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Can ethanol benefit from a drop in oil prices?

A new school of thought has emerged that ethanol may actually benefit from the recent fall in oil prices, to nearly half their level of a few months ago.

The main exponent of this theory is Andrew Topf, writing on OilPrice.com. His logic is sound, and there are a few recent developments to back him up. It isn’t a sure thing, but there is a strong possibility that ethanol could emerge from the current oil price plunge as a winner.

Here’s the argument Topf makes: He acknowledges that ethanol prices have fallen along with gas prices, so the market doesn’t look very promising. Also bedeviling the industry is the foot-dragging by the Environmental Protection Agency, which has not yet set a renewable goal for ethanol for 2014. The EPA is supposed to set a number every year that specifies how much corn ethanol will be consumed. This is supposed to be enough to meet the 10 percent standard that ethanol is supposed to meet in replacing gasoline every year.

Buffeted by this uncertainty, however, the industry has taken its own initiative and started exporting ethanol. To its surprise, the market has proved very favorable. Canada, the Philippines and Japan have all proved to be receptive to the idea of stretching their gasoline supplies with ethanol. Green Plains, Inc., one of the major U.S. producers, is going to export 15 percent of its product in the fourth quarter of 2014. “We are booking export sales into 2015, extending into the third quarter of next year,” Green Plains president and CEO Todd Becker told investors in a conference call in October. “We typically have not seen export interest that far out in the future.”

The U.S. has pursued contradictory policy on ethanol from the beginning, giving the encouragement of the 10 percent mandate, coupled with subsidies and tax breaks going back to the 1990s. Then became President Bush’s mandates, which guaranteed a market for ethanol through 2023 and also specified a market for cellulosic ethanol, which has never materialized — even though the EPA has charged refiners for a product that didn’t exist.

So what will happen with ethanol amid falling oil prices? One straw in the wind came in South Bend, Indiana, where a corn ethanol plant that had been closed for several years finally reopened. The chances for the plant to succeed are much greater now that corn prices are at their lowest in five years, Purdue University agricultural economics professor Christopher A. Hurt told The Times of Northwest Indiana. “I think the prospects appear to be quite favorable for that plant if they can get it up and running as quickly as possible,” he said. And that doesn’t take into account the possibilities for export to countries that are dependent on imported oil.

The ethanol effort is often criticized as one that wouldn’t even exist were it not for government support that has boosted it all the way. The entire farm bloc are now supporters of ethanol. However, to everyone’s surprise, when the subsidies ended, ethanol production kept increasing!

Now that ethanol has found a market abroad, it is possible that even amidst falling oil prices, the industry will be able to even keep growing. Ethanol still has a high octane level and substitutes for much more noxious chemicals by blending with gasoline. Its role as at least a 10 percent additive seems secure. Now let’s find out if ethanol can find a place in the world market as well.

Will falling gas prices hurt alternative vehicles?

Everyone is saying that falling gas prices will ruin the market for alternative fuels and vehicles. But it isn’t time to give up on them now.
Ethanol and methanol are still two liquid fuels that will easily substitute for gasoline in our current infrastructure. Ethanol is making headway, particularly in the Midwest, where it is still cheaper than gasoline and has a lot of support in the farm economy. The big decision will come when the EPA finally sets the quota for ethanol consumption for 2015 – if the agency ever gets around to making a decision. (The decision has been postponed since last spring.) A high number should guarantee the sale of ethanol no matter what the price of gasoline.

That leaves methanol, the fuel that has the most potential to replace gasoline and would it fit right into our present infrastructure but must still run the gamut of EPA approval and would require a change in habits among motorists. Methanol is still relatively unknown among car owners and is hindered by people’s reluctance to try new things. But the six methanol plants that the Chinese are building in the Texas and Louisiana region could break the ice on methanol. The Chinese have 100,000 methanol cars on the road now and are shooting for 500,000 by 2015. Some of that methanol might end up in American engines as well.

Another alternative that is still in play is the electric car. In theory, electric cars should not be affected much by gas prices because that is an entirely different infrastructure. The appeal is not based on price so such as the idea of freeing yourself from the oil companies completely and relying on a source of energy.

