It appears that the California Air Resources Board (CARB) continues to hold out hope for a flood of Brazilian sugarcane ethanol imports. Because CARBs questionable lifecycle analysis gives sugarcane ethanol a very low carbon intensity (CI) score under the Low Carbon Fuel Standard (LCFS), the agency believes the states refiners will significantly ramp up imports to meet increasingly stringent carbon reduction requirements. But theres just one problemeven with the allure of potentially valuable LCFS credits, sugarcane ethanol is in short supply and imports are economically uncompetitive with U.S. grain ethanol. Further, there is evidence that LCFS credit values have done little or nothing to entice imported cane ethanol volumes to the California market. In 2011, CARB projected that California refiners would use 80-400 million gallons (mg) of imported sugarcane ethanol in 2014 to help meet LCFS obligations. But through August, the state had received just 7.9 mg of imported ethanol. And with drought and fire ravaging the Brazilian sugarcane crop, its highly unlikely California will see additional imports this year or early in 2015. Total U.S. ethanol imports have slowed to a trickle in 2014 as well. Through the first eight months of the year, just 65.8 mg of ethanol have entered the countryincluding nary a drop in August. That means California has received 12% of total U.S. ethanol imports this yearnot surprising given that California consumes roughly 12% of the nations gasoline. Yet, CARBs staff analysts appear undeterred by the real-world data. At a September 25 workshop discussing future fuel availability, CARB staff said it expects the U.S. will import between 850 mg and 1.75 billion gallons of sugarcane ethanol annually by 2020. In other words, CARB believes U.S. imports from Brazil will doubleor even quadrupleover the average levels seen in 2011-2013 (approximately 400 mg). Apparently, the economists at the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri disagree. FAPRI projects that U.S. ethanol imports will average just 182 mg per year in the 2015-2023 timeframe, with imports never exceeding 197 mg in any single year. Importantly, these projections include the pull effect of the California LCFS. FAPRI writes, low-carbon fuel requirements in California provide some incentive for continued ethanol imports. Thus, CARBs projection of 2020 ethanol imports is roughly 5-10 times higher than FAPRIs current outlook. While CARB staff has not yet specified what share of total U.S. ethanol imports will come to California for the purposes of LCFS compliance, they stated at the workshop that the LCFS is expected to attract a significant portion of the lowest-CI ethanol fuels to CA because the program provides real value for low-CI fuels. (We understand the share of total U.S. low-CI fuel received by California will be the subject of another workshop later this month). Staff believes the share of nationally available low-CI fuel that is ultimately received by California will increase as the value of LCFS credits increase. That makes sense in theorybut has it really happened? LCFS credits have had meaningful value in 2012-2014 (e.g., the 2013 average credit price of $55 theoretically translates to a $0.14/gallon premium for sugarcane ethanol with a CI score of 66 g/MJ), so it should be fairly simple to test whether credit values have influenced the amount of Brazilian ethanol imported directly into California versus other U.S. markets. In the second half of 2012, California was steadily importing roughly 10-20 mg of ethanol per month. LCFS credit values during this time were relatively low, averaging just $17 according to CARB. Total U.S. ethanol imports fell in 2013, but the proportional share sent to California increased. At first glimpse it would appear that the increase in the proportion of ethanol imports going to California was driven by increased LCFS credit prices. But by the end of 2013, California ethanol imports had dropped off dramaticallyeven though LCFS credit prices were at record levels. In fact, when credit prices hit a record of $79 in December 2013, California imported just 2.4 mg of ethanolequivalent to just 10% of the volume imported by California one year earlier with a much lower credit price at play. In March 2013, as credit prices traded at a relatively low level of $28, California ethanol imports were a robust 29 mg. And over the summer of 2014, as credit prices bounced between $30 and $40, California imported not a drop of Brazilian ethanol.
The bottom line is that since the beginning of 2012, California ethanol import volumes have shown virtually no correlation with LCFS credit values (as shown in the scatter graph above). Clearly, factors other than the LCFS are determining U.S. (and California) sugarcane ethanol import volumes (see: RFS2 advanced biofuel standard). CARB will be re-adopting the LCFS in early 2015. As part of that rulemaking process, CARB staff will be proposing a new CI compliance curve, which will be informed by staffs analysis of low-CI fuel availability. We hope CARB pays close attention to the data on sugarcane ethanol imports and thinks carefully about whether LCFS credits will really attract vastly disproportionate shares of low-CI fuels to the state. In the end, however, whether California imports 8 mg or 800 mg of sugarcane ethanol to meet LCFS requirements in future years may be beside the point. The real question is whether the sugarcane ethanols dubious environmental benefits justify the cost to the states consumers. Customs data show that Brazilian ethanol imported into Los Angeles has averaged $3.30 per gallon so far in 2014, about 35% higher than the delivered price of U.S. ethanol to the same market.