Energy Policy Affects Ethanol Trade

Source: By DANIEL LOOKER, • Posted: Thursday, September 3, 2015

A new study from USDA’s Economic Research Service looks at how the U.S. became the planet’s largest ethanol exporter and some of the challenges facing future biofuel trade.

“Since 2011, the United States has emerged as the leading ethanol exporter; however, declining gasoline prices in the last quarter of 2014 highlights potential challenges to future exports,” writes Jayson Beckman, author of “Biofuel Use in International Markets: The Importance of Trade.

Beckman divides global biofuel production into two phases, one of rapid growth and the second, current slow growth phase.

“Global biofuel production grew rapidly from 2001 to 2013. For the largest producers—the United States, Brazil, and the EU—biofuel production increased 462 percent; however, most of the rapid growth was before 2011,” Beckman found. “Indeed, production of biofuels can broadly be examined over two phases. In the first phase (pre-2011), biofuel production and consumption rapidly expanded; in the second phase (post-2011), biofuel production continued to grow but at a much slower rate. Moderating prices, along with the saturation of the corn ethanol market in the United States, increased the importance of energy policies as a way to help sustain biofuel production and consumption during this second phase.”

Government policies could help or hurt demand for U.S. ethanol, according to Beckman.

“Along with market forces, policies can affect future U.S. biofuel trade,” the report says. “If the blending rate in Brazil continues to increase (as it has recently), less Brazilian ethanol will be available to compete with the United States on the global market. At the same time, Brazil could continue to import U.S. ethanol to help meet its mandate. In addition, U.S. biofuel policies could affect the future of U.S. biofuel trade. For example, reducing the amount of ethanol that can be derived from corn in the U.S. [renewable] fuel mandate could potentially lead to reduction in U.S. ethanol production infrastructure in the long run, which could limit the availability of ethanol for exports.”

The full report can be found here.