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Biodiesel, advanced biofuel and cheap ethanol imports

At the three-way intersection of unsubsidized biodiesel, slowed domestic ethanol production and imported cane fuel
By Ron Kotrba | December 12, 2012

My colleague Susanne Retka Schill, the contributions editor at Ethanol Producer Magazine, published an article this week that I share with you below. I think it’s fair to say that ever since RFS2 was enacted, and EPA determined biodiesel was an advanced biofuel by virtue of its greenhouse gas emissions reductions compared to fossil diesel, the biodiesel industry has looked upon the advanced biofuel bucket in RFS2 as a way to potentially grow beyond the relatively limited biomass-based diesel carve-out. But how can the more expensive domestic biodiesel compete with cheap ethanol imports from Brazil at half the cost? I found Sue’s piece interesting and thought-provoking, particularly the notion that a reinstatement of the $1 per gallon biodiesel tax credit would provide a growth opportunity for domestic ethanol production. Please share your comments with us and, as always, we look forward to hearing from you.

Ethanol imported as advanced biofuel competes with biodiesel

By Susanne Retka Schill, Ethanol Producer Magazine

Ethanol imports from Brazil have surged into the U.S. in recent months, University of Illinois ag economists Scott Irwin and Darrel Good point out, but not because it is cheap relative to [U.S. corn-based] ethanol. Rather, it is a cost-effective way of meeting the advanced biofuel requirement in the renewable fuel standard (RFS). And by that, they mean it is cheaper than biodiesel.

The two economists offered their analysis in the Dec. 7 issue of FarmDocDaily, “What’s Driving the Surge in Ethanol Imports?” 

They note that Brazilian ethanol, delivered to the U.S. Gulf was $2.85 on Nov. 29, when U.S.-produced ethanol at Gulf terminals was $2.60 per gallon. That same day CBOB was $2.52 per gallon—a 33 cent spread. That is far more favorable than the spread between ultra-low sulfur diesel at the Gulf of $3.03 per gallon and B100 at $4.08, a spread of $1.05.

“One final conversion must be done to make a fair comparison,” the analysis continues. “Since biodiesel is worth 1.5 gallons of ethanol in the RFS math, we need to divide the net profit for diesel blending by 1.5 to arrive at a net profit of -$1.05/1.5 = -70 cents per gallon. This makes biodiesel almost twice as expensive as imported Brazilian ethanol when it comes to meeting the advanced RFS mandate. And that is the reason why Brazilian ethanol imports are surging into the U.S. during recent months.”

With Brazil ethanol imports adding to blend wall pressures, the authors also note that a reinstatement of the $1 per gallon tax credit for biodiesel blend would provide more room for U.S.-produced ethanol.

 

1 Responses

  1. Roman Wolff

    2012-12-12

    1

    This concept has been discussed in the refining groups for several years. The "tax penalty" on Brazilian ethanol kept it at bay for some time. Drought in Brazil reduced ethanol availability in 2011 so we did not see the flood start until this year. I have not heard if Brazilian sugar cane / ethanol producers have gone through the process in the US and have their "pathway" approved to be able to generate RINs. It would be interesting to see their ILUC and how it compares with the factors applied to US corn ethanol. There are 3 problems: with the E10 blend wall, Brazilian ethanol imports will displace US corn ethanol (job losses); if the RINs are accepted, Brazilian ethanol will displace biodiesel (job losses), lastly, there will be a net reduction of renewable content in US liquid fuel increasing pollution and dependence on foreign oil...Strategically, all bad for the US. Let's see what we can do about it.

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