HIGHER BLENDS

Up to now China has not implemented its national E10 blending mandate launched in 2017. This situation was necessary because of the substantial difficulties found meeting production targets due to shortages and rising prices of key raw materials such as corn, low oil prices, as well as other distribution and pricing challenges.

Up to now, only six provinces and cities including Jilin, Heilongjiang, Liaoning, Anhui, Henan, and Tianjin have achieved closed full coverage of ethanol gasoline, although not uniformly at the E10 blending rate. At the end of 2019, the National Development and Reform Commission and the National Energy Administration held a meeting to adjust the nationwide promotion plan to encourage provinces to adopt the E10 policy. It was reported coverage nationwide had not yet reached 50% as of the end of 2020.

It has been estimated China’s total fuel ethanol production capacity in 2019 prior to the Covid-19 pandemic was around 13 billion liters, far less than the 20 million liters needed to implement nationwide E10 blending rate. With the cumulative impact of the Covid-19 pandemic still being assessed it is estimated China’s actual fuel ethanol production in 2020 dropped to 3 billion liters, or pre-2017 levels.

Draft Energy Law and 14th Five Year Plan

Although no official revision of the E10 policy has been announced, biofuels are included in the Draft Energy Law, effectively making the biofuels promotion part of China’s permanent national energy strategy. The National Energy Administration included “promoting ethanol gasoline” as part of its list of 9 “major tasks” in 2020. The Draft Energy Law prioritizes the use of renewable power sources and aims to set future targets for both its production and its share of the country’s overall energy mix. The law aims to bring all of China’s disparate energy laws under the same roof, and will be an important tool implementing goals in the 14th Five Year Plan. The new law heavily favors transition to renewables and “new energy” by providing better access to the power grid, and “biofuels” are included in the law’s definition of new energy.

In 2009, China promised the international community that by 2020, non-fossil energy will account for 15% of the total energy consumption. The share of non-fossil energy reached 15.3% by the end of 2019, so China has already met this initial goal, and is in the process of setting future targets. In 2020, China set forth a goal of “carbon neutrality” by 2060, and CO2 emissions peaky by 2030.

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The European Union (EU) is the fourth largest market for ethanol in the world. Although the EU biofuels market is dominated by biodiesel (80 percent), ethanol consumption has increased more rapidly than other biofuels in the last years.

The EU regulatory framework for biofuels is based on four main Directives adopted in 2008, 2015 and 2018:

1. The Directive on the promotion of the use of energy from renewable sources that requires 10 percent of the energy used in transport to come from renewables by 2020. Although no dedicated quota was allocated to specific energy sources, most of this 10 percent is expected to come from liquid biofuels. This regulation replaces Directive EC 2003/30, which established a non-binding target of 5.75 percent for biofuels consumption in 2010.
2. The Fuel Quality Directive requires greenhouse gas emissions from transport fuels be reduced by 6 percent by 2020.
3. The so-called ILUC Directive which amends the two previous texts as far as indirect land use change is concerned. The participation of conventional biofuels in the 10% target is limited to 7%. The indicative target for advanced biofuels is 0.5%.
4. The new Renewable Energy Directive (recast) that covers the period 2021 to 2030. The EU is conditioning the mandatory target for biofuels on compliance with three main sustainability criteria. A reduction of at least 35 percent of greenhouse gas emissions until 2017 when the threshold increases to 50 percent (60 percent for new plants). No production in areas with high carbon stocks (like forests and wetlands) or in areas of high biodiversity (such as forests, wetlands, preserved areas, and highly biodiverse grasslands). Reporting obligation on practices to protect soil, air and water quality, and on the ratification by biofuels exporting countries of some International Labour Organization and environmental conventions. Based on this Directive, EU member states have elaborated their national action plans to reach the 10 percent target. Most of them have adopted mandatory blends and some countries provide fiscal incentives.

The EU ethanol market is highly protected

The EU imposes a € 0.19/liter (around US$ 0.72/gallon) tariff on undenatured ethanol. The import duty for denatured ethanol is € 0.10/liter (approximately US$ 0.38/gallon). The tariff does not distinguish between the different uses of ethanol (beverage, fuel, industrial).

After 20 years of negotiations, the EU and Mercosur countries successfully closed an agreement of principle for the conclusion of a free-trade agreement on June 28, 2019. This agreement will provide for a more favorable treatment for Brazilian ethanol exports to Europe in the form of a TRQ (650,000 tons) with reduced intra-quota duties.

India is among the highest emitters of greenhouse gas (GHG) and its cities are amongst the most polluted in the world. India has undertaken several initiatives over the years towards its goal of net zero emissions as part of Paris COP21 commitments. It has been successful in driving the growth of Renewable Energy and is now looking at other ways to curb emissions, one of which is to produce ethanol on a large scale. India has the potential to become one of the major ethanol producers in the world due to the large quantities of sugarcane that are grown in the country. Ethanol is a low-hanging fruit solution that can enable a greener, more sustainable economy.

