C-Sharp: Spring’s 3 hottest markets start with C

April 25, 2016 |

BD-TS-042616-Csharp-smCalifornia and the green premium

One of the biggest myths running is that there is no green premium, which is to say that customers will not pay a cent more for a cleaner fuel than a dirty one, given the choice.

Though there is, many contend, a green preference — at the same price, customers will opt for the cleaner fuel. And there’s a performance premium — often cited for renewable molecules with functional advantages. For example, Rivertop Renewable’s superior RIOSE product which reduces spotting left by dishwashing soaps. Performance premiums are generally available for higher octane molecules, too — which include numerous renewable molecules such as ethanol.

But, a green premium. Paying more for clean air? Bosh, they say. Yet, no one has successfully explained to The Digest why Californians pay more than other states for gasoline, because of reformulated gasoline. California has a special formulation designed to reduce pollution, and they pay more for it.

Well, the naysayers opine, that’s a special case. California mandates that fuel, and there’s no choice available, you can’t buy a cheaper, non-reformulated blend. So, that doesn’t count.

Well, BS. Reformulated gasoline wasn’t imposed on California by little green men from outer space. Californians imposed it on themselves, and they pay more, and have for a long time, and California remains a net immigration state and the largest gasoline market in the US despite the fact that everyone pays a green premium.

Not to mention the California Low Carbon Fuel Standard, which will eventually strike at high-carbon fuels with even more ferocity than the US Renewable Fuel Standard, and which raises the overall fuel price for all, in return for lower carbon levels.

China and the ethanol trade

One of the most important activities of recent years in the ethanol trade? The recent ethanol industry trade mission to China. Why? Not only because there is surplus corn ethanol production capacity in the US — with wholesale prices at an attractive $1.50 per US gallon. More, because every gallon of corn ethanol that goes overseas creates an opportunity for the production and distribution of cellulosic ethanol in the domestic US market.

You see, cellulosic ethanol has a special economic advantage in the US — the cellulosic waiver credit sets, effectively, a floor price for cellulosic fuels and, in these low oil price times, it’s a tasty premium compared to corn ethanol’s wholesale price. Especially for cellulosic ethanol that goes into the California market and qualifies under the Low Carbon Fuel Standard.

However, investors worry that as soon as gasoline prices recover, the premium will decline, and cellulosic will face insurmountable competition from domestic corn ethanol. One of the underlying problems is the E10 saturation point — referred to by many as the “ethanol blend-wall”. Sure, E15 eventually will be the order of the day, but not soon, as only 2012 and later model years can universally accept it, according to manufacturers (though the EPA differs on this, and says E15 is safe for 2001 and later model years). E15 has been a slow crawl, and E85 and other high blends that require flex-fuel cars has remained an niche market.

So, one solution is to export the low-price ethanol and use the low-carbon ethanol in the US market. It’s a strategy we’ve seen from time to time in the US-Brazil trade. Brazilian sugarcane ethanol gets exported to the US as a low-carbon fuel, while US corn ethanol gets exported to Brazil as a low-cost fuel.

One country that has large smog problems, soaring climate ambitions, and no domestic biofuels industry (yet) of size: that’s China. For 10-15 years as they build out their own capacity, they might well import low-cost ethanol to address carbon targets. When that capacity is built, the US will have an E15 market simply by switching standard unleaded E10 to E15.

All depends on those China trade deals — and it wouldn’t exactly kill the US and China to have a more balanced trade.

Corn oil and other high FFA biodiesel feedstocks

With REG’s acquisition of Petrotec, in Germany, comes the possibility that Europe could revolutionize its biodiesel feedstock set. Over the years, the EU biodiesel market has generally been an added-value market for rapeseed growers, and an export heaven for palm oil.

But with REG comes technology that can handle high free fatty acid feedstocks like corn oil, or yellow or brown greases. The volumes in brown grease as we have seen can often be more encouraging in prospect than actuality, but there are rendering fats, oils and greases available for the animal trade, food waste and the like.

If EU biofuels are to recover their esteemed position amongst regulators — it is going to have to be on the basis of ultra-low carbon, ultra-sustainable fuels. That’s relatively clear. Now, the technology is arriving in the EU, and we’ll be eager to see the extent to which biodiesel helps the EU to lead on decarbonizing transport.

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