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By Russ Finley on Feb 16, 2012 with 12 responses

Biofuels Update: How is the Industry Doing?

VEETC Expiration, Ethanol Exports & Oil Imports

For those of you who missed it, the corn ethanol lobby failed to convince Congress to extend the ethanol import tariff (54 cents/gallon) as well as the blenders tax credit (46 cents/gallon), which were slated to expire at the end of 2011 …sound of crickets chirping.

My guess is that because we exported almost 9% of our ethanol production last year, it was hard to argue that we still needed a tariff to protect us from Brazilian ethanol imports, especially since Brazil was our biggest customer. In a related vein, it should also be hard to argue that we mandate ethanol use to reduce oil imports while exporting ethanol to Canada (second largest customer and largest oil importer) as well as the United Arab Emirates (our fifth largest customer).

As for the tax credit, well, paying oil companies to blend something they were already legally mandated to blend never did make much sense, except maybe to the oil companies who were not about to look that gift horse in the mouth.

Mandate, E15, Food Prices, Cellulosic Ethanol

Even with continued mandated use and an increase in blend percentage from 10 percent to 15 for newer cars, most corn ethanol producers are operating in the red so far this year because the lower demand for gasoline has also resulted in a lower demand for ethanol. Some refineries are closing. From Reuters:

Archer Daniels Midland on Monday said it will close its ethanol plant in Walhalla, North Dakota, marking the first such closure for the agribusiness giant that last month announced the elimination of 1,000 jobs.

A spokesperson for the company said that the closure was not related to the expiration of the blending credit.

It has been suggested by some (half-seriously) that corn ethanol is more or less a process to convert natural gas into a liquid fuel, but apparently the record low prices for natural gas are being nullified by the record high prices of corn:

ADM last week reported sharply lower earnings, with the company earning less money in almost all of its major units as it struggles with high commodity costs.

Brazilian cane ethanol has been on a roller coaster for the past couple of years. Back when sugar prices hit historic highs, Brazil greatly reduced the amount of ethanol blended into its gas and increased imports of cheaper (corn) ethanol.

We may be witnessing the wave of the future for fuels that compete for food crops. Because we can’t control the weather we can’t control crop yields, and when food prices start to soar, well, let me put it this way, biofuels made from food crops don’t do much to alleviate the problem.

On the bright side (at least to wildlife conservationist types) the EPA shot down biodiesel made from palm oil. By their calculations it fails “to qualify as meeting the minimum 20% GHG performance threshold for renewable fuel under the RFS program.”

As for cellulosic ethanol, it remains perpetually just five years away from commercial viability.

Photo courtesy of Todd Ehlers via Flickr

  1. By Robert Rapier on February 16, 2012 at 2:47 am

    Welcome to the team, Russ!

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    • By Russ Finley on February 16, 2012 at 10:18 pm

      Thank you, Robert. Glad to be here.

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    • By Ben on February 19, 2012 at 7:24 pm

      Hey, I checked out Finley with folks just up the river from McLean.  Looks like he’s legit; report came back that he’s neither a Commie nor a registered Petro-Booster.  Ah, but now that I give it some thought, he’s a bit suspect–he’s a Boilermaker!  (BTW: Is that an engineer or a stiff drink?!:)   
      As for Floyd the Barber.  Well, Let’s just say that my business associates specialize in close haircuts!
      To all those civic-minded tree-huggers, well, I can only offer this morsel of advice: hold on tight right thru the upcoming sap run!:)
      Ben
       
       

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  2. By Floyd the Barber on February 16, 2012 at 3:06 pm

    The credibility of this blog just took a major hit with the addition of Mr. Finley. His regular rants on NRDC’s blogs show he is not prone to logical thought. However, I’m not surprised to see him now working for a blog run by petro-boosters; we always knew he was an oilman in an environmentalist’s clothing…

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    • By Robert Rapier on February 16, 2012 at 4:43 pm

      However, I’m not surprised to see him now working for a blog run by petro-boosters; we always knew he was an oilman in an environmentalist’s clothing…


      Floyd, it is very ironic that you accuse Russ of not being prone to logical thought, since you merely sling insults. Is your response typical of your own logical thought?

