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Ethanol Industry Outlook 2012: the challenge is still on

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Noor-Hal Cuellar reports that the Renewable Fuel Association's Ethanol Industry Outlook for 2012 showed the US industry is in a healthy position. However, in this piece she examines what challenges it faces if it is to achieve the same excellent performance as in 2011 when it produced 13.9 million gallons.
Ethanol Industry Outlook 2012: the challenge is still on

We have already discussed several highlights on the perspective for the future of ethanol industry both in Brazil and United States. Some people could even argue that the global development of these biofuel relies upon the advances and innovation boosted by these countries in specific.  So far, some of the challenges being faced by this type of renewable energy have been mentioned, as public perceptions, contentious food-vs-fuel dilemma, existing links to gas demand and the impact from political decisions and regulations.

During last February, the Renewable Fuel Association (RFA, 2012) published their Ethanol Industry Outlook for 2012. Based on this publication, it seems that 2011 was an excellent year for ethanol industry in United States, with an estimated production of 13.9 millions of gallons, boosting US economy with the generation of 401,600 direct and indirect jobs related to this industry. So far, this development has been based on corn derived ethanol, and there is so far some progress towards commercial scale for lignocellulosic ethanol biorefineries. It also presents several facts regarding the importance of ethanol industry for the development of corn agriculture, which attempts to refute well-known contention that ethanol requires unreasonable amounts of corn for its production.

However, there are still challenges down the road for ethanol. Taking US as a baseline, the immediate one is the recent expiration of the Volumetric Ethanol Excise Tax Credit, a tax incentive for ethanol blends, due the first day of this year. One of the first challenges will be to see the impact of this regulatory change towards further development of this industry. RFA (2012) claims that it was not required anymore as a market demand pull and even considered it as a peril for the ethanol industry future. This affirmation is based on the perspective that having such a facilitating scheme was pushing back the proper development of second generation technology, as pointed out by Horton (as cited by Jessen, 2011), CEO of Proper Fuels. He, as other ethanol industry representatives, supports a massive and aggressive strategy focused on developing infrastructure buildup for higher ethanol blends, as well as a progressive increase of lignocellulosic and advanced ethanol towards the marketplace as main objectives on a joint strategy for 2012.

One of these points is being already addressed by some of the big oil companies, as British Petroleum. According to Sue Ellerbusch, the President of BP Biofuels North America (as cited by Bevill, 2011), BP foresaw the opportunity to enter the biofuels market since it was thought to be the most near-term and scalable choice for liquid transportation fuels to deliver sustained energy security. This business segment have been working for the last five years developing their high-profile biofuels activities, which initially have been based in Brazil, based on the success and the previous development sugarcane ethanol industry has sustained during the last decades. Aside of planning to increase the capacity of the sugarcane mills that they already control in Brazil, the next step towards increasing ethanol market share is to develop a cellulosic facility project in Highlands, Florida with a potential to produce 36 millions of gallons per year from energy cane and other tall grasses. As stated by Bevill (2011) BP research has shown ethanol yields obtained by energy grasses can be four times higher than corn ones, and this type of feedstock is well suited to grow on southern regions, which is part of BP strategy of developing ethanol production along a target area along the Gulf Coast. Obviously, having BP as an entrant to the ethanol producer market might not have been possible without the launch of the 2007 Renewable Fuel Standard, which was an expansion of the original RFS program created back in 2005 under the Energy Policy Act. This new standard (known as RFS2) set the goal of having 36 billion gallons of renewable fuel blended with gasoline by 2022, from which no more of 15 billion gallons can be corn ethanol. The rest of mandatory renewable fuel can be cellulosic ethanol (16 billion gallons), advanced ethanol (4 billion gallons) and biodiesel (1 billion). (EPA, 2007) So that sets the goal towards it can be propelled the desired further development of cellulosic ethanol biorefineries and advanced technology that can boost as well increased presence of this kind of biofuel around the world, by benchmarking developed technology for other countries that have already set friendly regulations for ethanol blends introduction in their transportation fuels mix.

From the perspective of increasing ethanol content on ethanol blend, for the specific case of United States, it has been addressed by the full implementation of E15 to substitute E10. It currently faces several hurdles, as the lack of interest of most of gasoline retailers, as well as the proper stages for their usage. So far, the Renewable Energy Association, along with industry partners, will submit the registration of E15 to the Environmental Protection Agency (EPA), as required for all new fuels, along with health effects submission. EPA as well, has done its part so far finishing the design of the label that will be placed on all gas pumps selling this ethanol blend. (RFA, 2012)

However, it would be useful for all the stakeholders to identify and address adequately all the different factors that could impact, either in a favorable or unfavorable manner, the future of this industry. Esty (2012) suggested 3 steps to approach an adequate competitiveness between clean and conventional sources of energy. Even though it was defined for all kind of sources or energy, it can be focused in ethanol as part of a cleaner energy source for transportation fuel purposes (in most of the cases) than gasoline. The first step has been done in part with the suppression of VEETC: remove subsidies. The second would be to put a price on carbon emissions, which would affect the pricing of fossil fuels in order to have a fairer competitive environment between ethanol and gasoline. And the third is to create the conditions in order to increase private investing in newer technologies as cellulosic and advanced ethanol. Obviously, there might be other factors involved in order to achieve this fair competition environment; however, these steps might be approached in order to induce a higher level of innovation and development while keeping the same levels of production.

There are several questions in the air regarding how ethanol industry will tackle these challenges, in order to increase their growth across different countries other than Brazil or United States. The idea behind is to learn from the experience of implementing and developing an alternative industry of transportation fuels and all the factors that are involved within, in order to successfully benchmark and increase energy security globally.

References

Bevill, K., 2011. Outlook 2012: Big First Step. Ethanol Producer Magazine. [internet] November 15. Available at: http://www.ethanolproducer.com/articles/8326/outlook-2012-big-first-step [Accessed 17 April 2012]

EPA, 2007. Renewable Fuel Standard (RFS). [Online] Environmental Protection Agency. Available at: http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm [Accessed 17 April 2012]

Esty, D. C., 2012. Clean Energy Can Fuel Competitiveness. [Online] Harvard Business Review. March 13. Available at: http://blogs.hbr.org/cs/2012/03/clean_energy_can_fuel_competit.html [Accessed 17 April 2012]

Jessen, H., 2011. Outlook 2012: VEETC Is Old News. Ethanol Producer Magazine. [internet] November 15. Available at: http://www.ethanolproducer.com/articles/8324/outlook-2012-veetc-is-old-news [Accessed 17 April 2012]

RFA, 2012. 2012 Ethanol Industry Outlook: Accelerating Industry Innovation. [Online] Renewable Fuels Association. February 2012. Available at: http://ethanolrfa.3cdn.net/d4ad995ffb7ae8fbfe_1vm62ypzd.pdf [Accessed 17 April 2012]

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