Shell is Taking Aim at U.S. Ethanol Market

Posted on February 2, 2010. Filed under: Advanced Biofuel, Blender's Tax Credit | Tags: , , |

By Steve Gelsi
MarketWatch
February 1, 2010

While a weak sugar harvest this year in Brazil may put a damper on ethanol exports, Royal Dutch Shell is taking aim both at the U.S. and European markets in its new joint venture with sugar giant Cosan.

Royal Dutch Shell executive Mike Williams said the oil major hopes to increase output from its Cosan joint venture to more than a billion gallons of ethanol a year, from about 500 million gallons now.

The sugar-based fuel could then be shipped to the U.S. or Europe, Williams said.

The new joint venture announced Monday would also target 792 million gallons of ethanol to the domestic Brazilian market.

“Our intention is to grow this business into a worldwide opportunity,” Williams said, according to a report by Dow Jones Newswires.

The prospects of more Brazilian ethanol in the U.S. hit a sore point with lobbying groups that support domestic supplies, already suffering from slack demand for car fuels.

Any imports into the U.S. would face an import tariff of 54 cents a gallon. Taking the sting out the cost, however, is a blenders tax credit of 45 cents a gallon offered to distributors who mix gasoline with ethanol.

Christopher Thorne, a spokesman with pro-U.S. ethanol group Growth Energy, said Brazil has been pushing to get the country’s sugar-based ethanol reclassified as an advanced biofuel to help circumvent the existing tariff.

Sugar futures touched a 29-year high of 30.4 cents a pound on Monday, before falling back, on expectations of a weak harvest after heavy rains.

Plinio Nastari, president of Brazilian consultancy Datagro, told Reuters that fungal disease is expected to hurt sugar output.

“This is the perfect illustration of why it makes no sense to become dependent on any foreign source of energy — whether it’s Middle East oil or Brazilian sugarcane ethanol,” the group said. “Between high sugar prices and a sugarcane crop shortage, Brazil can’t meet its own ethanol needs — let alone the ethanol needs of the United States.”

The U.S. imported about 12 million gallons of Brazilian ethanol in November, according to the Renewable Fuels Association,

“Brazil is having a supply issue themselves, and may be ready to import U.S. ethanol despite the 25% tariff Brazil puts on imports of ethanol,” said Matt Hartwig, a spokesman for the Renewable Fuels Association.

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Independent U.S. Ethanol Producers Will Not Survive as Price Takers

Posted on September 5, 2009. Filed under: Advanced Biofuel, Blender's Tax Credit, Hydrous Ethanol | Tags: , , , , , , |

Chicago Board of Trade Dictates Price of Corn and Oil Companies Control Price of Ethanol
By Brian J. Donovan
July 28, 2009

The issue is whether the proper development of an advanced biofuel industry in the United States is feasible when: (a) independent ethanol producers in the U.S. are at the mercy of volatile commodities markets for feedstock; and (b) the price of ethanol is controlled by the oil companies.

Commodity Market Volatility
The corn-to-ethanol business is highly dependent on corn prices. The price paid for corn is determined by taking the Chicago Board of Trade futures price minus the basis, which is the difference between the local cash price and the futures price. The more corn-to-ethanol contributes to our nation’s energy supplies, the more it drives up corn feedstock prices and consequently its own cost. While increased ethanol production is partially responsible for the increase in corn prices, the main driving factors in the run-up in corn prices are: rising demand for processed foods and meat in emerging markets such as China and India, droughts and adverse weather around the world, a decrease in the responsiveness of consumers to price increases, export restrictions by many exporting countries to reduce domestic food price inflation, the declining value of the dollar, skyrocketing oil prices, and commodity market speculation. It is important to note that excessive speculation is not necessarily driving corn prices above fundamental values. Speculation can only be considered “excessive” relative to the level of hedging activity in the market.

The government’s announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn on July 23, 2009, giving life to a market that appeared to be sinking toward $3 a bushel. September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4 a bushel. Traders see the market moving toward the $3.50-$3.75 a bushel range in the December contract. Ethanol futures were also higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.

Dr. David J. Peters, Assistant Professor of Sociology – College of Agriculture and Life Sciences at Iowa State University, has developed a calculator to determine the long-term economic viability of proposed ethanol plants. Dr. Peters was surprised to learn how sensitive the bottom line is to small changes in corn and ethanol prices. According to Dr. Peters, a typical 100 MGY corn ethanol plant built in 2005 (financing 60 percent of its capital costs at 8 percent interest per annum for 10 years, with debt and depreciation costs of $0.20 per gallon of ethanol produced, and labor and taxes at a cost of $0.06 per gallon) will lose money in the current market:

At $3.25 corn, the ethanol break even price is $1.76 per gallon.
At $3.50 corn, the ethanol break even price is $1.82 per gallon.
At $3.75 corn, the ethanol break even price is $1.88 per gallon.
At $4.00 corn, the ethanol break even price is $1.94 per gallon.

