An Open Letter to the Ethanol Community from Ethanol Producers

This letter was a collaborative effort from James Seurer, CEO Glacial Lakes Energy; Erik Osmon, GM Bushmills Ethanol; Steve Roe, GM Little Sioux Corn Processors; James Broghammer, CEO Homeland Energy Solutions; and Nick Bowdish, CEO Siouxland Ethanol and Elite Octane.

Special to The Digest

The More Things Change the More They Stay the Same

Truer words have never been spoken when it comes to ethanol and biofuels. A change in Administration and new leadership throughout government may ultimately prove to be a positive development—or not. We certainly hope for the best, between our companies we have over 1 Billion gallons of ethanol production at stake.

It matters little who is in the White House in terms of the issues facing all of biofuels—they have to be addressed one way or the other.  And as the line is forming for every industry in the country to present their wish list to the new Administration, the question the ethanol industry has to ask itself is what do we do next, and it may require making some tough choices.

In addition to people driving less and a corresponding reduction in demand for ethanol and the gasoline that carries it, the Renewable Fuel Standard continues to be on the operating table at EPA. We have been concerned for years that this “Re-set” of RFS volume requirements is a mandatory exercise that allows EPA to set target volumes for years after 2022.

So what are those tough choices? And before you answer that, we have to remind ourselves that the overriding objective should be to increase demand, which increases ethanol volume and corn grind.  With that in mind, do we continue to fight for what is almost certain to be a reduced RFS that in addition to lower RVOs pits us against electric vehicles, biogas, and other alternatives? Do we delude ourselves into thinking we can export our way out of this?

Exports

Let’s start with the last one first:  export market volumes have proven to be volatile.  China has been an inconsistent buyer and the European market is weak.  The EU has been mired in land use and sustainability arguments and currently has a cap of 7% of their ethanol from crop-based feedstocks. India offers some possibilities but deals in small blend volumes with limited infrastructure.

Brazil is a challenge on two fronts—the import duty on US ethanol is a deterrent and their ever-increasing production makes imports unnecessary. But more importantly, their expansion into the corn ethanol business makes them a competitive producer and positions them to challenge us for international market share.

Back in the USA

So let’s shift our focus to internal use in the U.S.   With regard to the post 2022 RFS re-set, Democrats and Republican alike would love to put an end to the perpetual battle over volumes, waivers, RINS and everything else that comes with the RFS.  Any strategy for future growth of the industry that relies on the RFS as the driver is improbable.  While we all see the exponential growth of the renewable diesel industry having a positive impact on the demand for the corn oil we produce, that same capacity will soon be generating RINs that not only satisfy the advanced categories of the RFS, but also make meaningful contributions to the conventional requirement.  It should be clear to all of us that the refineries view this as their longer-term compliance solution.

Do we continue to use whatever access and voice our industry has to fight for what is likely to be a shrinking market?

Clean Octane, Low Carbon

So how do we make sure we are part of the discussion and do not sign up for a low carbon fuel standard only to be replaced by electric vehicles?  The answer is to tie it to octane.

A high octane, low carbon strategy does a number of things.  From our perspective in the ethanol industry, it represents an increase in demand.  While E15 provides one point of octane, we have the ability to provide an increase of 2-3 points at the pump and triple ethanol demand from today’s E10!   That much ethanol reduces carbon, not just in the fuel, but also at the refinery level by replacing energy intensive aromatics used for octane.

From an automaker perspective this now opens up the playbook as to their options. Gradual compression increases to take advantage of ethanol’s high octane results in meaningful increases in mileage and a corresponding reduction in GHG emissions.  And it’s a “two-fer” in that the toxic aromatics currently used by refiners are drastically reduced.    In what may be an ironic twist, EPA also comes out a winner because they are required under law to reduce aromatics in gasoline and this gives them the opportunity to do so rather than get sued.

Everybody Wins

We would even argue that refiners could get into the winner’s circle under this approach. Ethanol is a low carbon input that makes their product viable in low carbon markets.  Without it, they are challenged.   While electric vehicles may be considered low carbon, they are not here in any meaningful volume.  Being able to provide the emission reductions required under a low carbon fuel standard with today’s fuels and vehicles eliminates the need for drastic and totally impractical policies such as calls to ban the internal combustion engine.

Again, the key is octane.  Berkshire-Hathaway’s BusinessWire recently reported on a new study that projects a significant increase in demand for octane.  It also identifies ethanol as the best octane additive available, citing its ability to reduce a range of pollutants, including greenhouse gases.   EPA has the authority to increase the octane of fuel in the US and should have done so under last year’s SAFE Rule.  Fortunately, we are going to get another bite at that apple— it is almost a certainty the Biden Administration will quickly revisit auto efficiency standards that are measured by actual miles per gallon and GHG emissions.  Interestingly, the auto industry is amenable to efficiency increases and did not support the Trump rollback. While they are all not in total agreement as to exactly how much of an increase is appropriate, automakers are unified in their call for a single national program, and higher octane fuels can be a core component of such a program.

So there you have it– ethanol producers and corn growers need to get behind the rewrite of the SAFE Rule and argue for higher octane while enforcing toxics controls, give us a fair reckoning in our carbon footprint, remove barriers such as RVP, and allow ethanol to be used in whatever volume the market demands. Incorporating these pieces into a revised future automobile efficiency standard results in an unfettered path for growth and expansion without federal subsidies or mandates. Electric vehicles, advanced biofuels, and any other emerging technologies are welcome to jump-in and make their case for low carbon, but on a level playing field.