BLOOMINGTON, Ill. — The new year is poised to be a turning
point for the renewable fuels industry pending any further move by the
Environmental Protection Agency.
Under the current Renewable Fuels Standards, continued
growth in corn-based ethanol use is uncertain do to several factors, including
the 10 percent blend wall, slow implementation of higher blend, declining total
gasoline demand and ethanol imports from Brazil.
Scott Irwin, University of Illinois professor of
agricultural and consumer economics, said the U.S. will likely need to boost
production of biodiesel sharply in order to meet EPA mandates as the
requirements shift from ethanol to advanced biofuels.
Advanced biofuels include cellulosic biofuels such as
miscanthus and switchgrass, biodiesel and undifferentiated biofuels such as
“The implied (2012) mandate for corn-based ethanol was 13.2
billion gallons and was narrowly below the blend wall,” Irwin said at the
Illinois Farm Economic Summit.
For 2013, the mandate goes above the blend wall by 400
million gallons and then by 1 billion gallons the following year and the
difference is 1.6 billion gallons in 2015.
“Houston, we have a problem. We’re mandating more ethanol
than we can physically use,” Irwin said.
One solution is increasing the blend to E15.
The EPA approved use of these higher blends for 2001 and
newer vehicles, but its implementation has been delayed.
“It’s been very slow to date for a variety of reasons. The
one that I think is most important is that engine warranties using E15 are
either not approved by manufacturers at the present time or only are approved
for warranties for 2012s and 2013s going forward,” Irwin said.
“We do not see E15 as the answer to getting around the blend
wall in the next two or there years. Further down that road, it’s certainly
possible, but not in the short-run.”
Another way around the blend wall is the potentially large
market for E85. There currently are 6 million flex-fuel vehicles.
“But the main bottleneck of the present time is the number
of stations that offer E85 is relatively small — only about 2 to 3 percent of
the gas stations in the United States offer E85 pumps, and those tend to be
concentrated in the Midwest, where we don’t have the largest number of drivers,”
“Secondly, to date it’s been priced very uncompetitively.
This is potentially a big way around the blend wall, but to date there are some
significant issues in terms of implementation.”
Irwin believes the U.S. will be stuck with the E10 blend
wall with a small amount of relief from E85.
The question arises as to how the RFS is going to be
implemented with ethanol blend wall and how more ethanol can be required than
actually is used.
In 2012, the total renewable fuels mandate was 15.2 billion
gallons. Of that, 2 billion gallons was for advanced fuels and 13.2 billion
gallons was corn-based ethanol.
Irwin said that although the standard included 500 million
gallons of cellulosic ethanol in 2012, “effectively it was zero.”
“Here’s where the EPA did something quietly, but very
interesting that could have profound implications for our grain market if they
keep doing it,” he said.
“They wrote cellulosic mandate down to zero, but they kept
the total for advanced fuel at 2 billion gallons and the ethanol at 13.2 billion
gallons. This meant something else had to replace those 500 million
Brazilian sugarcane ethanol replaced those 500 million
gallons in 2012.
“For 2013, they’ve already announced the biodiesel mandate
of 1.28 billion gallons. We’re going to assume they’re going to move the
cellulosic level down to zero, although the standards are raised to one billion
gallons,” Irwin said.
“That means that we have to pull in 830 million gallons of
Brazilian sugarcane ethanol next year. If you continue to zero out the
cellulosic in 2014 and 2015, you are going to have to start producing a large
volume in this advanced category that can only come out of biodiesel or
“But what we’re going to see is Brazil is constrained by two
things. One is how much can we actually reasonably expect to pull in from there,
and the implications of the blend wall.
“If you pull in Brazilian ethanol because of the (Renewable
Identification Number) identities and how that works, for each gallon you pull
in from Brazil under a blend wall, you either have to reduce U.S. production by
a gallon or export it. You never get ahead in terms of RFS compliance.
“So we have some important implications then in terms of the
outlook for ethanol and corn use for ethanol.”
Irwin projects total ethanol consumption in the U.S. is 13.1
billion gallons this year, increasing to 13.5 billion gallons in 2015 and
including E15 and E85.
“When you take into account imports and exports, what that
essentially means is through 2015, we don’t project that the U.S. will need to
produce any more than 13 billion gallons of ethanol any year going forward.
That’s equivalent to about 4.6 to 4.7 billion bushels of corn,” he said.
“So we’re just capped in terms of corn used for ethanol to
about 4.6 to 4.7 billion bushels, and there’s no scope for growth above that
given the blend wall, and our forecast is it’s going to be very difficult to
move it out much in the next three years.
“It’s clear that the long ethanol boom in U.S. agriculture
is coming to a close. Now, that’s still a huge market, and it will be
maintained, if only because of the mandates, but future growth is over.”
Even with the blend wall, the RFS mandates will continue to
increase toward the 36 billion gallon level by 2022.
“Under our assumptions it can only be biodiesel,” Irwin
said. “Since biodiesel is an advanced biofuel, it can fill all the gaps on the
advanced side, and it can fill in that gap between the ethanol mandate and the
He offered one scenario among the many ways this can play
out going forward. “We just want you to see how extreme the implications
possibly can be,” he said. “We project the mandate for biodiesel to be 1.28
“If biodiesel makes all of the undifferentiated biodiesel
gap up and it also fills in the blend wall gap between the ethanol mandate and
the blend wall, you get some astonishing figures.”
One billion gallons of biodiesel was produced in 2012, and
under Irwin’s assumptions, it would rise to 4.67 billion gallons in 2015. “To
give you some perspective of what that means, each gallon of biodiesel requires
about 7.5 pounds of feedstock. Most of that is soybean oil,” he said.
“That means 4.67 billion gallons would require about 35
billion gallons of feedstock in 2015 if the EPA continues to implement the
mandates the way they did in 2012.”
In 2012, the U.S. produced roughly 30 billion gallons of
vegetable oil from all sources — canola, sunflower and soybeans. Fats and oils
from other sources such as cooking grease were about 10 billion gallons for a
total of 40 billion gallons.
“If the EPA persists in continuing down this path, we will
use virtually every gallon of vegetable oil and fats and grease produced in the
United States to make biodiesel. Imagine what that will do to vegetable oil
prices and soybean oil prices,” Irwin said. “You’ll want to monitor extremely closely the EPA’s
“In 2013, we can make everything work without launching this
huge boom, but the crash comes in 2014 and 2015. So pay attention to the EPA rulemaking for 2013 to see if
there are any clues about what they’re thinking about how this is going to work
going forward because they have the potential to launch the next leg of the
biofuels boom where the price leadership is flipped from corn to soybeans.”