EPA urged to halt ‘ethanol shuffle’ with Brazil

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, April 10, 2013

As U.S. producers struggle to bring advanced biofuels to market, the United States has relied on imported Brazilian sugar cane ethanol to meet the federal renewable fuel standard’s targets.

In exchange, U.S. companies have exported conventional corn ethanol to Brazil to replace the lost sugar cane fuel.

It’s called the “ethanol shuffle,” and it began because U.S. EPA says sugar cane ethanol achieves the greenhouse gas reductions required of advanced biofuels under the renewable fuel standard. Corn ethanol falls short, the agency said.

It’s a quirk of the 2007 RFS that doesn’t sit well with the U.S. ethanol industry, which argues that EPA hamstrings the U.S. market with flawed greenhouse gas models. So the ethanol industry is asking EPA to reduce its targets for advanced biofuel production.

“This ‘ethanol shuffle’ is not only economically absurd, but as EPA acknowledges, it also ‘… engenders additional transport-related emissions,'” the Renewable Fuels Association told EPA as the agency ended a comment period yesterday on its 2013 biofuel targets.

EPA this year has proposed an advanced biofuel standard of 2.75 billion ethanol-equivalent gallons to be blended into the nation’s motor fuel supply. The agency is expected to issue a final rule in coming months.

In that advanced standard, 1.92 billion of those gallons would come from biodiesel — made from animal fats, used cooking oil or soybean oil — that has been produced in the United States. Fourteen million gallons would come from cellulosic biofuels, a fuel made from plant-based materials like agricultural residues, switch grass and municipal solid waste. Other advanced biofuels that EPA expects can be produced in the United States would contribute 150 million gallons.

That leaves 666 million gallons that will need to come from imported sugar cane ethanol.

Trade of that magnitude with Brazil isn’t possible this year, the renewable fuels trade group argues, given a new Brazilian policy increasing the amount of ethanol required to be blended into the nation’s fuel supply from 20 percent to 25 percent. The change, which takes effect May 1, is expected to require an additional 800 million to 1 billion gallons of ethanol annually.

EPA argues the United States can boost imports of sugar cane ethanol by exporting more corn ethanol Brazil’s way.

But the slow pace of U.S. sugar cane imports to date this year also raises red flags, the trade group says. Imports are already far behind what they would need to be to meet the 666-million-gallon figure at the end of the year.

Partly at fault is a new European tariff of $83.20 a metric ton on U.S. ethanol imports that is driving Brazilian producers to export ethanol to the European Union instead, the trade group says.

“Given that U.S. ethanol is now effectively blocked from the E.U. market, it is expected that E.U. imports of sugar cane ethanol from Brazil will need to increase to meet demand previously satisfied by U.S. ethanol,” the association said. “Accordingly, this is likely to reduce the amount of Brazilian sugar cane ethanol that might otherwise be available to the U.S. market.”

The group further argues that EPA overestimated the amount of cellulosic biofuel that will be produced this year and that the level of sugar cane imports will be near 700 million gallons. The association wants EPA to lower both the cellulosic target and the advanced biofuel target to “approximate the uncertainty” inherent this year in Brazilian sugar cane imports.

Oil industry groups are also asking that EPA reduce the cellulosic biofuel levels in the standard, but for different reasons. They say EPA has consistently proposed overaggressive targets and has fined companies for not blending fuel that does not yet exist in the market.

The American Coalition for Ethanol, a South Dakota-based trade group, weighed in on the Brazil trade but didn’t go as far as calling for a reduction in the level of advanced biofuels. ACE’s executive director, Brian Jennings, called the ethanol shuffle a “thorny issue.”

“Under the RFS, Brazilian sugar cane ethanol is given a competitive advantage in the U.S. as an advanced biofuel via generous life-cycle GHG reduction estimations,” Jennings said, “while U.S. cornstarch ethanol is prohibited through statute, not life-cycle GHG science, from qualifying as an advanced biofuel.”

Brazil is urging EPA to maintain the ethanol trade between the two countries. In a letter, Ricardo De Gusmão Dornelles, director of renewable fuels in Brazil’s mining and energy department, assured EPA that his country can produce enough sugar cane ethanol to make up the 666-million-gallon shortfall.

Although Brazil’s sugar cane harvest has decreased in the last few years, Dornelles projected that the harvest would be substantially higher in the 2012-2013 growing season because of recent investments in sugar cane production and improved growing conditions. Dornelles said he was also optimistic about the initial projections of the following year.

“Ethanol trade must be stimulated, not restricted,” Dornelles told EPA. “Sugar cane ethanol has played a key role in helping the United States achieve its energy security and GHG emissions reduction goals. … We are confident that Brazilian sugar cane ethanol producers can even surpass EPA’s projections for sugar cane ethanol exports to the United States in 2013.”