.

ISU’s Swenson said those numbers overestimate ethanol’s impact on the Iowa economy. He believes ethanol accounts for closer to 7,500 jobs, excluding corn growers who “were already here” before the proliferation of ethanol production.

IRFA doesn’t “have the kind of research that you can present to a body of academic economists and justify those kinds of numbers,” Swenson said.

If there’s one thing for sure about the future of Iowa ethanol, it’s how little is certain, though.

“There remains a lot of questions,” Meyer said. “Do you drive to work? Does the family go on a vacation in a car or on a plane?”

Comments: 319-398-8394; john.steppe@thegazette.com