EPA and Sugarcane

The EPA has primary responsibility for administrating the Federal Renewable Fuel Standard (RFS2). Administrative responsibilities include setting annual targets for blending renewable fuels into petroleum motor fuels and monitoring U.S. Refiners’ and Blenders’ annual RFS2 compliance.  Renewable fuels include conventional (corn) ethanol and advanced biofuels.  Advanced biofuels include cellulosic ethanol, biodiesel and ‘other’ advanced biofuels that meet the RFS2 50% minimum reduction in full lifecycle greenhouse gas (GHG) emissions compared to the petroleum motor fuels displaced.  Cellulosic ethanol and biodiesel are normally capable of meeting this ‘other’ advance biofuel RFS2 requirement if excess production above their individual annual targets is available.  However, U.S. domestic biodiesel, and in particular cellulosic ethanol, have struggled in meeting their individual RFS2 annual targets.  As a result, the EPA has been forced to reduce their original cellulosic ethanol targets each year since 2010 due to the inability of this developing Industry to meet initial EPA annual production-blending targets.

The EPA certified Brazil sugarcane ethanol as an ‘advanced biofuel’ in 2010.  This allowed Brazilian ethanol imports to help meet EPA RFS2 ‘other’ advanced biofuel targets ever since.  The question becomes, since Congress established the RFS2 requirements under the ‘Energy Independence and Security Act’ (EISA) in 2007, are these EPA administrative actions consistent with the requirements and intent of the EISA regulation?  And, since the EPA has routinely developed annual RFS2 ‘other’ advanced biofuels targets that apparently require sugarcane ethanol imports, what are the impacts on U.S. motor fuel markets and actual associated carbon emissions?

Brief History of the U.S. Renewable Fuel Standards – The Federal Government created the first Renewable Fuel Standard (RFS1) in 2005.  The RFS1 required blending increasing amounts of biofuels (primarily ethanol) into petroleum motor fuels up to 7.5 billion gallons per year (Bgal./yr.) by 2012.  The RFS1 was substantially increased by the EISA 2007, which increased the RFS2 renewable biofuel mandatory blending targets up to 36 Bgal./yr. by 2022.  The new RFS2 was very optimistic in the development of cellulosic biofuels and originally targeted producing and blending 1.0 Bgal. beginning in 2013, up to 16.0 Bgal. by 2022.  Unfortunately, this rapid cellulosic production development has not materialized as originally assumed.  Refer to the following Table 1.

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Data Source – CRS ‘Renewable Fuel Standard (RFS): Overview and Issues’, Table 1, page 3 and 2014 proposed standards, Table 1, page 3The table was developed to be consistent with EPA RFS 2010 data. 

The total biofuels target may drop below the original EISA volumes for 2014 apparently due to the E-10 (10% ethanol) ‘blend wall’.  Since the RFS2 targets for cellulosic ethanol went into effect 2010 this advanced biofuel Industry has yet to meet any of the original EISA or initial EPA targets.   Despite the EPA setting modest cellulosic ethanol RFS2 targets, they have been forced each year to adjust these targets downward due to limited available production. 

‘Other’ advanced biofuels targets were originally intended to facilitate possible excess production from domestic cellulosic and biodiesel facilities or possibly new algae biofuels.  With the consistent under-performance of existing domestic cellulosic ethanol production, limited success of biodiesel production and insignificant available algae biofuels, meeting total or ‘other’ advanced biofuel RFS2 targets, has been problematic since 2009.

EPA Certification of Sugarcane Ethanol – Sugarcane ethanol’s compliance with the RFS2 advanced biofuel 50% GHG emissions reduction requirement has varied over the years.  In 2009 the EPA determined that Brazil sugarcane ethanol reduced GHG emissions were less than 50% and therefore did not qualify.  However, a later analysis indicated the sugarcane ethanol could meet the 50% target due to possible changes in Brazil harvesting-processing practices.  As a result of these possible changes, the EPA certified Brazil sugarcane ethanol as an advanced biofuel in 2010.

For most advanced biofuels to achieve a 50%+ reduction in GHG emissions generally requires a implementing a ‘technical trick’.  This technical trick or required compliance solution involves replacing high carbon intensity fossil fuels normally consumed for power generation and the processing heat (steam) required in the overall cultivation-thru-biofuel production lifecycle, with low carbon or non-fossil fuels.