Ethanol’s economic and environmental benefits

Diverting surplus sugarcane crop for ethanol production holds multiple benefits for India – reduction in GHG emissions and air pollutants in major Indian cities; reduced oil import dependency; infrastructural investment in rural areas; employment generation; and market-oriented alternative income for the country’s 50 million sugarcane farmers.

India’s National Biofuel Policy (NBP), introduced in 2018, aims to promote, develop and utilize domestic feedstock for biofuel production – a move that is expected to increasingly replace fossil fuels with biofuels, thereby contributing to national energy security, climate change mitigation, pollution reduction, improved health conditions and the sustained creation of employment opportunities.

India is making good progress, guided by its National Biofuel Policy

As a part of the Ethanol Blended Petrol (EBP) programme, mills were allowed to produce ethanol from B Molasses and sugarcane juice. An indicative target was set for 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel by the year 2030. In 2020, this target was sharpened to 10% ethanol-blending by 2022 (10% of ethanol mixed with 90% of petrol) and 20% by 2030.

In January 2021, India advanced the target of achieving 20% ethanol-blending with petrol by five years to 2025. Achieving this will require around 12 billion liters of alcohol/ethanol. For this harvest season, the sugar industry plans to divert 6 million tonnes of surplus sugar to produce around 7 billion liters of ethanol, while the remaining 5 billion liters will be produced from excess grain.

Tripartite Agreement for ethanol production

In 2020, sugar mills, oil marketing companies (OMCs) and banks entered into a tripartite agreement, which allows sugar mills to get loans on the basis of committed purchases of ethanol by OMCs. The agreement helps mills’ liquidity and promotes ethanol supplies, by enabling them to set up new distilleries or expand the existing facilities to manufacture ethanol.

The United States is the largest producer and consumer of ethanol in the world. Corn ethanol has been produced in the U.S. for more than 30 years and has become a thriving industry.

U.S. farms and refineries generate more than half of the world’s ethanol and produced nearly 53 billion liters (13.8 billion gallons) in 2020.

Ethanol policy is governed by the Environmental Protection Agency (EPA) which oversees the Renewable Fuel Standard (RFS2) program. Created by the U.S. Congress in 2007, RFS2 requires continually increasing volumes of renewable resources into the nation’s fuel supply. In 2022, for example, 136 billion liters (36 billion gallons) of biofuel would be required to be mixed in the US gasoline but this goal will most likely not be achieved.

The RFS, while ambitious, faces ongoing challenges.

The U.S. economy has not absorbed the billions of gallons Congress anticipated when it passed the RFS nearly 14 years ago. EPA has repeatedly revised downwards the volume obligations of the RFS. The pandemic and a slowing economy will further reduce the demand for gasoline.

Second, making E15 ethanol a nationwide reality has proven difficult. A gallon of gas consisting of 15 percent ethanol would benefit America’s environment and help the RFS fulfill its volumetric goals, but widespread implementation has been slower than expected because of inconsistent government rules. Older cars generally cannot use E15 and for many years its sale had been banned during summer because of smog concerns.

Finally, there is the small refinery exemption (SRE). This loophole frees small operators from the renewable fuel volume requirements if they can prove a “disproportionate economic impact.” According to industry estimates this exemption has caused the loss of more than 2.6 billion gallons of ethanol demand. The SRE is also opaque, making it difficult for the public to understand which refineries are exempted and exactly what volume of renewable fuel was exempted.

Sugarcane’s role in the U.S.

As it was implementing RFS2, the EPA determined sugarcane ethanol cuts carbon dioxide emissions by more than 60 percent and designated it an Advanced Renewable Fuel. This designation puts sugarcane ethanol in an important category of superior biofuels that would make up 79.5 billion liters (21 billion gallons) of the fuel supply in the United States by 2022 – an amount equal to about 14 percent of today’s gasoline market.

While Brazilian exports make up only 0.5 percent of all advanced volumes, the potential for this clean biofuel may be appealing to U.S. and state policymakers as they develop aggressive policies to address climate change.

Major State Ethanol Policies

In 2007, California enacted the world’s first low-carbon fuel standard (LCFS) to lower by 10 percent the carbon intensity of its transportation fuels when compared to gasoline by the year 2030.

The California Air Resources Board (CARB) oversees the program and is responsible for conducting a life-cycle analysis for all fuels used for transportation in the state. Under CARB’s most recent analysis, Brazilian sugarcane ethanol is considered one of the lowest carbon fuels available today at commercial scale. It is vital to helping California meet its LCFS goals.

Today, California, Oregon, Washington and British Columbia are collaborating to align policies to reduce GHG and promote clean energy. Over time, these governments will create a market that will further attract investors and offer a roadmap for the rest of the nation to emulate.