      To be clear you understand how the site is organized (and I will be posting something to explain this in more detail), Russ is not writing for my blog. He is writing a column under the Consumer Energy Report banner, and he can make and defend his own arguments. 

      Further, who is a petro-booster? Nobody around here. I am a realist about our usage of petroleum, but I recognize very well the need to move away from petroleum. I make that case very explicitly in my book.

      You are welcome to stay, but please use some of that logical thought, OK?

      RR
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    • By Russ Finley on February 16, 2012 at 11:04 pm

      “The credibility of this blog just took a major hit with the addition of Mr. Finley. His regular rants on NRDC’s blogs show he is not prone to logical thought.”

      As far as I can discern, I have not posted a comment to the NRDC since last May.

      “…we always knew he was an oilman in an environmentalist’s clothing…”

      I don’t know. Maybe you should start by defining what an environmentalist is for us. Anyone critical of an energy source other than oil must not be an environmentalist? Anti-nuclear activists can’t also be environmentalists?

      On the other hand, because the (poorly defined) word “environmentalist” carries such radically polarized positive and negative connotations, I usually don’t wear the label.

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  3. By Robert Rapier on February 16, 2012 at 5:44 pm

    As for the tax credit, well, paying oil companies to blend something they were already legally mandated to blend never did make much sense, except maybe to the oil companies who were not about to look that gift horse in the mouth.


    The oil companies were never the ones who lobbied to keep it, though. In fact, I asked ExxonMobil that point blank, and they said “We don’t need it. We just pass the costs through to consumers.”

    RR
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    • By Russ Finley on February 16, 2012 at 10:46 pm

      <blockquote>“We don’t need it. We just pass the costs through to consumers.”</blockquote>

      Because the credit created a level playing field, any blender who didn’t use it to reduce the price of their product was put at an economic disadvantage because competitors who did use it for that purpose would sell more gasoline. The credit didn’t impact profitability. It was just …there.

      One could argue that the subsidy helped to suppress the price of gas at the pump, but then you could also argue that lower prices resulted in greater consumption, partially nullifying any reduction in oil imports. Consumers ended up paying more in any case via taxes spent for no gain.

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  4. By Paul N on February 16, 2012 at 11:01 pm

    “As for cellulosic ethanol, it remains perpetually just five years away from commercial viability.”
    Just like nuclear fusion…
    I didn’t realise 9% was exported, I wonder how much of that went as E85 to get the blenders credit before exporting?
    Even though having both the credit and the mandate was redundant, as RR often argued, I still think it would have been worth retaining it for E85.  Would have been interesting then to see whether E85 would advance, or, as appears to be the case, is going to decline.
    Congrats Russ, on joining the CER team, I look forward to you future blog posts.
    Cheers,
    Paul

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    • By Russ Finley on February 16, 2012 at 11:16 pm

      Thanks, Paul

      I suspect that the lack of profitability for ethanol refiners is a temporary blip, just a low point in what will probably prove to be an endless roller coaster ride caused by additional variables oil does not have to deal with, like weather and competition with food for resources like land, water, and fertilizer.

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      • By Paul N on February 17, 2012 at 10:57 pm

        True, but oil has its own problems – political instability being foremost.
        For an apples to apples comparison, we should compare pure oil refiners, like Valero, Tesoro, etc, to the ethanol “refiners”, as all of them have to buy the commodity product.  And, with the exception of Valero, the pure refiners haven’t been very profitable lately, especially the ones in the NE (and Europe).
        Just as with oil, the real money in ethanol (as long as it is mandated to be used) will be made by those that produce the crude product out of the ground.
        As long as their ground remains capable of producing, of course…

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  5. By mac on February 20, 2012 at 3:43 pm

    Floyd the Barber said:
    However,
    I’m not surprised to see him (Russ Finley) now working for a blog run by
    petro-boosters; we always knew he was an oilman in an environmentalist’s
    clothing…

    I find this comment amusing,  My take on Russ is that he thinks we are in fact going to run out of oil and that electric cars run by nuclear power plants might be the “answer”. 

    mac

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