The Nissan Leaf has not been badly hit by oil prices. Tesla’s cars, of course, have not gone mass market yet, but the company is relying on a new breed of consumer who does not worry too much about the price and will appreciate the car for its style and performance. Elon Musk has shown no indication of backing down on his great Gigafactory, and Tesla is still aiming to have the Model III (its third-generation vehicle, which will come at a much lower expected price point of $35,000) ready by 2017.

This leaves natural-gas-powered vehicles as the only group that might be hurt by falling gas prices, and here the news is not too good. Sales of vehicles that have compressed natural gas as their fuel declined 7.2 percent in November. As David Whiston, an analyst at Morningstar, told the Houston Chronicle’s Ryan Holeywell: “I hear all the time from dealers: As soon as gas starts to go down, people look at light trucks.”

CNG’s appeal has always been that it will be cheaper than regular gasoline, so plunging gas prices make it lose much of its appeal. It costs $5,000 to install a tank for CNG fuel, and that is not likely to attract a lot of takers with oil prices low. For a gas-electric hybrid, there is similar math. For the Toyota Corolla, the electric portion adds another $7,000 to the price. That’s why the CNG-based solutions never caught up with the light-duty vehicle. They are still attractive for high-mileage vehicles like buses and garbage trucks. “For the consumers doing the math, if gas goes below $3 per gallon, the payback period goes out a number of years,” Whiston told Holeywell. “And the break-even point makes sense for fewer people.”

The collapse in gas prices is not the end of the road for alternative fuels. In a couple of months, the price may be up again, and all those people who have rushed out to buy light trucks will be stuck with them. The changeover to alternative fuels is a slow process, fraught with false starts and misleading signals. But in the end, it will be well worth it to reduce our dependence on imported oil and achieve some kind of energy independence. Car buyers have very short memories and an inability to look very far into the future. Remember, it’s always a passing parade. Consequently, their reaction has been only short-term. But once people buy those trucks, they’re stuck with them for the next 5 to 10 years. If the price of gas goes up again, they may live to regret it.

The Hill: Lawmakers frustrated at EPA over ethanol mandate delay

Lawmakers vented their frustration at the Environmental Protection Agency (EPA) Wednesday over its repeated delays of the annual ethanol mandate. The Wednesday hearing in the House Oversight Committee’s subpanel on energy came weeks after the EPA announced that it wouldn’t make a 2014 ethanol blending requirement for fuel refiners until next year.

The Wednesday hearing in the House Oversight Committee’s subpanel on energy came weeks after the EPA announced that it wouldn’t make a 2014 ethanol blending requirement for fuel refiners until next year.

The few representatives present at the hearing ripped into Janet McCabe, the EPA’s acting administrator for air and radiation.

Read more at: The Hill

EPA touts health, economic benefits of reducing smog

The battle lines already are drawn over the Environmental Protection Agency’s announcement Wednesday that it’s seeking to reduce the nation’s levels of ground-level ozone, the main component of smog.

Under the Clean Air Act, the EPA is required to review air-quality standards every five years. Under President George W. Bush, the agency set the ozone threshold at 75 parts per billion in 2008.

The EPA now wants to lower the bar to between 65 ppb and 70 ppb, the level that the agency’s advisory board of independent scientists and physicians has recommended. However, EPA will review comments on a lower benchmark of 60 ppb during its commentary period.

Ozone is created when sunlight hits emissions coming from vehicles, electricity-generating plants and factories. The EPA said ozone at the current accepted levels “can pose serious threats to public health, harm the respiratory system, cause or aggravate asthma and other lung diseases, and is linked to premature death from respiratory and cardiovascular causes.”

The NRDC said medical evidence shows that the revised limit, even at the lower end of 65 ppb, is harmful to health. ”So we urge EPA to set the standard at 60 ppb.”

AQI (Click on the image at right to check the national Air Quality Index.)

That stance will put the EPA on a collision course with the manufacturing sector and Republican elected officials, who will control both the Senate and House in January. Sen. James Inhofe, the Oklahoma Republican who will take over as chairman of the Senate Environment and Public Works Committee, said in a statement that the lower threshold “will lower our nation’s economic competitiveness and stifle job creation for decades.”

