An Economic Rebound Will Need Ethanol

April 22, 2020 |

By Doug Durante, Executive Director, Clean Fuels Development Coalition

Special to The Digest

A recent article by Growth Energy CEO Emily Skor caught my eye due to a simple but important headline, which was Ethanol Industry Needs Support Now More than Ever.

The economic importance of the ethanol industry to agriculture and rural America cannot be overstated, and the article did a good job making that point. But I want build on the theme that now, when we’ve been knocked down and are on the mat is when we  need support, but from an additional angle—to preserve some sense of energy security and to be ready to continue to reduce aromatics in gasoline once we rebound from our current shut down.

At CFDC, and with our industry partners, we have made no secret that we are going to stay on EPA to reduce toxics in gasoline. The family of benzene octane additives producing carcinogens in the air we breathe do not get a pass, no matter how much gasoline we have or how cheap it is. The clean octane alternative of ethanol can only deliver its highest value if it is positioned and ready to go.  As assistance packages are crafted for essential industries, ethanol is as legitimate a candidate for assistance as any U.S. industry, for the reasons Ms. Skor notes in her article.

And when I say assistance, I do not mean bailout.  Just as the oil industry is calling for the federal government to purchase oil for the Strategic Petroleum Reserve, the Clean Fuels Development Coalition, the National Farmers Union, and others have called for the establishment of a biofuel reserve, with ethanol being purchased but then sold into the fuel market at some future date, with the government getting back the money it bought the ethanol with.

While the emphasis on jobs is of course key, there is an equally important consideration, and that is Energy Security, which has often been a term without definition or true understanding.  The double hit the domestic oil and gas sector is experiencing with the COVID-19 virus and the price war between the Saudis and the Russians threatens to return the US to the 1970’s, when we were paralyzed by supply disruptions and global events.  And make no mistake, ethanol is a gasoline additive, so like it or not, the two are inextricably linked.

The obvious intent of this price war—coming at a time when demand has been reduced by half—is to put U.S. oil companies out of business, or at least as many as they can.  Under that scenario, when the economy rebounds and our hefty appetite for oil resumes, we will once again need to depend on other countries, who can set the price and control supply, putting the U.S. in a position we fought so hard to avoid.

“Having a lot of domestic oil doesn’t seem like energy security to me when a couple of countries can get together and drive our guys out of business.”

This has serious implications for our national security, economy, and well-being — if we fail to defend ourselves. Part of that defense is making sure we have alternatives.  We fought energy security battles via legislation in 1980, again with an Energy Security Act in 1992, and again with the EISA legislation in 2007 but would still be hit hard by world oil prices if they returned to $100 per barrel or more.  That doesn’t strike me as much in the way of security. 

Many in the petroleum industry gloat that we are net exporters of oil now and completely independent.  Well, just how energy independent and secure are we if two countries can put our guys out of business simply by lowering the price?  I have articles in my files from decades ago when we began to fight back against our oil dependence and OPEC officials were quoted as saying they should keep prices low to discourage the development of alternatives.  Then, as we regularly failed to develop such alternatives, they would periodically raise the price to find the point where we would squeal, and then lower it again. Crippling gasoline and home heating oil prices just a decade ago should serve as a reminder.

Anyone in the energy business, be it stationary source power or transportation fuels, has lived through these cycles of both high and low prices. Before our last oil boom, the U.S. depended on more than 60% of its oil from OPEC and other foreign sources. Sure, the domestic oil boom has turned things around but not all of our domestic production is going to make it back from where we are now.  The 10% of the fuel pool ethanol represents is going to be more important than ever, and we can do so much more with higher blends.  And when we reduce gasoline demand we reduce oil demand, and that reduction is reflected in lower oil prices around the globe.

Putting our guard down now with respect to protecting our alternatives like ethanol while continuing to develop new bio technologies could put us right back to the dark ages of oil dependence.  No one ever wants to see the gas lines we saw from the Iranian oil embargos of the 1970s when gas was rationed through odd and even days. And that is not that farfetched—just as foreign suppliers can flood the market with oil, they can turn the spigot the other way.  These oil countries remain among the most unstable regions on the planet; disruptions in the oil business 5,000 miles away affects price everywhere.

Imagine the struggles our economy is facing as we get back on our feet over the next two years.  Now imagine $4.00 or higher gasoline and the burden that puts on our citizens. And if measures are not taken to protect the hedge we have with domestic ethanol, that gasoline will be loaded with toxic aromatics, possibly making us even more susceptible to COVID 19 and other new viruses.  We must keep corn ethanol and all biofuels afloat.  It is the only true success story in terms of liquid fuels of all the failed energy security efforts of the past 40 years.

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Category: Thought Leadership

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