There's a hot new craze called the "Ethanol Shuffle" that's sweeping seaports from Sao Paulo to Los Angeles and Houston to Maceio. It's not a new dance for longshoremen and ship captains; no, this is a shuffle of an entirely different sort. This shuffle is all about the confounded realignment of the global ethanol trade. The rearrangement is occurring exclusively as the result of state and Federal fuel regulations that treat Brazilian sugarcane ethanol as if it were the Holy Grail of biofuels. Both the California Air Resources Board (CARB) and U.S. EPA have decided that producing sugarcane ethanol results in fewer lifecycle greenhouse gas emissions than producing corn ethanol. They've bought into the hype that sugarcane ethanol is somehow better and cleaner than corn ethanol, and they've used questionable analyses to support their positions. For example, EPA's land-use change analysis for the Renewable Fuel Standard (RFS2) mysteriously concluded that sugarcane ethanol expansion won't induce any land-use change emissions in Brazil, despite the fact that sugarcane acreage there has doubled in the past decade (an issue we discussed in detail here). Meanwhile, EPA's analysis suggested about two-thirds of the land-use change emissions hypothetically resulting from U.S. corn ethanol expansion come from land conversions in Brazil. Go figure. CARB's analysis of sugarcane ethanol is full of similarly questionable assumptions. For instance, CARB allows Brazilian ethanol producers to claim that their sugarcane was mechanically harvested, when much of the sugarcane crop is still manually harvested after burning the field (a practice that releases significant GHG emissions). CARB also assumes sugarcane ethanol is transported from remote sugar mills to export terminals exclusively by rail and pipeline, when everyone knows trucks carry the majority of cane ethanol to market (this is important because emissions from transportation of the fuel are included in the overall carbon footprint, and shipping ethanol by rail and pipeline emits far fewer GHGs than shipping it by truck). So, under CARB's Low Carbon Fuels Standard (LCFS), sugarcane ethanol generates far more credits for compliance than corn ethanol. And EPA considers sugarcane ethanol to be an "advanced biofuel," meaning it is one of only two options available to obligated parties today for compliance with the RFS2 advanced biofuels requirement (biodiesel being the other). In short, the LCFS and RFS2 strongly compel regulated parties (typically oil refiners) to import sugarcane ethanol to meet their regulatory obligations. But here's the rub: sugarcane ethanol is in short supply after consecutive disappointing sugar crops in Brazil. Sugarcane yields in 2011 were about 19% below the 30-year trend and on par with average yields from the mid-1980s. USDA's attaché on the ground in Brazil estimates the country will produce just 5.8 billion gallons of ethanol in 2011/12, down 20% from last year's 7.2 billion gallons. The shortage of sugar resulting from three consecutive years of declining cane yields means Brazil's ethanol output hasn't been able to keep up with domestic demand—let alone demand from traditional cane ethanol importers like the European Union. In fact, Brazil cut its mandatory nationwide ethanol inclusion level from a 25% blend to 20% because the domestic supply just isn't there and sugarcane ethanol prices have been sky-high. Certainly, the subtext of Brazil's cut to its blend rate is that they simply don't want to dramatically increase imports of U.S. ethanol—apparently, they'd rather import (lots) more gasoline. Given the sugar/ethanol shortage situation in Brazil, one wouldn't expect to see the country exporting much—if any—sugarcane ethanol to the U.S., right? They need to keep every drop for themselves, right? Wrong...the U.S. imported nearly 40 million gallons of sugarcane ethanol for fuel use from Brazil from July through October, with much of the product coming in through the ports of Los Angeles and San Francisco. The volumes were imported strictly for compliance with RFS2 Advanced Biofuel standard and the California LCFS, as there would be absolutely no economic reason to import sugarcane ethanol otherwise. Meanwhile, the U.S. exported 123 million gallons of corn ethanol to Brazil during the same four months to offset the volumes they sent to us and to meet additional demand resulting from their shortage situation. So, that's how the "Ethanol Shuffle" works. California imports sugarcane ethanol from Brazil rather than corn ethanol from Nebraska or Kansas; and in turn, corn ethanol from the Midwest travels to Houston or Galveston via rail, then is shipped to Brazil via tanker to "backfill" the volumes they sent to the U.S. Picture the irony of a tanker full of U.S. corn ethanol bound for Brazil passing a tanker full of cane ethanol bound for Los Angeles or Miami along a Caribbean shipping route. Remember, this is all being done in the name of reducing GHG emissions. But what are the real GHG implications of the shuffle? And what are the economic impacts? Fuel Prices Despite the ridiculously misleading claims of