National Association of Manufacturers president and CEO Jay Timmons said the new ozone regulation “threatens to be the most expensive ever imposed on industry in America and could jeopardize recent progress in manufacturing by placing massive new costs on manufacturers and closing off counties and states to new business …”

The Associated Press notes that the EPA initially proposed a range of 60 to 70 ppb in January 2010. Had that gone into effect, it would have come with an estimated price tag of between $19 billion and $90 billion and would have doubled the number of U.S. counties in violation.

In 2011, President Obama, in advance of his 2012 re-election campaign, “reneged on a plan by then-Environmental Protection Agency administrator Lisa Jackson to lower the permissible level to be more protective of public health,” The AP wrote.

“Seldom do presidents get an opportunity to right a wrong,” Bill Becker of the National Association of Clean Air Agencies told AP. “Obama has walked the walk on air.”

Current EPA administrator Gina McCarthy, in a post on CNNMoney.com, put the health argument front and center. But she also said cutting emissions would help the economy, not hinder it:

“Missing work, feeling ill, or caring for a sick child costs us time, money, and personal hardship. When family health issues hurt us financially, that drags down the whole economy. … Special-interest critics will try to convince you that pollution standards chase away local jobs and businesses, but, in fact, healthy communities attract new businesses, new investment, and new jobs.”

 

BusinessWeek: Ethanol just avoided a death blow

BusinessWeek’s Matthew Phillips reflects on the EPA’s decision to delay proposed changes to the renewable fuel standard, a revision that was expected to reduce the amount of corn-based ethanol to be blended into the nation’s gasoline supply.

Now that the new RFS standards have been put off until sometime in 2015, ethanol producers have the chance to regroup and fight another day, Phillips writes.

The ethanol industry just avoided a death blow. Rather than deciding to permanently lower the amount of renewable fuels that have to be blended into the U.S. gasoline supply, as it first proposed a year ago, the Environmental Protection Agency last week opted to wait until next year to decide. The delay (official notice here) means this year’s ethanol quotas won’t be set until 2015 and ensures they will be lower than the original mandate envisioned. That’s not great news for ethanol producers, but it gives them more time to fight and avoids an outcome that could have been far worse.

Ethanol industry leaders pretended to be angry at the EPA’s decision to delay on Friday: “Deciding not to decide is not a decision,” Bob Dinneen, chief executive of the Renewable Fuels Association, said in a written statement. But the reality is that they’re relieved the White House didn’t choose a more aggressive plan pushed by refining and oil companies.

EPA delays decision on whether to reduce ethanol in gas

The federal government’s new threshold for the amount of ethanol blended into America’s gasoline supply was already 10 months overdue. So officials have gone ahead and delayed the decision further, into 2015.

The Environmental Protection Agency announced Friday that it would defer an announcement on the renewable fuel standard (RFS), which stipulates that ethanol should make up 10 percent of gasoline.

(The Des Moines Register has some of the day’s best reporting on this issue. Agriculture.com also has a good explanation of the granular details.)

The standard, first established under a 2005 law, calls for the amount of renewable fuels in gasoline to progressively increase each year. But the law was written at a time when demand for gasoline was expected to keep going up. Slackened demand around the world, combined with stepped-up U.S. production, has dropped domestic prices below $3 a gallon.

Based on that reality, the EPA recommended, in November 2013, that the amount of corn ethanol in the should be reduced, from 14.4 billion gallons a year to 13.01 billion gallons.

This upset the corn growers and ethanol producers, most of them clustered in the Midwest and Great Plains. They said the delays deterred investment in biofuels, and even the oil companies complained that the regulatory vacuum created too much uncertainty in the fuels market.

The EPA’s recommendations had not been finalized. They had been sent to the White House Office of Budget and Management for review, but that office “ran out the 90-day clock to review the agency’s proposed standards, which for the first time signaled a retreat by the EPA on the percentage of biofuels that must be blended,” The Hill reported.

Since the EPA was already so late in setting the 2014 guidelines, the agency “intends to get back on track next year, though details on how it would do that weren’t available Friday,” The Wall Street Journal wrote. The EPA statement said: “Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year.”

The reaction among the affected parties was mixed Friday. The WSJ tries to untangle the various interests:

The debate over the biofuels mandate triggers strange bedfellows, with trade groups representing the oil and refining companies, car manufacturers, livestock and even some environmental interests all opposed to the policy for different reasons. Proponents of the standard include the corn industry, which is the most common way ethanol is produced, and producers of ethanol.

