Sugarcane ethanol: 2012 RFS2 considerations
With the United States’ 45-cent Volumetric Ethanol Excise Tax Credit set to expire at the end of this year, along with the 54-cent ethanol tariff that mainly helps keep Brazilian ethanol from crossing U.S. borders and claiming the VEETC credit, Brazilian sugarcane ethanol producers are flocking to register with U.S. EPA as an advanced biofuel, which is required to meet a minimum of 50 percent greenhouse reductions compared to the gasoline baseline. As of earlier this month, UNICA, the Brazilian sugar industry trade association, said 107 Brazilian sugarcane ethanol facilities have registered their fuel under RFS2 as an advanced biofuel.
There are a couple of issues to consider here.
One is that the U.S. biodiesel industry, which produces an advanced biofuel as well, has looks to the advanced pool under RFS2 as a way to grow beyond 2012’s 1 billion gallon carve-out for biomass-based diesel. Of course, EPA has already said that nearly 1.3 billion gallons is under consideration for the 2013 biomass-based diesel volumes requirements, but this has not been finalized. Tariff-free sugarcane ethanol from Brazil would likely be more cost-competitive than biomass-based diesel, as the $1 per gallon biodiesel and renewable diesel blenders credits are also set to expire at the end of this year, and with a gridlocked Congress determined to significantly cut spending, there is question as to whether the $1 blenders credit can be renewed by Dec. 31, or afterwards for that matter.
Another situation to consider is, EPA lists conventional biofuel as ethanol made from corn starch “or any other qualifying fuel.” If sugarcane ethanol can meet advanced GHG reduction targets, then it surely can achieve the less stringent “conventional biofuel” requirements (20 percent GHG reductions) without grandfather considerations. Is it possible that tariff-free sugarcane ethanol from Brazil will be more cost-competitive than U.S.-made corn ethanol and out-compete it in the conventional biofuel pool?