For several months now, the European ethanol-producing community has experienced a growing concern about ethanol imports. The estimated volume of ethanol/gasoline blends entering the EU last year reached 400,000 cubic meters (106 million gallons) or close to 10 percent of the EU fuel ethanol market. Most of this product, about 75 percent, comes from the U.S.A.; the rest from Brazil.
This increased flux of ethanol to the EU occurred for a number of reasons. A very important one is certainly the blendwall that slows down U.S. domestic demand and forces producers to find other markets. Also helpful is the U.S. dollar-to-Euro exchange rate that works to the advantage of American product. But there are two other factors at play that are very beneficial in making this trade possible. The first is very much a European issue, the second is American.
Even though the EU is a customs union with one instead of 27 borders, free trade within its borders does not necessarily mean that all EU member states apply the EU custom rules in the same way. And to make it even more complicated, the technical requirements for the use of ethanol as a fuel can be different as well. Most EU countries allow only non-denatured ethanol for fuel. But some, such as the UK, Netherlands, Denmark and Finland, allow denatured ethanol such as blends of ethanol with gasoline. In the UK and Netherlands the custom&rsquo;s point of view is that 10 percent of gasoline in ethanol is no longer a denatured ethanol, but a chemical. The result is that the import duty compared to the duty on denatured ethanol is reduced by about 50 percent.
A clever trader or blender can even go a step further using the U.S. Volumetric Ethanol Excise Tax Credit to increase the margins on the trade. It doesn&rsquo;t require rocket science to understand that such an operation&mdash;low import duty plus the blenders credit&mdash;creates a nice return. Thus, it isn&rsquo;t surprising&nbsp; that a U.S. blender has rented storage capacity in Rotterdam this year for more than 66 million gallons of E90. It isn&rsquo;t surprising either that there are now U.S. ethanol producers who have certified their product in line with German sustainability requirements.
European ethanol producers do not like the way ethanol/gasoline blends are classified and taxed in certain countries. By applying the chemical classification code, only the trader is benefiting. The European Union is losing income, and the driver at the pump is most likely not paying less for fuel. The classification needs to be resolved, and it will. Like in the U.S., E90 blends with 10 percent gasoline should be classified as a denatured ethanol and not as a chemical. It is a problem we need to sort out at this side of the pond.
The VEETC, however, is a problem of a different order. The credit is intended to boost domestic ethanol consumption of U.S.-produced ethanol. So far, so good. I think it would be difficult to argue against such a support measure, provided it is really used to promote the homegrown for the homeland. Using the blenders credit for improving competitiveness outside the U.S. is, in my opinion, not in the spirit of the law and questionable under EU trade law. American taxpayers&rsquo; money should not be abused for the benefit of some traders and blenders who see a golden opportunity to increase their profit margin.
If EU producers see their market and prices undermined because of a subsidy, and on top of that on a fuel blend that is not commonly consumed in the U.S. (E90), then there is not much room for maneuvering. Legal action seems the only way out.&nbsp; Unless, of course, the U.S. Congress would decide to include a provision in the law that excludes the use of the VEETC for fuel blends that are not consumed on U.S. soil. This would be a reasonable way forward, and we would certainly prefer this over any legal action.
Subsidies and trade do not make a good match. They tend to end up in long legal battles. That is good for lawyers but not for the ethanol industry. Author: Robert Vierhout Secretary-general, ePURE <a href="mailto:Vierhout@epure.org">Vierhout@epure.org</a>

The Blenders Credit and Trade: A Good Match?

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