We are producing a little less than 13 billion gallons of ethanol this year, almost all of it from corn. Corn-based ethanol Renewable Fuels Standard maxes out at 15 billion gallons in 2015.
The RFS for all types of ethanol increases to 36 billion gallons by 2022. Given the size of the motor fuel market and the limited market access because of the E-10 cap on ethanol being blended into fuels, the corn-based ethanol industry is slamming up against a blend wall before the cellulosic industry even gets going.
Unless market access for ethanol expands from commercial acceptance of E-15, and there are an expanded number of blender pumps allowing higher blends to be purchased, there is no market for cellulosic ethanol. 36 billion gallons of ethanol production would require nearly a 30 percent blend to have room in the market.
The petroleum industry has pretty much embedded E-10 into the fuel infrastructure. As mentioned in a previous report, it has strong financial incentive to blend 10 percent ethanol for the octane boost.
Thirty percent, however, is a whole different story, a real threat to its market share and the industry’s big guns are leveled to blow the RFS out of the water. Big Oil has a well-financed sophisticated public relations campaign to denigrate ethanol credibility in general, moved legislatively to call in the chits it has with politicians, as well as run up legal bills challenging every facet of ethanol law in courts. It has seen to it that ethanol subsidies lapsed, while oil industry subsidies imbedded in tax law continue.
The corn-based ethanol industry has bumped up against the blend wall, but E-15 and blender’s pumps can lower the wall enough to suffice for market access for production. Without a substantive material increase in the size of the ethanol market beyond E-15, the larger RFS is at odds with the capacity of the fuel market.
There is no room for cellulosic ethanol to the degree mandated in the RFS. If it were not for cellulosic ethanol and a 36 billion gallon RFS, quite frankly I don’t think the petroleum industry would be coming after the ethanol industry as it has.
I believe to this day that the effort to develop E-85 was what motivated the petroleum industry to come after ethanol seeking the industry’s destruction. E-10 is an additive, an oxygenate, an octane booster, and an annoyance to the petroleum industry. E-85 was a complete reversal, making gasoline the additive. Why would that not alarm them? Now we want 30 percent of their market when cellulosic ethanol production achieves the full RFS. I am not against cellulosic ethanol from the standpoint that it utilizes otherwise wasted resources, is environmentally friendly, measurably enhances our oil independence, and represents needed rural economic development.
Farm Bureau Energy Specialist Andrew Walmsley put it this way: “Corn ethanol is merely a component of the overall standard. It’s strengthened agriculture, but it’s also an important stepping stone to the next generation of biofuels – things made from food waste, woody debris, leftover biomass or dedicated energy crops.
“It really opens up a new toolbox for farmers …. All over the country you have these new opportunities to produce this next generation of biofuels that have all the great things that come with it – job growth, energy security, rural development.”
I had the opportunity to interview two of POET’s cellulosic development managers. I asked them politely, but pointedly, “Why should I as a corn-based ethanol investor and corn producer be excited about cellulosic ethanol? Especially, given the fact that the corn-based ethanol industry is up against the blend wall and cellulosic ethanol will create a burdensome additional supply of ethanol for which there is no market?” Cellulosic production doesn’t provide distiller’s dried grain for livestock producers. They were quietly non-responsive to the question. I also went on to tell them that I believe the threat to the petroleum industry’s gasoline market share represented by the cellulosic RFS was why they had turned the dogs loose on us in the corn-based industry.
Selling them a few corn stalks didn’t seem to me to be enough to compensate for all the trouble that caused. I am open to discussion and other points of view on the matter, but so far no one has really challenged that perspective while the blender credit is history.
Cellulosic ethanol is still subsidized which is baggage to carry which brings that old argument back against ethanol.
While I think that we will progressively bring E-15 to the market, that is nowhere near enough room for the full RFS at 36 billion gallons.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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