the Brazilian sugar industry (and most recently the Brazil-U.S. Business Council), Brazilian sugarcane ethanol has been far more expensive than U.S. corn ethanol over the past two years. According to the California Energy Commission (CEC), Brazilian sugarcane ethanol was, on average, $1.56/gallon more expensive than corn ethanol delivered from the Midwest through the first eight months of 2011 and $1.04/gallon more expensive in 2010 (see slide 13). In April, Brazilian ethanol was running $3/gallon higher than U.S. corn ethanol even before transportation costs are factored in! The CEC data means E10 made with imported Brazilian ethanol would theoretically be nearly 16 cents/gallon more expensive on average in California than E10 made with ethanol from the Midwest. In other words, a one-day supply of E10 made from Brazilian sugarcane ethanol would cost the state's drivers $5.8 million more than the same amount of E10 made from Midwest corn ethanol (the state burns through about 38 million gallons of E10 per day). Looked at another way, the average California household would spend about $130 more on gasoline over the course of a year if that gasoline was E10 made with sugarcane ethanol rather than U.S. corn ethanol. Yet, the Brazil-U.S. Business Council furtively says importing more cane ethanol would somehow result in "...increased savings at the gas pump for U.S. drivers." Hmmm, how does that work? As a result of tightening annual LCFS carbon intensity targets, CARB expects much less corn ethanol will be used in California in coming years and substantially more cane ethanol will be imported. If the current pricing differential between U.S. ethanol and Brazilian ethanol continues (or widens), the cost to California drivers of the transition to cane ethanol could be tremendous. GHG Emissions Some in California may argue that the GHG reductions associated with using more cane ethanol in the state would justify the incremental cost to consumers. Of course this argument ignores the fact that GHG emissions are global in nature; that is, the net impact to atmospheric CO2 levels is really no different whether the sugarcane ethanol is used in L.A. or in Rio de Janeiro. In fact, using sugarcane ethanol in L.A. instead of in Rio is actually worse for the climate because of the additional emissions associated with transporting the product from Brazil to California and backfilling the volume with U.S. corn ethanol. Using CARB's own transportation distances and emissions factors, we looked at the emissions impacts of two scenarios: one in which California demand is met with corn ethanol from Nebraska and Brazilian demand is met with Brazilian sugarcane ethanol (Scenario A), and one in which California demand is satisfied with Brazilian ethanol and Brazilian demand is met with U.S. ethanol (Scenario B). We find that transportation-related GHG emissions more than double in the scenario where California imports Brazilian cane ethanol and Brazil "backfills" with U.S. corn ethanol imports (Scenario B). And the miles traveled in Scenario B are more than eight times the miles traveled in Scenario A. (Note: Again, CARB curiously assumes cane ethanol travels only by rail (50%) and pipeline (50%) inside of Brazil. While we disagree with this assumption, we've adopted it here for the ease of comparison.)
*distances from http://www.portworld.com/map/ Now, we're not afraid of free and fair trade or a little competition. And this whole thing might not be such a big deal if Brazil's cane ethanol supply was increasing in balance with demand and if cane ethanol prices were closer to corn ethanol. But that's not the case. Brazil's domestic demand is outstripping an already short supply and the RFS2 and LCFS are just exacerbating pressure. So, while U.S. Federal and state fuels policies continue to roll out the red carpet for Brazilian imports based on subjective and unsettled lifecycle GHG analyses, the Brazilians discretely erect trade barriers to U.S. ethanol—even though they desperately need the product! This dichotomy was the subject of a letter RFA sent to the Brazil-U.S. Business Council earlier this week in response to the egregious claims in the council's Nov. 30 letter, referenced earlier. Check out the RFA letter here. And in the meantime, put on your shufflin' shoes!
| Scenario A: Rational Market | ||
|
Miles |
CO2e emissions (g/megajoule) |
|
| California demand met with corn ethanol from central Nebraska | ||
|
1,350 |
1.96 |
|
50 |
0.40 |
|
Subtotal |
1,400 |
2.36 |
| Brazil demand met with sugarcane ethanol from Center-South, Brazil | ||
|
250 |
0.22 |
|
250 |
0.36 |
|
50 |
0.40 |
|
Subtotal |
550 |
0.99 |
| Grand Total Scenario A |
1,950 |
3.35 |
|
|
|
|
| Scenario B: "LCFS Shuffling" |
|
|
|
Miles |
CO2e emissions (g/megajoule) |
|
| California demand met with sugarcane ethanol from Center-South, Brazil | ||
|
250 |
0.22 |
|
250 |
0.36 |
|
8,420 |
2.03 |
|
150 |
1.21 |
|
Subtotal |
9,070 |
3.82 |
|
|
||
| Brazil demand met with corn ethanol from central Nebraska |
|
|
|
880 |
1.28 |
|
6,280 |
1.51 |
|
150 |
1.21 |
|
Subtotal |
7,310 |
4.00 |
| Grand Total Scenario B |
16,380 |
7.82 |