The EPA’s announcement gave cautious hope to ethanol-industry leaders that the agency will fundamentally rethink how it proposes the annual biofuels levels. The draft 2014 biofuels levels, which the agency proposed almost a year ago, were much lower than the ethanol industry lobbied for.

“I am truly pleased that they’re pulling away from a rule that was so bad,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, a trade group representing biofuels companies. “But I recognize as well we have to work with the agency to try to figure out a path forward that everybody can live with.”

Executives in the oil-refining industry criticized the delay, and said it was evidence the renewable-fuel standard was itself inherently flawed and should be repealed.

“Each year is dependent upon the previous year, and to some extent dependent upon the following year,” said Charlie Drevna, president of the American Fuel & Petrochemical Manufacturers, a trade association representing the nation’s refining industry. “The problem is, every year EPA is late in getting this out, it exacerbates it. They’re never going to be able to catch up.”

 

Oil, ethanol groups say EPA delay hurting their industries

U.S. ethanol producers and the oil industry responsible for mixing the renewable fuel into the gasoline supply rarely agree on anything.

But the two foes say the failure of the Environmental Protection Agency to finalize how much ethanol should be mixed into the country’s motor fuel supply in 2014, more than a year after the regulator first issued its proposal, has created uncertainty and hindered the ability of the free market to work.

“The market is kind of frozen right now because the EPA hasn’t responded,” said Bob Greco, downstream director with the American Petroleum Institute, a trade group representing more than 550 oil and natural gas companies. “The EPA, because of the way (the Renewable Fuel Standard) is structured, moves markets by making these decisions. You’ve got billions of dollars of investments threatened.”

In November 2013, the EPA proposed reducing ethanol produced from corn in 2014 to 13.01 billion gallons from 14.4 billion gallons initially required by Congress in the 2007 Renewable Fuel Standard, a law that requires refiners to buy alternative fuels made from corn, soybeans and other products to reduce the country’s dependence on foreign energy.

Read more at: Des Moines Register

From Philosophy About Truth To The Wisdom Of EPA Models About Emissions

Rereading Alfred North Whitehead, one of my favorite philosophers, provides the context for the current debate over the wisdom of using the EPA’s amended transportation emissions model (Motor Vehicle Emission Simulator, or MOVES) for state-by-state analysis. He once indicated that, “There are no whole truths; all truths are half-truths. It is trying to treat them as whole truths that plays the devil.”

I am uncertain about Whitehead’s skepticism, if treated as an absolute. However, it does give pause when judging the use of an amended MOVES model, based mostly on advocacy research by the nonprofit group, the Coordinating Research Council (CRC). The CRC is funded by the oil industry, through the American Petroleum Institute (API), and auto manufacturers.

CRC was tasked by the EPA with amending MOVES and applying it to measure and determine the impact of vehicular emissions. The model and related CRC analysis was subject to comments in the Federal Register but the structure of the Register mutes easy dialogue over tough, but important, methodological disagreements among experts. Apparently, no refereed panel subjected the CRC’s process or product to critique before the EPA granted both its imperator and sent it out to the states for their use.

I am concerned that if the critics are correct, premature statewide use of the amended MOVES model will mistakenly impede development and use of alternative transitional fuels to replace gasoline, particularly ethanol, and negatively influence related federal, state and local policies and programs concerning the same. If this occurs, because of apparent mistakes in the model (and the data plugged into it), the road to significant use of renewable fuels in the future will be paved with higher costs for consumers, higher levels of pollutants and higher GHG emissions.

With some exceptions, the EPA has been a strong supporter of unbiased, nonpartisan research. Gina McCarthy, its present leader, is an outstanding administrator, like many of her predecessors, like Douglas Costle (I am proud to say that Doug worked with me on urban policy, way, way back in the sixties), Russell Train, Carol Browner, William Reilly, Christine Todd Whitman, Bill Ruckelshaus and Lee Thomas. No axes to grind; no ideological or client bias…only a commitment to help improve the environment for the American people. I feel comfortable that she will listen to the critics of MOVES.

The amended MOVES may well be the best thing since the invention of Swiss cheese. It could well help the nation, its states and its citizens determine the truths or even half-truths (that acknowledge uncertainties) related to gasoline use and alternative replacement fuels. But why the hurry in making it the gold standard for emission and pollutant analysis at the state or, indeed, the federal level, in light of some of the perceived methodological and participatory problems?

