Europe’s ethanol CEOs at the crossroads

By James Cogan, Special to The Digest

Europe’s Big 4 ethanol CEOs (Tereos, Cristal Union, Alco Group, Crop Energies) are in a curious situation.

Together with their smaller peers they produce about 6 million tonnes of the fuel commodity annually, with combined revenues of around 4 billion euro. The product gets blended into petrol accounting for 4% of the energy needs of petrol vehicle owners. Ethanol is made by fermenting starch and sugar crops such as maize, wheat and beet – very like beer and whiskey – and the vast majority of it is made from the produce of European farmers.

If Germany’s Crop Energies’ latest financial results are anything to go by (12% operating profit) then one can take it that the sector is doing fairly well, with recent high profile bankruptcies and shut-downs in Spain, the Netherlands and the UK – impacting around a quarter of the industry – due more to management and equipment failures than to poor fundamentals.

Bioethanol is used in transport because it cuts greenhouse gas emissions by 65% compared to fossil fuel, with that 65% rising to at least 90% by 2030 due to process efficiencies, petrol engine tuning and adoption of real world emissions measurements. Ethanol is the only solution that has made any significant contribution to road transport climate mitigation worldwide: biodiesel is used only in Europe and is made under lower sustainability conditions than ethanol while other non-liquid fuel solutions (electric, hydrogen, etc) to decarbonise road transport, though tantalising in their promise, are unfortunately still decades away from large scale adoption.

The largest contributor to climate mitigation in the transport sector

Used properly in climate and energy policy (20% blends and up), bioethanol will remain the biggest contributor to petrol sector climate mitigation in the EU until hybrid electric vehicles reach 25% of the fleet on the roads – likely to be sometime around 2040. Ethanol will continue to account for more than a quarter of greenhouse gas savings until hybrid electrics reach 60% of the fleet, hopefully by 2050 (though difficult to estimate).

Because it is made in Europe from European crops, we know that European ethanol adheres to the world’s highest standards for sustainability, environmental protection and employment practices. There are no adverse side effects with European climate ethanol. It is overwhelmingly better than fossil fuel no matter how one looks at it.

The most obvious thing for regulators to do with European climate ethanol is to make more of it and use more of it.

Today’s cars can handle 20%-30% ethanol blends without modification and at these blend levels they achieve their optimal performance in terms of fuel efficiency, power output and emissions reductions. European climate ethanol currently accounts for less than 4% of Europe’s immense starch and sugar output and Europe’s farmers can effortlessly produce more as demand arises.

Europe’s ethanol CEOs should be pleased at the prospect of spending the rest of their careers in a climate friendly, profitable and growing industry. And indeed, judging from their low participation in regulatory discussions (the only driver that really matters), they certainly appear confident of this.

The playing field tilted towards diesel

Yet, consumption of European climate ethanol is dropping despite all its qualities.   European road and fuel taxes favour diesel – blind to the number of deaths diesel particulates cause through respiratory diseases – so consumers have been buying diesel cars in ever greater numbers. As a consequence petrol use is forecast to decline by 35% between now and 2030, bringing bioethanol down by the same amount.

In principle this could be more than compensated for by increased blend rates of bioethanol in petrol. If blend rates were to reach those optimal levels of 20%-30% by 2030 then absolute demand for European climate ethanol would double even after the 35% petrol decline is factored in. But as things stand this is not going to happen. The climate and energy policy makers at the European Commission have decided, completely irrationally and irresponsibly in the case of bioethanol, that what they deliberately and misleading call “food-based biofuels” will have no place in climate mitigation policy.

There are legitimate concerns about the devastating effects of biodiesel on South East Asian forests (for palm oil), but these should not be allowed to undermine all biofuels, and definitely not European bioethanol. The Commission’s own researchers (Globiom – Ares(2015)4173087) have determined that adverse climate effects with biofuels arise when they involve international trade in Indonesian and Malaysian palm oil. They have found that European ethanol does not involve such trade and nor does it have adverse climate effects. The wholly unfounded quack theories about ethanol impacts on food costs and land tenure have long been exposed for what they are: wholly unfounded quack theories. There isn’t a shred of evidence that bioethanol has adverse side effects.

In fact world food costs have come down in the period since ethanol became a source of vehicle fuel, innovation in agriculture has greatly expanded ethanol supply and so long as European demand is met by European supply then land tenure and employment practices will never be concerns.

Big Oil supporting an anti-ethanol stance

Big oil interests enthusiastically support the European Commission in its anti-biofuels stance. They love it.   Environmental NGOs such as T&E and Oxfam also support the Commission. They know conventional bioethanol is good but they don’t believe the Commission is capable of devising climate policy sophisticated enough to distinguish between good European bioethanol and varieties of bad biodiesel. So they allow the good to go down with the bad (biodiesel’s Achille’s heel is its inability to address palm oil, ILUC and climate damaging imported UCO, and this may very well kill the entire sector).

Worse still, the Commission itself knows that European conventional ethanol is good.   But they feel inadequate to the challenge of devising policy capable of blocking bad biofuels and fostering good ones.  A ridiculous situation has emerged where everyone knows that something mad is happening but nobody feels able to step forward and do something about it.

If big oil, the NGOs and the Commission continue on their current tracks then many of Europe’s ethanol CEOs will be retiring ahead of time as they close their biorefineries, make redundant their employees and shut off demand for countless thousands of farmers.

None of this would matter too much if we were talking about some routine policy on EU specifications for television cables for instance, or the branding rules for regional cheeses. These matters can be sorted out in time.

In the case of bioethanol it is not routine policy. The entire planet is urgently seeking and implementing radical measures for climate mitigation over the next dozen years. Impeding bioethanol will be an absurd form of self-inflicted climate crime in Europe.

Action Points for Industry

There is a group of people in a position to reverse the ethanol decline: Europe’s climate ethanol CEOs. They could do some very valuable things for their businesses and for the climate.

1. Develop high profile brand for European climate ethanol, making the product known and appreciated for its values (and lack of adverse side effects) independently of other biofuels. The CEOs could personally cooperate with each other in dedicating major effort to building ethanol’s reputation in the marketplace of public opinion. European climate ethanol deserves its own high value product position, distancing itself from other classes of biofuel.

2. Set ambitious industry wide targets for increasing the ethanol share of the petrol market, aiming for 25% by 2030. Plan and mobilise accordingly. Everyone wins.

3. Put something like 1% of European climate ethanol revenues into a joint high calibre marketing and advocacy campaign over a 10 year period (current advocacy spending is near zero, individual company spending is fragmented and often counter-productive, 1G and 2G advocates are poorly aligned and poorly disciplined, there is no branding or marketing happening whatsoever).

4. Start right now. The European Commission is busy cooking up its climate and energy policy for after 2020 and it will include intensified efforts to exclude European climate ethanol despite best available science informing them to use it for low emissions mobility. Ethanol and its unique high value qualities are completely unknown among Europe’s policy makers, influencers and journalists (though most are fuzzily aware of negatives in some other biofuels sectors).

5. Don’t be afraid (Steve Jobs advice to CEO of Corning Glass in 2005, on ordering commercial quantities of gorilla glass for the first iPhones).

Europe’s ethanol CEOs know that regulatory risk is the number one cause of uncertainty in their sector, leaving their shareholders incapable of determining whether their holdings are worth 2x EBITDA or 10x EBITDA.  These shareholders deserve CEOs who take active, personal and ambitious interest in regulatory risk management and the promotion of European climate ethanol.

James Cogan is an industry, technology and policy analyst. He currently advises Pannonia Ethanol.