Benefits of the ethanol mandate in the federal Renewable Fuels Standard are exaggerated, and have begun to make transportation fuels and food substantially more expensive, the Energy Policy Research Institute (EPRINC) said.
"These costs are likely to grow as the percentage of ethanol in the gasoline pool exceeds 10%," EPRINC indicated in a Sept. 14 report. EPRINC, which calculated that this would occur in 2014, said falling gasoline consumption and refiners using more renewable identification numbers could make it arrive next year.
The conclusion was timely since the US Environmental Protection Agency raised the 2013 biodiesel minimum in US fuel markets to 1.28 billion gal the same day. EPRINC's report dealt more with corn ethanol, which represents 98% of total US biofuel production, however.
"Drought throughout much of the US farm belt is expected to severely reduce the 2012 corn crop," it said. The US Department of Agriculture predicted a record 14.79 billion bushels for the current harvest in June, but lowered its forecast to 10.73 billion bushels in September, the report noted.
"Poor expectations on corn harvests are now setting all-time price records with corn rising above $8/bushel," it said. "High corn prices have made ethanol production unprofitable for producers with higher cost structures, and several ethanol plants have been idled or are operating at reduced capacity."
Multiyear waiver
Governors in five states asked EPA to either reduce or waive RFS mandates because of the drought's impact on US corn production. EPRINC's report said a 2-3 year waiver would be necessary to permit a proper crop situation assessment, provide end-users with a stable planning environment, and let refiners adjust fuel output.
A multiyear waiver of both the ethanol and biodiesel mandates would free millions of acres of land for food and livestock uses, even after accounting for a decline in production of feed byproducts, the report suggested.
It would not reduce ethanol use to below 400,000 b/d, but would almost entirely eliminate current biodiesel production, EPRINC said. "More importantly, a multiyear waiver could free over 18 million acres of existing farm land for the production of crops to meet market needs for food, livestock feed, exports, or fuel," it added.
US refiners could make up the loss of all biodiesel and 400,000 b/d of ethanol production by adjusting gasoline yields within their historical 10-year range while remaining a net distillate exporter, EPRINC's report said.
But they would need both enough time to make adjustments and an expectation that government policy would not impose long-term uneconomic blending requirements—such as levels above 10% of the gasoline pool—to produce the additional fuel, it emphasized.