Some history! Relatively recently, the EPA correctly criticized CRC because of its uneven (at best) analytical approach to reviewing the effect of E15 on car engines. Paraphrasing the EPA’s conclusions, the published CRC study reflected a bad sample as well as too small a sample. Its findings, indicating that E15 had an almost uniform negative impact on internal combustion engines didn’t comport with facts.

The CRC’s study of E15 was, pure and simple, advocacy research. CRC reports generally reflect the views of its oil and auto industry funders and results can be predicted early on before their analytical efforts are completed. Some of its reports are better than others. But overall, it is not known for independent unbiased research.

The EPA’s desire for stakeholder involvement in up grading and use of MOVES to measure emissions is laudable. However it seems that the CRC was the primary stakeholder involved on a sustained basis in the effort. No representatives of the replacement fuel industry, no nonpartisan independent nonprofit think tanks, no government-sponsored research groups and no business or environmental advocacy groups were apparently included in the effort. Given the cast of characters (or the lack thereof) in the MOVES’ update, there’s little wonder that the CRC’s approach and subsequently the EPA’s efforts to encourage states to use the amended model have been and, I bet, will be heavily criticized in the months ahead.

Two major, well-respected national energy and environmental organizations, Energy Future Coalition (EFC) and Urban Air Initiative, have asked the EPA to immediately suspend the use of the MOVES with respect to ethanol blends. Both want the CRC/MOVES study and model to be peer reviewed by experts at Oak Ridge National Lab (ORNL), and the National Renewable Energy Lab (NREL). I would add the Argonne National Laboratory because of its role in administering GREET, The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model. Further, both implicitly argue that Congress should not use the CRC study and MOVES until the data and methodological issues are fixed. Indeed, before policy concerning the use of alternative replacement fuels is debated by the administration, Congress and the states both appear to want to be certain that MOVES is able to provide reasonably accurate estimates of emissions and market-related measurements, particularly with respect to ethanol and, as Whitehead would probably say, at least provide half-truths, or, as Dragnet’s Detective Jack Webb often said, “Just the facts, ma’am,” or at least just the half-truths, nothing but at least the half-truths.

What are the key issues upsetting the critics like the EFC and the Urban Air Initiative? Apart from the pedigree of the CRC and the de minimis roles granted other stakeholders than the oil industry, the CRC/MOVES model, reflects match blending instead of splash blending to develop ethanol/gasoline blends. Sounds like two different recipes with different products — and it is. Splash blending is used in most vehicles in the U.S. and generally is perceived as producing less pollution.

Let’s skip the precise formula. It’s complicated and more than you want to know. Just know that according to the letter sent to the EPA by the EFC and Urban Air Quality on Oct. 20th, the use of match blending requires higher boiling points for distillation, and these points, in turn are generally the worst polluting aromatic parts of gasoline. It noted that match blending, as prescribed by the MOVES, results in blaming ethanol for increased emissions rather than the base fuel. There is no regulatory, mechanical or health justification for adding high boiling point hydrocarbons to test fuels for purposes of measuring changes in vehicle tailpipe emissions, when ethanol is part of the fuel mixture. Independent investigations by automakers and other fuel experts confirm that the use of match blending in the study mistakenly attributed increased emission levels to ethanol rather than to the addition of aromatics and other high boiling hydrocarbons, thereby significantly distorting the model’s emission results. A peer-reviewed analysis, which will be published shortly, found that the degradation of emissions which can result is primarily due to the added hydrocarbons, but has often been incorrectly attributed to the ethanol.

The policy issues involved due to the methodological errors are significant. If states and other government entities, as well as fuel supply chain participants, use the model in its present form, they will mistakenly believe that ethanol’s emissions and pollutants are higher than reported in study after study over the past decade. The reported results will be just plain wrong. They will not even be half-truths, but zero truths. Distortions in decision making concerning the wisdom of alternative transitional replacement fuels, particularly ethanol, will occur and generate weaker ethanol markets and opportunities to build a strategic path to renewables. The EPA, rather than encourage use of the study and the model, should pull both back and suggest waiting until refereed review panels finish their work.