By Printus LeBlanc
When Americans think of exporting goods, they rarely, if ever, think of ethanol. But America has a growing ethanol export industry being constrained by the Environmental Protection Agency(EPA). A few minor changes to rules within the EPA can create a substantial increase in ethanol exports, which means more work for everyone in the value chain for ethanol from the farmer to tanker. Creating more demand for your product makes economic sense.
The Renewable Fuel Standard (RFS) is a federal program that requires transportation fuel to contain a minimum amount of renewable fuels. The program originated in the Energy Policy Act of 2005, H.R. 6. The RFS was later amended with the passage of the Energy Independence and Security Act of 2007, H.R.6. The statute required the U.S. to use four billion gallons of renewable fuel starting in 2006 reaching thirty-six billion gallons in 2022.
In the current system, Renewable Identification Numbers (RINs) are generated for each denatured gallon of ethanol produced in the U.S. When the biofuel is exported the RINs are retired, satisfying the Renewable Volume Obligation (RVO). It is important to remember, the RINs themselves have value, and are traded like commodities.
Blending ethanol domestically results in RIN value that encourages increased ethanol production and use. The majority of export gallons are never assigned a RIN. The export gallons that are assigned RINs also receive a matching RVO, thus creating a disincentive for exporting ethanol relative to domestic blending of both US-produced ethanol and imported ethanol.
The President and the EPA can make two minor changes to EPA rules to increase the amount of ethanol exported, thereby increasing overall U.S. exports.
- Revise “ethanol” within the definition of “Renewable Fuel” to include both denatured and undenatured gallons of ethanol intended for fuel use.
- Remove the export RVO on all gallons of exported ethanol intended for fuel use. This change would also include accompanying changes to compliance and recordkeeping provisions for exports.
Ethanol can be denatured or undenatured for fuel use. If ethanol is denatured, it has been altered with additives to make it bad tasting, foul smelling or nauseating. Undenatured ethanol has none of the additives. For ethanol to qualify in the RFS, it must be denatured, under current EPA regulations. Because of the rule, only denatured ethanol get RINs. This presents a problem for many ethanol exporters.
Many markets outside the United States, such as Brazil and India, specifically require ethanol to be undenatured. In 2016 the U.S. exported 1.05 billion gallons of ethanol to more than 50 countries, with more than fifty percent of exports going to Canada and Brazil.
Because markets move quickly, and governments move slowly, it is in everyone’s best interest if the EPA definition of ethanol included both denatured and undenatured. Updating this would align the definition of ethanol with the present day global market realities, which demand both undenatured and denatured ethanol for fuel use. It would also allow refiners and exporters to rapidly adapt to unfolding events such as natural disasters or political instability.
Removing the RVO on exported volumes would remove a self-imposed non-tariff barrier to trade in ethanol and enhance U.S. energy security by enabling a U.S.-produced energy source to meet global demands. Ethanol would join liquid natural gas and crude oil as part of a new era in U.S. energy dominance.
As ethanol exports rise, U.S. ethanol producers can increase production despite challenges in the domestic market. Increased production means more shifts for plant workers, more farm equipment purchased, and more loads for truck drivers. All high paying jobs that expand the tax base.
Ethanol producers would also benefit from holding separated RINs from ethanol exports that they can sell to obligated parties for compliance. This change would also benefit obligated parties by increasing liquidity and ameliorating the potential for RINs price spikes that threaten domestic refining.
President Trump has made narrowing the trade deficit a mission of his administration. These two small rule changes could significantly increase U.S. exports while creating jobs. The rule changes would give U.S. exporters the chance to compete on the international stage. The EPA needs to make the rule changes and get out of the way of American ethanol exporters.
Printus LeBlanc is a contributing editor for Americans for Limited Government
