Global Biofuels Blog

Our European Biofuels Director Maelle Soares-Pinto, in today’s Guest Blog, wonders whether countervailing duties will really help European biodiesel producers:

As reported on March 20, 2009 in a Special Report to the GBC members, the EU has now published anti-subsidy and anti-dumping taxes that apply to U.S. biodiesel imported into the EU since March 13.  However, it is now up to the European Council to decide whether these measures should be made permanent, in which case they could last up to five years.  Considering the fate of the European biodiesel industry since the beginning of 2008, it is difficult to see how the Council would refrain from making these measures permanent even after the call by the U.S. National Biodiesel Board (NBB) to comply with World Trade Organization (WTO) rules.

The impact on the European biodiesel industry, however, is not that obvious. With the price of crude oil at its current level close to US$50/barrel, biodiesel is not competitive against fossil diesel even with the price of feedstock down from its 2008 peak.  Spain and Portugal now have a biodiesel obligation and France and Italy increased their biodiesel obligation levels in 2009, but other Member States such as Germany, The Netherlands and even the U.K. are going the other way around, lowering or considering lowering their obligation targets.

As all the Member States are now about to work on a biofuels strategy until 2020 following the vote in December 2008 on the Renewable Energy Directive, it is far from certain that high biofuels targets will be introduced from 2010. The 2010 target of the first Biofuels Directive is most likely to be reduced in many cases, as has happened in The Netherlands and is proposed in the U.K.   When all the industry sectors are suffering from the economic slowdown, governments will find it difficult to promote biofuels, including biodiesel, for much longer, even if fighting climate change remains one of Europe’s declared priorities.

In order to ensure a market for its biodiesel, the EU should implement much better quality checks of the biodiesel sold throughout the Member States, in particular the one available in low blends at fueling stations. This will become even more important with the introduction of the revised Fuel Quality Directive voted upon in December 2008, which will allow biodiesel blends up to 7 vol% and even higher if marked at the pump.

In an interesting comment made in response to a question about acceptance by industry and consumer of E15 blends, Biofuels Journal webinar on the state of the U.S. ethanol industry, Brian Jennings, Executive Vice President of the American Coalition for Ethanol appeared to equate Valero’s winning bid for VeraSun’s ethanol assets as an indication of both Valero’s and the refining industry’s support of E15.  That’s a bit of a leap, I’d say.  It is, however, a savvy move by a savvy company that recognizes the inherent value in vertical integration and the long-term reality of ethanol in the gasoline pool.  It’s that simple, and we will be seeing more of it this year for sure.

Wow!  Our first substantive blog entry started off with a bang with a number of comments from industry and in particular our GBC members.  I want to thank them for their insights and comments!  Many are key stakeholders in the discussions in the U.S. surrounding mid-level blends.  A couple of our members thought I was a bit bullish on E15.  A great comment from Mike Leister, Fuels Technology Manager of Marathon and long-time GBC member noted that even assuming E15 approval from EPA, there would still be issues bringing those blends to market.  He says:

“Don’t get too excited over mid-level ethanol blends.  They will happen eventually but EPA approval isn’t the only hurdle.  If EPA approved E15 tomorrow under a sub-sim waiver, it would still be illegal to blend above 10% in RFG and CBG, which make up 30% of the gasoline (incidentally, this is a part of the gasoline market that has all the needed ethanol infrastructure in place).  New complex models have to be built and all the current RFG rules would have to be rewritten.  EPA estimates this at two years, if this was their top priority, which it isn’t.

For the remainder of the gasoline pool, ASTM specs have to change and states have to adopt the new specs.  Even after all of this takes place, many marketers will opt not to blend above 10 vol% until they can be assured that they can control their risk to vehicle damage.  We already know that many small engine manufacturers predict unsafe conditions if their engine use gasoline with ethanol levels above 10 vol%.  We also know that not a single car on the road today has an owner’s manual that recommends ethanol blends above 10 vol%.  The current API/Auto/DOE/EPA research program will help define the potential problems for the existing highway fleet.  Perhaps some portion of this fleet risks significant damage using E15.  Only thorough research can answer these questions and that is still sometime away.  Read the Orbital study on Australia’s experience with E20.

And finally, E15 will only appear in those markets where the cost of ethanol including subsidy and RIN value is below gasoline cost.  Currently only the Midwest has those general conditions.  The ethanol blenders actually need higher gasoline prices in most of the country.  Given that EPA has 270 days to respond to the waiver request, it is doubtful that much E15 will appear in 2009 and probably only very limited amounts will appear in 2010.”

I don’t disagree, but I don’t see ethanol producers who are essentially fighting for their lives right now or Congress waiting around until the API/Auto/DOE/EPA technical work is completed.  My guess is the ethanol industry will be looking to Congress looking for a solution (RFS part 3 in 2010??).   On the other hand, Brian Jennings, Executive Vice President of the American Coalition for Ethanol, in a Q&A session following a Biofuels Journal webinar on the state of the ethanol industry, noted in response to a question about possible congressional resolution to the E15 issue that “no option is off the table.”   However, he noted, if there’s a pathway to approval under existing regulations, that’s the path the industry will pursue as well.

We have thought for some time that mid-level blends would be a reality by the end of the decade (i.e., next year) and that we could see at least E12 or E13 granted either an enforcement tolerance (the oil companies hate the idea, by the way) or treated as “substantially similar” (sub-sim) within the confines of the Section 211(f)(4) of the Clean Air Act (CAA). We thought it certain EPA would address this in the proposed rulemaking to implement the revised renewable fuels standard (RFS2), which we expect will be issued sometime within the next week or two. Seems we were right.

With appreciation to EPA and USDA for their efforts to grant sub-sim status to E12-13 (so now it’s publicly confirmed in case anyone still had doubts), Growth Energy has now turned its attentions to sub-sim status for E15. Having appeared on the industry scene less than two months ago, the new ethanol trade group backed by POET, Hawkeye Renewables and other producers emerged from nowhere and is battle-ready on all the key ethanol advocacy issues from food v. biofuels to indirect land use and now mid-level blends and has put the Renewable Fuels Association (RFA) in the position of simply endorsing the effort and getting on the bandwagon. Other groups have done the same. Growth Energy is lead by retired U.S. Army four-star General Wesley Clark, who knows a little something about battles and has spent his post-Army career on a broad range of renewable energy issues. Whatever the outcome on mid-level ethanol blends, the times are changing when it comes to ethanol advocacy in the U.S., it’s clear.

There is what I call a “scent of inevitability” on E15. The fact of the matter is 20+ ethanol plants are in Chapter 11 bankruptcy proceedings, another 30+ plants have stopped operating, and still another 10+ plants are under construction but are presently shut in, according to our own estimates. We have nearly 100% E10 penetration in the U.S., with the exception of some areas in the Rocky Mountain region and some areas in parts of the Southeast. Total industry capacity (including under construction plants) is more than 15 billion gallons. Federal policy created the ethanol industry, nurtured it for the last 30 years and put into the place the policies that helped lead us to this point. My sense is that E15 will be one of the federal policies to fix the situation – the only question is when?

Welcome to the Global Biofuels Blog! For those of you unfamiliar with the Global Biofuels Center (GBC), we cover biofuels policy, market and technology developments in more than 65 countries around the world for our membership which represent key stakeholders in the biofuels space. I’ll be sharing with you my insights, tidbits from my travels and observations about the space and our analysts around the world will be doing the same as time goes on. We invite your insights, comments, questions, and suggestions!