The renewable biofuel overall lifecycle includes cultivation, harvesting, chemical conversion, biofuel separation and transporting the biomass feedstocks/finished products.   Maximum GHG reductions are feasibly achieved by replacing the required fossil fuels with the combustible biowastes.  This involves using the biowaste to fuel power and heat generation (or cogeneration) required to produce the finished biofuel.  For sugarcane ethanol this initially means no longer burning the cane fields prior to harvesting.  This burning-harvesting technique is a common practice used to reduce the volume/mass of the biomass feedstock material prior to transport to the sugar processing plant or ethanol biorefinery. 

The primary reason why the EPA has determined that Brazil’s sugarcane ethanol now meets the 50% GHG emissions reduction was apparently due to the Brazilian Government’s decision to change their practice of burning cane fields prior to harvesting and installing-operating new biowaste cogen/power generation facilities.

EPA’s Sugarcane Ethanol Lifecycle GHG Emission Review – The EPA performed a detailed analysis of Brazil’s sugarcane ethanol production.  Refer to their published report, Chapter 2.  The following summarizes some of the more questionable ‘assumptions’ used in this analysis:

  1. Assumes Brazil has stopped burning all their cane fields prior harvesting and essentially all the biowaste (or bagasse) is burned to produce electric power.  Analysis of available data finds this plan is in progress and years from completion. 
  2. Assumes biowaste power generation displaces primarily high carbon intensity ‘residual fuel oil’ (RFO).  Since over 70% of Brazil’s power generation is Hydropower and less than 5% comes from RFO, this assumption appears directionally biased towards maximum carbon emission reduction credits.
  3. Assumes all biowaste power generation thermal efficiency’s are 30%.  Average existing biomass and biowaste power plants efficiencies are typically in the low 20% range (based on EIA data for wood and biomass/waste/gas generation 2012; energy consumption and power generation). 
  4. Assumes no U.S. ethanol imports to Brazil.  U.S corn ethanol has an average GHG emission reduction of about 20% vs. an advanced biofuels’ 50%.
  5. Assumes no change of Brazil domestic ethanol blend standards or reduced consumption to accommodate ethanol exports.

Prior to 2010 the EPA estimated that Brazil sugarcane ethanol GHG emissions reduction was 44%.  The EPA’s most recent analysis, including the above assumptions, yielded a GHG emission reduction up to about 60%.  Adjusting the EPA’s estimates for the questionable assumptions 1-3 above results in a corrected GHG reduction marginally above 50%.  However, including adjustments for U.S. corn ethanol imports and change of Brazil domestic ethanol blend standards to possibly facilitate increased exports to the U.S. could reduce GHG reductions well below the RFS2 required 50% level.

Economic Impacts of Brazil Ethanol Imports & Exports – Prior to 2010 Brazil imported insignificant U.S. corn ethanol and the U.S. imported very little Brazil sugarcane ethanol.  Refer to the following graph.

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Data Sources – EIA U.S. Ethanol Exports by Destination and U.S. Ethanol Imports by Country of Origin.

Even thought Brazil was the world’s largest producer of ethanol until 2010, exports to the U.S. were very small.  This was a result of very large Brazil domestic consumption and various import tariffs.  The U.S. ‘Ethanol Import Tariff of 1980’ established a 54 cent/gal. tariff to help protect the newly developing Corn Ethanol Industry against potential imports competition; primarily lower cost Brazil sugarcane ethanol.  The combination of this import tariff and developing U.S. RFS2 that successfully expanded the U.S. Corn Ethanol Industry, made the U.S. the world’s largest ethanol producer in 2010.  Excess U.S. corn ethanol production and expiring import tariffs, and the EPA’s certifying sugarcane ethanol as an advanced biofuel in 2010, led to increased imports-exports between the U.S. and Brazil. 

Certifying Brazil sugarcane ethanol as an advanced biofuel under the RFS2 regulation was a real game changer.  This action qualified sugarcane ethanol imports for the RFS2 ‘other’ advanced biofuels credits or ‘renewable identification number’ (RINs) certificates, issued to ethanol producers.  All U.S. Petroleum Refiners and Terminal Blenders are required to purchase and submit these RINs to the EPA annually to prove their compliance with required RFS2 blend volumes; based on their individual petroleum gasoline facilities’ production and blend-sales volumes.  To help make the overall RFS2 compliance process economic, RINs are market based and can be bought, sold and traded in the open market by private parties.