Oil Company Monopoly
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel (in the form of E85). The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 2,175 of the 161,768 retail gasoline stations in the United States (1.3%) offer E85. These E85 fueling stations are located primarily in the Midwest. According to the U.S. Department of Energy, each 2% increment of U.S. market share growth for E85 represents approximately 3 billion gallons per year of additional ethanol demand.

While alleging an oversupply of corn ethanol, U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of advanced biofuel (“non-corn ethanol”) every month without having to pay the 54-cent-per-gallon tariff.

Oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline. Many states, e.g., Florida, allow only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. Independent U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.

In short, independent U.S. ethanol producers do not have bargaining power on either end of the supply chain. Corn ethanol producers are price takers. A comprehensive advanced biofuel industry development initiative is required to disrupt the status quo and establish fair and healthy competition in the marketing of advanced biofuel blends in our nation.

The Louisiana Solution
Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous advanced biofuel pilot program. On June 21, 2008, Louisiana Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative (“Act 382”). Act 382, the most comprehensive and far-reaching state legislation in the U.S. enacted to develop a statewide advanced biofuel industry, is based upon the “Field-to-Pump” strategy.

It is the cost of the feedstock which ultimately determines the economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an advanced biofuel producer to fall victim to rising feedstock costs. Non-corn feedstock is acquired under the terms of an agreement analogous to an oil & gas lease. It is not purchased as a commodity. A link exists between the cost of feedstock and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of advanced biofuel. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.

Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities (“SABMFs”) in the United States capable of operating 210 days out of the year. Each SABMF has a production capacity of 5 MGY. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. Each SABMF utilizes feedstock from acreage adjacent to the facility. The distributed nature of a SABMF network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development. The sweet sorghum bagasse is used for the production of steam. Vinasse, the left over liquid after alcohol is removed, contains nutrients such as nitrogen, potash, phosphate, sucrose, and yeast. The vinasse is applied to the sweet sorghum acreage as a fertilizer.

Act 382 focuses on growing ethanol demand beyond the 10% blend market. Each SABMF produces advanced biofuel, transports the advanced biofuel by tanker trucks to its storage tanks at its local gas stations and, via blending pumps, blends the advanced biofuel with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each SABMF captures the blender’s tax credit of 45-cents-per-gallon to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. The inaccuracy and manipulation of splash blending may be eliminated by precisely blending the advanced biofuel and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.

Hydrous advanced biofuel, which eliminates the need for the costly hydrous-to-anhydrous dehydration processing step, results in an energy savings of 35% during processing, a 4% product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. On February 24, 2009, the U.S. EPA granted a first-of-its-kind waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. Under the test program, variable blending pumps, not splash blending, will be used to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. The Louisiana Department of Agriculture & Forestry Division of Weights and Measures will conduct the vehicle drivability phase of the test program. Fuel economy and engine emissions testing will be conducted by Louisiana State University in Baton Rouge, Louisiana. Sixty vehicles will be involved in the test program which will last for a period of 15 months.

Louisiana Act 382 ensures: (a) ethanol producers in the U.S. are no longer at the mercy of volatile commodities markets for feedstock; (b) farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops (c) the price of ethanol is no longer controlled by the oil companies; (d) feedstock supply risk, the burden on local water supplies, and the amount of energy necessary to process advanced biofuel are minimized; and (e) rural development and job creation are maximized. Furthermore, due to the advantages of producing advanced biofuel from sweet sorghum juice, the use of sweet sorghum bagasse for the production of steam in the SABMF, and the energy savings of processing hydrous advanced biofuel, the Louisiana solution reduces field-to-wheel lifecycle GHG emissions by 100%.

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Why the Ethanol Import Tariff Should be Repealed

Posted on March 24, 2009. Filed under: Advanced Biofuel, Hydrous Ethanol | Tags: , , , , , , |

Why the Ethanol Import Tariff Should be Repealed

__________________

 

Repeal Would Enable Ethanol Demand to Move Beyond Being Just a Blending Component

in Gasoline to a Truer Transportation Fuel Alternative

 

 

Gainesville, FL (August 3, 2008) – The question is whether the 54 cents per gallon tariff the United States places on imported ethanol should be eliminated when:

(a) U.S. farm acreage is being diverted from the production of food crops to energy crops and record high corn prices are impacting the agriculture, food and beverage industries;

(b) American families and businesses are paying record high prices for fuel;

(c) U.S. oil companies are using ethanol merely as a blending component in gasoline rather than a true alternative transportation fuel;

(d) The renewable fuels standard (“RFS”) requires that gasoline sold in the United States contains a renewable fuel, such as ethanol, and the expanded RFS specifically requires the use of an increasing amount of “advanced biofuels” – biofuels produced from feedstocks other than corn; and

(e) U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

 

The Ethanol Import Tariff of 1980
Since 1978, in order to stimulate an increase in U.S. ethanol production and consumption, producers of ethanol-blended gasoline have received a subsidy, or tax credit. This incentive, known as the Blender’s Tax Credit, is currently valued at 51 cents per gallon of pure ethanol used in blending.

