The United States produced more than 13 billion gallons of corn ethanol in 2012 and is expected to produce a similar total in 2013. Where does it all go? Some is exported to Brazil and the European Union, but most goes into our fuel tanks. According to the Energy Information Administration, Americans burned 134 billion gallons of gasoline that contained 12.87 billion gallons of ethanol in 2011.
Those figures would place the average ethanol content (by volume) of a gallon of gasoline sold in the United States at about 9.6%. The good news is that the Renewable Fuel Standard, or RFS, has successfully met its goal of displacing 10% of gasoline consumption. The bad news is that the country has bumped up against the dreaded Blend Wall, or a saturated market for ethanol.
It is bluntly obvious that the current RFS cannot provide the help domestic producers urgently need. Luckily, one quick fix is at the Environmental Protection Agency’s (EPA) disposal: a simple increase in ethanol blends from 10% to 15%. In 2011 the EPA even approved E15 for use in car models from 2001 onward but failed to enact proper labeling requirements for blenders — effectively dismissing the idea. Here are four reasons action is desperately needed.
1. Economic catalyst
When the RFS became law in 2005, it was easy for critics to muffle the optimism for a future ethanol industry. Some critics viewed government involvement in biofuels as a death sentence, not to mention the “outrageous” goals of replacing any sizable amount of the country’s oil imports, which were then at an all-time high.
By the end of 2012 — a mere seven full years later — the ethanol industry evolved from a marketplace dependent on government policies into one being held back by them. Irony kills.
Renewable Fuels Association CEO Bob Dinneen spoke sharply to critics of the industry in his annual address at the National Ethanol Conference last week. According to the RFA, the ethanol industry supported more than 382,000 total jobs, contributed $43 billion to GDP, and saved American consumers $30 billion in income in 2012.
2. Capacity trumps production
Domestic producers are operating at less than 88% capacity, with few destinations — or incentives — for extra production. Given current market conditions, the operational capacity is expected to fall further, as facilities react to corn inventories decimated by last year’s drought. Leading producers such as POET and Archer Daniels Midland Company (NYSE:ADM) are just two companies raising prices or idling capacity. At last count the number of idled facilities stood at 34, up from just 26 in September.
Thanks to the lack of sugar feedstock, last August was the first month since December 2009 in which the country experienced a net import of ethanol. Although net imports are expected to continue until corn production rallies this summer, the idling acts as a positive feedback that will compound the overcapacity problem. Archer Daniels Midland, POET, and BioFuel energy are all taking advantage of slower production to upgrade several facilities. The enhancements will not only allow sorghum to be used in lieu of corn but will also increase efficiency and therefore capacity.
3. Predatory overseas markets
In 2011, export revenues hovered near $1 billion — an explosive turnaround from the nearly $1.6 billion in imports in 2006. Higher sugar prices in Brazil served as a major driving force in domestic ethanol’s attractiveness, which quickly became the world’s lowest-cost biofuel in 2011. Now the American ethanol industry is in danger of losing international competitiveness that took years to build. Brazil and Europe haven’t exactly been shy about kicking Uncle Sam while he’s down, either.