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Hope Springs Eternal for Ethanol in the Far East

May 17, 2016

           

Last month, coinciding with the start of spring, I traveled to Taichung City, Chinese Taipei to take part in the Asia-Pacific Economic Cooperation (APEC) forum's conference on "Global Biofuel Trade and Development." I attended the APEC conference as part of a delegation of U.S. ethanol companies and industry associations, all invited by the U.S. Department of Agriculture to help promote biofuel use, development and trade in ethanol and other biofuels in the Asian Pacific region. As a representative of the U.S. ethanol industry, I was asked to attend the conference to give a detailed presentation to the APEC delegates on how to build a successful domestic biofuel industry and the important role that global trade in ethanol helps with domestic industry development. While I was eager to visit Chinese Taipei and engage with the members of APEC, I was a bit unsure about how my presentation would be received.  I knew that many of the countries that made up the APEC forum include economies already committed to producing and using ethanol, including Peru and the Philippines. However, APEC also includes countries such as China, Russia, Australia and others, where it is somewhat unclear the role that biofuels will play in the long or even short road going forward.  I was concerned that with the global price of oil at record lows, there would be resistance to expanding the use and production of biofuel in these struggling economies.  I was worried that many of the APEC countries had become skeptical of the economic and social benefits of expanded ethanol use and were looking to pare back or rethink efforts to promote its production and use in these economies. However, once I arrived at the APEC conference and finally had an opportunity to meet the delegates, my fears were allayed, and in their stead I found myself with even greater hope and optimism than I ever expected.  At APEC, I found a delegation of countries that weren't just committed to biofuels, but eager about the future and promise they held for those countries' domestic economies, energy security, environment and air quality.  I found an audience not only eager to hear my thoughts about what is needed to expand the production and use of biofuels like ethanol, but looking closely at the U.S. for guidance on policy structures, tax incentives, blend dynamics and fuel additive economics. One example of where I was surprised to hear interest among APEC member countries is in the area of policy structure.  As part of my presentation on how to build a successful domestic biofuel industry, I focused a great deal of attention on the impacts following the passage of the Renewable Fuel Standard.  As I explained to the APEC delegates, while biofuel use and production has been incentivized in the U.S. since the early 1970s, it was not until the RFS was created and implemented that the U.S. saw dramatic growth in the production and use of ethanol by the public. While ethanol production and use grew gradually from 1974 to 2005, that growth turned exponential after the RFS was established in 2005 and expanded in 2007. It was the RFS that helped to break open the long-held monopoly that oil and gas held on the U.S. fuel market.  And, following the implementation of the RFS, ethanol production and use in the U.S. grew by nearly 400% over the next ten years, rising from 4 billion gallons to 14.7 billion gallons today. While it is very common to hear criticisms in the U.S. about the RFS, blend mandates, purported blendwalls and calls from U.S. policymakers to reform the program, that was not the response that I received to my briefing to APEC on the RFS.  On the contrary, the APEC delegates were very interested in hearing about the RFS and how a program like that could be mirrored in their own countries.  Unlike the RFS critics in the U.S. who are looking to preserve the status quo for transportation fuels in America, these APEC members see a completely successful and revolutionary program that is accomplishing a number of important national goals: rural and agricultural revitalization, environmental and air quality improvements, and energy security.  As it turns out, while looked at by some in the U.S. with dismay, the RFS program is really viewed by the world as the gold standard as it relates to biofuel policies. Another concern I had regarded my argument that openness to imports plays a key role in building a successful domestic biofuel industry.  While not greatly appreciated, the U.S. always welcomed imports as it worked to grow a vibrant domestic ethanol industry.  And today, despite being the largest producer and exporter of ethanol on the planet, the U.S. continues to import ethanol from countries small and large around the globe.  As my presentation concluded, the most important signal that a country can send to its investment community and biofuel industry is the certainty that comes from enforced biofuel blend targets or levels, such as those provided under the RFS.  By firmly enforcing blend targets, a country can encourage expansion in the domestic production of biofuel by giving investors certainty in knowing that there will be a market for the fuel.  By refusing to waive blend targets and importing to meet any biofuel deficit, the country can show that it is serious and committed to using biofuels. Producers and investors will respond by making the investments necessary to expand domestic biofuel production capacity. What concerned me most about my argument was that it would be viewed with distrust, given worries that the U.S. would be seen as trying to corner the market or otherwise cannibalize the fledgling foreign biofuel industries.  However, I took great care to explain to the APEC delegation that the U.S. biofuel industry believes in a complementary relationship regarding global trade.  It is important for the APEC countries to know that their respective domestic ethanol industries will only grow if the government shows commitment to prying open any monopoly seeking to preserve the status quo for transportation fuel. This will likely require imports during periods of deficiency and exports during periods of surplus.  While it may seem more advantageous in the short run to deny imports and focus on locally produced biofuel, when it comes to establishing a vibrant biofuel industry, it is more important that a country implements an ironclad policy that drives future growth even when today's production fails to meet the goals. Addressing the global audience at APEC gave me a great opportunity to share the U.S. experience in growing a domestic ethanol industry. The numerous benefits ethanol provides—to the environment, economy and energy security—are universal, and I anticipate we will see further global growth in the near future, following the success of the U.S. model.