Brazilian producers say EPA proposal would violate trade rules, raise prices

Source: Amanda Peterka, E&E reporter • Posted: Thursday, July 18, 2013

Brazilian producers of sugar cane ethanol are warning that a U.S. EPA proposal would disrupt U.S.-Brazil ethanol trade, would complicate efforts to meet domestic biofuel goals and might violate international trade rules.

EPA is proposing to retroactively place foreign ethanol producers under the same requirements as importers of renewable fuel, regardless of whether foreign producers generate credits associated with the renewable fuel standard. The proposal, which has largely flown under the radar, was tucked into a large package of amendments that the agency proposed for the federal biofuel policy in mid-June.

In comments to EPA submitted this week, the Brazilian Sugarcane Industry Association (UNICA) said that the rule would impose significant costs on Brazilian ethanol producers and force them to look for other markets elsewhere in the world.

“EPA should not take unnecessary measures that seek to address an aspect of a problem that does not even exist and will only result in burdens without benefits at the expense of achieving the Congressionally-mandated volume requirements for advanced biofuels,” UNICA said.

By statute, EPA each year sets a level of advanced biofuels — those that don’t use corn starch as a feedstock — that must be blended into the nation’s petroleum-based fuel supply. The agency allows that advanced bucket to be filled by a combination of cellulosic biofuels, biodiesel and other advanced fuels.

Because cellulosic fuels, or those made from plant-based materials, have taken off more slowly than expected in the United States, EPA has for years allowed Brazilian sugar cane ethanol and biodiesel to backfill the nation’s advanced requirements. This year, EPA expects that Brazilian producers will have to provide 666 million gallons of its proposed 2.75-billion-gallon advanced biofuel target.

In previous years, Brazilian ethanol facilities have produced sugar cane fuel and then transported it in rail cars and trucks to shipping terminals. The ethanol, though, doesn’t qualify for credit under the renewable fuel standard until it has been given additives, which typically happens in an intermediate point in the Caribbean — after the ethanol leaves Brazil but before it arrives in the United States.

Because Brazilian ethanol producers don’t receive credit for their fuel, they are excluded from most U.S. renewable fuel regulations. Instead, importers of the fuel located in the United States must comply with the requirements.

EPA has proposed to place various bonding, registration, record-keeping, auditing, segregation and evaporative loss requirements on the Brazilian ethanol producers regardless of whether they actually generate credits that can be traded under the renewable fuel standard program. In its proposed rule released June 14, the agency said that the requirements would reduce the possibility of fraud.

“EPA must be able to evaluate the feedstocks and processes used to produce the renewable components of the fuel,” the agency said. “This is a particular challenge for fuel produced at foreign facilities. … Furthermore, significant opportunity for fraud and non-compliance with the regulations exists where EPA is not able to ensure that [Renewable Identification Numbers] entering the U.S. are valid, and where enforcement of the regulations may be hampered due to a facility’s foreign location.”

The Brazilian sugar cane industry says it believes that the requirements would pose “potentially insurmountable challenges.” In its comments filed Monday with the agency, UNICA said that it believed the proposed action runs up against World Trade Organization rules by discriminating against imports and restricting trade.

Further, UNICA said that the costs associated with complying with the requirements would be detrimental for Brazilian ethanol producers.

The requirements “will prove extraordinarily challenging for ethanol producers and, in many instances, may prove infeasible as a practical and pragmatical matter,” UNICA said.

The proposed segregation of fuels from individual producers required under the rule would be nearly impossible given that ethanol produced at different locations in Brazil travels on common infrastructure, UNICA said. Subjecting that ethanol to limits on evaporative losses and forcing companies to purchase credits for those losses would also be “burdensome” given that the ethanol must travel a long way to get to the United States, the association said

Bonding requirements would further lock up capital that the ethanol facilities are expecting to expand their operations, UNICA said.

Leveling playing field?

This is the first time in six years that the Brazilian sugar cane industry has objected to a proposed amendment to EPA’s renewable fuel standard program. UNICA, which says there is no evidence that Brazilian ethanol producers have defrauded the U.S. government, warned that the proposed action could drive the country’s ethanol producers to seek markets elsewhere in the world.

“The associated significant and unnecessary increase in compliance costs will almost certainly have the effect of shifting production toward other markets and reduce imports to the United States,” as well as increase the price of renewable fuel credits, UNICA said.

If Brazil pulls back its exports, the United States runs the risk of not meeting the overall advanced biofuel requirements set out in the renewable fuel standard. U.S. ethanol trade groups, however, cheered the proposal from EPA.

“The proposed revisions would level the playing field in terms of regulatory oversight, and provide greater assurance that foreign-produced fuels are meeting all pertinent regulatory requirements,” Bob Dinneen, president and CEO of the Renewable Fuels Association, said in a comment this week to EPA.

The Renewable Fuels Association and Growth Energy, two prominent U.S. ethanol trade groups, have previously called on EPA to reduce its overall advanced pool so as not to rely on exports to meet domestic biofuel goals. The import of Brazilian fuel, which is offset by exports of U.S. conventional ethanol to Brazil, is “economically absurd” and results in transport-related greenhouse gas emissions, they say (Greenwire, April 9).

EPA is also weighing several other amendments to the renewable fuel standard in its recent proposed action, including opening up the standard’s benefits to advanced biofuels made from corn kernel fibers, renewable diesel, electricity and naptha made from landfill gas, and butanol made from corn starch (E&ENews PM, May 21).

The agency has received 117 comments on its proposed rule. It did not grant a request from UNICA to extend the 30-day comment period.

|