Following the EPA’s certifying sugarcane ethanol as an advanced biofuel Brazil faced a large shortage of ethanol to meet their domestic demand in 2011 due to production constraints.  Despite this apparent shortage Brazil began exporting increased volumes of sugarcane ethanol to the U.S., and balanced their domestic supply-demand shortage through a combination of reducing their domestic ethanol blend standard targets below previous E-25 levels (refer to the ‘History’ section data), and a rapid increase of U.S. corn ethanol imports.  Why would Brazil export sugarcane ethanol to the U.S. during a period of large domestic supply shortages and import typically more expensive U.S. corn ethanol?  The answer is likely: during 2011 U.S. advanced biofuel RINs sold for an average of 75 cents/gal. (above the cost of the physical ethanol).  The RINs granted by the EPA gave Brazil ethanol exporters-suppliers $75 million in 2011 that was apparently profitable enough to support this new import-export trade strategy.  In 2012 Brazil ethanol imports’ RINs generated their exporters-suppliers $240 million (60 cent/gal.); paid for by U.S. Refiners and Blenders, and ultimately U.S. Consumers.  Average 2013 advanced biofuel RINs are 73 cents/gallon thru November.

GHG Emission Impacts of Brazil Ethanol Imports & Exports and Domestic Policy Changes – The EPA’s decision to approve sugarcane ethanol as an advanced biofuel and established annual RFS2 ‘other’ advanced biofuel targets at levels that can apparently only be met by these imports appears fairly generous to Brazil ethanol producers.  However, under the EISA regulation such an action is supposed to reduce all advanced biofuels full lifecycle GHG or carbon equivalent emissions by 50%, which should also include substituting Brazil domestic production-consumption with U.S. imports.  To illustrate the impacts of trading lower carbon sugarcane ethanol exports with higher carbon corn ethanol imports refer to the following Table 2.

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Data Source: Same as Table 1.  Note: 2013 represents Q1-Q3 only.  The table is based on petroleum gasoline carbon equivalent GHG emissions of 8.91 Kg/gal. and 0.68 heat equivalent gal. of ethanol per gal. of gasoline.

The above Table shows that trading or substituting U.S. corn ethanol for Brazil sugarcane ethanol results in an overall net increase of 191 thousand metric tons (KMT) of GHG emissions 2010-2013 above the RFS2 advanced biofuel reduction requirement.  This EPA approved strategy effectively results in fairly large GHG ‘carbon leakage’ within the U.S. for producing corn ethanol to supply Brazil’s domestic ethanol demand. 

The reduction of Brazil’s blend standards from E-25 down to E-18 also further increases their domestic ‘carbon leakage’ impacts by effectively displacing domestic sugarcane ethanol with 100% petroleum gasoline.  The combination of reduced domestic ethanol blending standards and increased imports/exports likely results in Brazil’s ‘net sugarcane ethanol exports’ overall (full lifecycle) GHG emissions becoming many times greater than the 191 KMT level shown in Table 2.  This factor further decreases Brazil sugarcane ethanol GHG emission reductions significantly below than 50% level required by EISA RFS2.   In other words, the EPA’s overlooking Brazil’s reduced domestic ethanol blend standards and the U.S.-Brazil trading scheme has apparently resulted in the U.S. gasoline Producers, Blenders and Consumers paying at least $490 million (2011-2013) for overall sugarcane ethanol RINs that technically do not appear to qualify as 'advanced biofuels' on average.

In Conclusion – The EPA should not be supporting ethanol trading schemes that are not fully in compliance with the Federal EISA RFS2 regulations.  To correct this compliance deficiency the EPA needs to revise their current (EPA-420-R-10-006 Feb 2010) “Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis” to more accurately reflect actual overall GHG emission lifecycle balances.  The sugarcane ethanol full-lifecycle GHG emission balance needs to accurately account for the impacts of Brazil corn ethanol imports from the U.S., reductions to their domestic motor fuel E-25 blend standards, and their net ethanol exports.  Unless changes are made to fully account for Brazil imports of higher carbon corn ethanol and reducing their domestic ethanol E-25 blend standards to accommodate increased sugarcane exports (i.e. replacing ethanol with petroleum gasoline), the EPA should not be certifying all Brazil ethanol imports as ‘advanced biofuels’.  Such an action appears to violate the EISA RFS2 full-lifecycle 50% GHG emission reduction requirement for all advanced biofuels.  In addition, the EPA’s establishing RFS2 ‘other’ advanced biofuels targets that cannot be met by the U.S. Renewable Fuels Industries and effectively requiring increased imports, also needs to be critically reviewed since this action appears to be inconsistent with the Congress’s original intent for the Energy Independence and Security Act of 2007.