 

Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cents per gallon tariff on imported ethanol. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.

 

Food Prices

Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year.  In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.

                                                                      

Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.

Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.

 

Increased demand for farm commodities could outstrip existing production capabilities, straining food supplies and boosting prices. Moreover, population growth and rising incomes are altering global food consumption patterns and boosting the demand for food, further supporting higher prices. Demand for bio-fuels, especially in the United States, has led to a decline in corn inventories, despite a record corn crop. This increase in U.S. corn acres limited the production of other crops.

 

Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

 

 

Fuel Prices

Gasoline is one of the major fuels consumed in the United States and the main product refined from crude oil. Consumption in 2007 was about 142 billion gallons, an average of about 390 million gallons per day and the equivalent of about 61% of all the energy used for transportation, 44% of all petroleum consumption, and 17% of total U.S. energy consumption.

 

In January, 2002, the price of oil was US$18.68 per barrel. As of the date of this article, the price of oil is US$125.10 per barrel. In January, 2002, the average U.S. retail price for a gallon of regular grade gasoline was US$1.11. As of the date of this article, the price for a gallon of regular grade gasoline is US$3.96.

 

The price of crude oil is set through the interaction of world demand and supply. The following factors are driving up crude oil and gasoline prices: (a) increased world demand for crude oil as witnessed by the sharp increase in imported crude oil by China and India; (b) instability in oil-producing regions, including Iraq and Nigeria’s delta region; (c) limited U.S. refinery capacity to supply gasoline; (d) a decline in the value of the dollar compared to other currencies has increased the dollar price of oil on futures markets; (e) the continuing possibility of a supply disruption from natural disasters like Hurricanes Katrina and Rita in 2005; (f) speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, are causing an unacceptable upward pressure on prices; and (g) governments in developing countries are subsidizing energy, blunting the incentive to conserve by keeping prices low. China is expected to spend about $40 billion this year in subsidies. Venezuela and Egypt are forecast to spend more than 5 percent of their total economic output on subsidies this year.  As a result, while demand for oil in the developed world is expected to fall about 1 percent this year, consumption in emerging and developing countries is forecast to rise 3 percent, according to estimates by I.M.F. economists.

 

World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd.  It is forecast to grow by 1.5% to 87.3 mbd in 2008. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile.

 

Higher prices for crude oil tend to translate directly into higher prices for gasoline. Currently, crude oil accounts for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil’s share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%.

 

On July 31, 2008, Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the biggest quarterly profit ever by any U.S. corporation.On August 1, 2008, Chevron reported record oil prices drove second-quarter earnings up 11 percent to $5.98 billion, its highest-ever profit.

 

Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

 

Lack of Ethanol Infrastructure

RU.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel. There is not an oversupply of ethanol. The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 1,528 of the nearly 180,000 (or 8/10 of 1%) retail gasoline stations in the United States offer E85. These E85 fueling stations are located primarily in the Midwest.

 

While alleging an oversupply of corn ethanol, U.S. oil companies still import thousands of barrels of ethanol from foreign sources every month without having to pay the 54 cents per gallon import tariff. Can ethanol provide any relief at the pump to the U.S. driving public?  Renergie, Inc. believes that ethanol can significantly lower the pump price if it is produced from a non-corn feedstock and marketed directly by the producer as E85.  Ethanol must compete against, rather than be an inexpensive blending component in, gasoline.

 

Renergie’s “field-to-pump” strategy is to produce ethanol locally and market ethanol locally. The day of building 100 MGY corn-to-ethanol plants in the Midwest corn belt, for the sale of E10 to consumers on the U.S. East Coast and West Coast, is over!  Renergie is focusing its efforts on locally growing ethanol demand beyond the 10% blend market.  Initially, Renergie will directly market E85, a blend of 85 percent ethanol and 15 percent gasoline for use in FFVs, to local fuel retailers under the brand Renergie E85.  Renergie’s unique strategy is to blend fuel-grade ethanol with gasoline at the gas station pump.  Currently, ethanol providers blend E10 and E85 at their blending terminal and transport the already blended product to retail gas stations.  Once state approval is received, Renergie’s variable blending pumps will be able to offer the consumer a choice of E10, E20, E30 and E85.  A recent study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain autos. Via capturing the Blender’s Tax Credit, Renergie will be able to ensure that gas station owners are adequately compensated for each gallon of fuel-grade ethanol that is sold via Renergie’s variable blending pumps at their gas stations.

