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Expanding American Ethanol to China

May 20, 2014

           

I had the unique opportunity to participate in a 10-day U.S. Department of Agriculture (USDA) trade mission to China that began on May 5. I joined USDA Under Secretary Michael Scuse in building relationships, opening doors, and establishing contacts to further the dialogue for eventual ethanol imports. China is ripe with ethanol opportunities as gasoline demand is on the rise. Driven by a growing middle class and urban families eager to own their first cars, the Chinese purchased 20 million vehicles in 2013, bringing the number of passenger cars to approximately 140 million. As a result, gasoline demand is estimated at 30 billion gallons and is expected to rise as urbanization continues. Despite this rapid increase in demand, ethanol has captured less than 1 percent of the total fuel market. Concerns with food security have created policies that do not allow for ethanol to compete with food crops. We repeatedly worked to debunk the food vs. fuel canard, noting that U.S. companies produce both a high-octane fuel and a high-protein feed. The market for biofuels in China still operates as a planned economy and is controlled by state-owned enterprises. Ethanol is blended in only six Chinese provinces, and production is restricted to five state-owned plants with strictly limited production volumes. Last year, the total fuel ethanol volume produced was approximately 600 million gallons. Currently, there are no imports of ethanol into China. Corn, wheat and cassava are the main feedstocks used in Chinese ethanol production today. Corn cobs and stover are also used as they begin to develop second-generation fuel ethanol. There were questions about the U.S. progress on cellulosic ethanol, called green ethanol, at nearly every meeting we attended. The Chinese stressed the need for technology exchange to move forward in growing the market share. They expressed concern that the biggest obstacle to ethanol production in China is the availability of feedstock. Nonetheless, they have a target to produce 3 billion gallons of ethanol by 2020. As we continued the mission, it became clear that the high octane in America's low-cost ethanol could help the Chinese overcome current air quality challenges. But, methanol and MTBE have been chosen as the oxygenate component to counter air quality issues. Methanol has captured 8 percent of the market through MTBE and low level methanol blending. We explained our experiences with MTBE and groundwater as well as the high greenhouse gas emissions that come with using coal to make methanol. Local governments are also under increased pressure from citizens to have better air quality. Recently, China delegated investment approval to local governments for a range of projects, including ethanol plants. Current provincial regulations only allow the blending and use of ethanol from designated domestic producers. However, these restrictions might be able to be removed at a provincial level, making it possible to find a location that is willing to change policy or start a new program that allows imports. The delegation met with the National Energy Administration (NEA), which is responsible for China's overall energy strategy. They recognize the need to move from coal and are currently investing in nuclear, hydro, natural gas, wind, and solar. We also met with many other influential players in the debate over China's energy policies including PetroChina and Sinopec, who have historically resisted the growth of biofuels due to an over capacity of MTBE. These companies own the refinery capacity and distribution systems in China, giving them effective control over imports. We delivered an informational handout translated into Chinese about the U.S. ethanol industry including our capabilities as a supplier, environmental and human health benefits, and low-cost octane. The Chinese character for "crisis" is the combination of two Chinese characters, "danger" and "opportunity." Before the Chinese reach an environmental crisis, opportunity exists in the form of American high-octane, low-cost ethanol.