Yesterday, sugarcane ethanol producers submitted formal comments to the Environmental Protection Agency (EPA) opposing a proposed rulemaking that could effectively end U.S. exports of clean renewable fuel.
Under the Renewable Fuels Standard (RFS), Brazilian sugarcane ethanol exports have become an important part of America’s advanced biofuels supply, providing 23% of the entire U.S. supply in 2012, nearly 700 million gallons in 2013, and up to one billion additional gallons in 2014.
Biofuels thrive on the global market, and more than half of Brazil’s sugarcane ethanol exports currently head to the U.S. – a formula for RFS success. But EPA’s proposal would cause several problems that could increase greenhouse gas emissions, spike the cost of this low-carbon biofuel by 20 cents per gallon, and drive future exports into other international markets.
We’re hopeful EPA will agree with us that increasing biofuel costs and associated transport emissions isn’t the right way to implement the RFS, and keep our reliable supply of clean and renewable sugarcane ethanol following into U.S. vehicles.
Our concerns were previewed yesterday, but we’re including a few highlights from the formally submitted comments below. If you agree with us that Brazilian sugarcane ethanol is an important part of America’s clean transportation future, make sure the EPA hears from you.
Brazilian sugarcane ethanol imports are critical to RFS targets:
Nearly all of the 1.5 billion gallons of fuel ethanol imported by the U.S. since EISA was passed have been from Brazilian sugarcane. This support continues today, as EPA has projected that 666 million gallons of Brazilian sugarcane ethanol will be required to achieve the EISA’s advanced biofuels requirement for 2013. The United States’ demand for Brazilian sugarcane ethanol will only increase in coming years, given the aggressive increases in the advanced biofuels mandate that Congress included in the EISA. In fact, even after taking Brazilian sugarcane ethanol imports into account, EPA has already expressed concern that producers may be unable to produce the additional 1 billion gallons of advanced biofuel needed to [meet] the 2014 requirement. Thus, as EPA has recognized, it cannot meet Congress’ aggressive goals for renewable fuel consumption without the continued assistance of Brazilian sugarcane renewable fuels producers.
EPA’s proposal would create cost-prohibitive requirements:
Applying this new bonding requirement to Brazilian sugarcane mills will add a substantial new cost that many mills may not be able to bear. For example a mill which exports 5 million gallons of sugarcane ethanol per year to the United States would be required to post a $1 million bond, or twenty cents per gallon. Put another way, based on EPA’s projections for Brazilian sugarcane ethanol imports for 2013, the industry would have to post a collective bond of $133 million. While some associate the Brazilian sugarcane industry with large integrated companies, much of the ethanol sent to the United States comes from small, independent producers. These bonding requirements will have the effect of pricing the small, independent producers out of the export market and will also create a significant barrier to entry for new mills.
EPA’s proposal would increase associated greenhouse gas emissions:
All batches [of] Brazilian sugarcane ethanol would effectively have to be shipped separately from hundreds of different mills to the port of entry to the United States if they originate from separate facilities, fundamentally disrupting the actual production of ethanol from the actual infrastructure in Brazil for transporting ethanol. The logistical demands associated with such detailed fuel segregation cannot be overstated and, as a practical matter, may render the export of Brazilian sugarcane ethanol infeasible.
Requiring the complete segregation of each batch of Brazilian sugarcane ethanol destined for export to the United States will require the exclusive use of trucks to transport the ethanol from the mill directly to the port of exit, in either Santos or Paranagua, because other transportation options all involve the commingling of ethanol from different facilities. While transportation by truck is not uncommon today, it is not often a straight shipment from the mill to the port of exit. For example, the use of transshipment storage tanks has been growing in recent years and offers a number of advantages as it increases the logistical efficiency of truck fleets in various regions. However this method as well the use of railcars typically involves the comingling of ethanol from different facilities and would, therefore, be rendered impracticable under the proposed amendments to 40 C.F.R. § 80.1466. Likewise, the shipment of ethanol to the ports by pipeline, which is scheduled to commence in the next 18 months, would effectively be barred, as pipeline shipments necessarily result in some commingling of fuels. In addition to the cost benefits that shipment by rail or pipeline can offer to ethanol producers, they produce fewer GHG emissions than transportation by truck. Thus, contrary to the overarching goal of the RFS2 program, applying 40 C.F.R. § 80.1466 to Brazilian sugarcane ethanol producers will have the perverse effect of increasing GHG emissions associated with Brazilian sugarcane ethanol and decreasing efficiencies.
EPA ‘s regulatory oversight would be impossible to achieve:
Despite the fact that EPA did not publish the proposed rule until June 14, 2013, it has inexplicably proposed to apply the rule retroactively by requiring all non-RIN generating foreign producers to demonstrate compliance by January 1, 2013 … If EPA were to finalize the rule with this compliance date in place, all Brazilian sugarcane ethanol producers would immediately be deemed out of compliance, jeopardizing future Brazilian sugarcane ethanol imports to the United States. Such an approach would impose new requirements on prior RINs generation and RINs transactions that have already taken place in 2013, calling into question the validity of the RINs generated from Brazilian sugarcane ethanol so far this year. Moreover, there can be no argument that Brazilian sugarcane ethanol producers had adequate notice of the changes, since the effective date predates the proposed rule by more than four months. As an example of the challenges that this compliance date would pose, Brazilian sugarcane ethanol producers would be required to immediately post a collective bond of $40 million or more, corresponding to the more than 200 million gallons of Brazilian sugarcane ethanol that have been imported to the United States so far this year.
Extending EPA regulations to foreign producers may conflict with WTO policy:
Three provisions would be vulnerable to challenge under WTO rules: (i) the requirement that foreign producers be subject to RIN certification, which is currently impossible for Brazilian producers to comply with, as RIN certification applies to ethanol that is denatured after the ethanol has left the Brazilian producers’ control; (ii) the requirement to retire RINs to account for evaporative losses of ethanol for which RINs were never generated in the first instance, and which, as a practical matter, will provide Brazilian producers with fewer RINs than for equivalent fuel from domestic producers; and (iii) the requirement to post a bond (and thus incur financial costs), which will be imposed on Brazilian producers but will not [be] required of domestic producers. These proposed amendments, if adopted and applied, would discriminate against Brazilian ethanol, be more restrictive of the ethanol trade than is necessary, and act as quantitative restrictions against Brazilian ethanol. It would be difficult for the United States to defend these provision based on environmental objectives, as these provisions would apply to arbitrarily Brazilian ethanol imports, despite the environmental benefits that accrue from using Brazilian ethanol instead of non-renewable fuels.
Leticia Phillips is UNICA’s Representative for North America. Ms. Phillips is an expert on Brazil-US relations and leads the Brazilian sugarcane industry’s advocacy efforts before the main stakeholders in the region, including the US Congress, Federal agencies, State legislators and business and civil society.