 

Renergie will further grow ethanol demand beyond the 10% blend market by being the first company to test hydrous ethanol blends in the U.S. As provided for in Act No. 382, the use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by Renergie for test purposes will be permitted on a trial basis in Louisiana until January 1, 2012.  The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

 

Imported ethanol is especially important for coastal states since almost all domestic ethanol is produced in the Midwest and is costly to transport because it cannot be moved through a pipeline. Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to: (a) move ethanol demand beyond being just a blending component in gasoline to a truer transportation fuel alternative; and (b) create the required fueling infrastructure. 

 

Renewable Fuels Standard (“RFS”)

The Energy Policy Act of 2005 established the Renewable Fuels Standard (“RFS”) which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel.  The Energy Independence and Security Act of 2007 (“H.R. 6”), which became law on December 19, 2007, sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022.  Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from advanced biofuels. The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn.  Brazil uses sugarcane as a feedstock for its ethanol production.

 

The CBI Loophole

U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

 

The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. The CBI allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.-Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador.

 

Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58 and P.L. 110-140. In the United States, fuel ethanol is largely domestically produced. A value-added product of agricultural commodities, mainly corn, it is used primarily as a gasoline additive. To promote its use, ethanol-blended gasoline is granted a significant tax incentive. However, this incentive does not recognize point of origin, and there is a duty on most imported fuel ethanol to offset the exemption. But a limited amount of ethanol may be imported under the CBI duty-free, even if most of the steps in the production process were completed in other countries. This duty-free import of ethanol has raised concerns, especially as U.S. demand for ethanol has been growing. Further, duty-free imports from these countries, especially Costa Rica and El Salvador, have played a role in the development of the U.S.-Central America Free Trade Agreement (CAFTA).

 

The main steps to ethanol production in the U.S. are as follows:

a. The feedstock (e.g., corn) is processed to separate fermentable sugars.

b. Yeast is added to ferment the sugars.

c. The resulting alcohol is distilled.

d. Finally, the distilled alcohol is dehydrated to remove any remaining water.

 

This final step – dehydration – is at the heart of the issue over ethanol imports from the CBI, as discussed below.

 

According to the United States International Trade Commission, the majority of all fuel ethanol imports to the United States came through CBI countries between 1999 and 2003.  In 2004, imports from Brazil to the United States grew dramatically, but in 2005, CBI imports again represented more than half of all U.S. ethanol imports. With an increase in ethanol demand in 2006 due to voluntary elimination of MTBE – a competitor for ethanol in gasoline blending –  imports grew dramatically, roughly quadrupling imports in any previous year. Most of this increase was in direct imports from Brazil. Historically, imports have played a relatively small role in the U.S. ethanol market. Total ethanol consumption in 2005 was approximately 3.9 billion gallons, whereas imports totaled 135 million gallons, or about 4%. Imports from the CBI totaled approximately 2.6%. In 2006, total imports represented roughly 13% of the 5.0 billion gallons consumed in 2006; ethanol from CBI countries represented roughly 3.4%. In 2007, total imports represented roughly 6% of U.S. consumption (6.8 billion gallons); ethanol from CBI countries represented roughly 3.6%.

 

As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap (approximately 3% in 2006). For 2006, the cap was about 270 million gallons, whereas about 170 million gallons were imported under the CBI in that year.

 

Dehydration plants are currently operating in Jamaica, Costa Rica, El Salvador, Trinidad and Tobago, and the U.S. Virgin Islands.  Jamaica and Costa Rica were the two largest exporters of fuel ethanol to the United States from 1999 to 2003. Despite criticisms in the U.S., new dehydration facilities began production in Trinidad and Tobago in 2005 and the U.S. Virgin Islands in 2007.

 

If there is such an over-abundant domestic supply of ethanol in the U.S., why are U.S. oil companies purchasing ethanol from foreign sources? As domestic ethanol consumption continues to grow, so will the volume of imported duty-free ethanol under this CBI loophole.

 

Conclusion

As discussed above, the Ethanol Import Tariff should be repealed for the following reasons:

(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products.  Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

 

(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

 

(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure. 

 

(d) The Energy Independence and Security Act of 2007 sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022.  Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn.

 

(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

 

At a time of record high gas prices, repeal of the 54 cents per gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.

 

U.S. oil companies, corn farmers and fertilizer producers are benefiting from the 54 cents per gallon import tariff on foreign ethanol at the expense of the average American consumer.At a time when our own government’s Federal Reserve Chairman is saying food inflation and fuel costs are contributing to our dangerous economic condition, working toward eliminating this barrier to free market competition is more needed than ever.

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan and Mr. Michael J. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

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    About

    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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