Despite a challenging environment, the global biofuels industry is holding steady and driving ahead with new policies, innovations and legislation to promote more robust growth in the future.
In the EU, 2020 marks the deadline for certain greenhouse gas reduction goals, which many nations will struggle to meet. It has been suggested ethanol blends could be increased to 20%, which under certain conditions could triple the demand for the renewable fuel. While biodiesel consumption continues to increase, producers aren’t seeing any benefit because of increased imports and high stocks.
Brazil, which traditionally used sugarcane as a feedstock, is seeing continued expansion of corn-based ethanol facilities. This is particularly true in the central part of the country where corn is abundant and cheap. Even with new construction, corn-based ethanol still only represents 4% of the nation’s total ethanol production
Corn is still king in the United States, which is the world’s largest ethanol producer. But the nation’s ethanol industry faced one of its toughest years in decades with plummeting prices that forced 20 plants to close their doors temporarily or permanently. Looking ahead, the industry sees potential positives in a growing E15 market, curtailing of small refinery waivers and lessening of trade barriers.
“The outlook for ethanol production and marketing in 2020 is as bullish as it has been in a decade,” said the Renewable Fuels Association (RFA) in its 2020 Ethanol Industry Outlook released in February.
US sees positive signs
A combination of lower prices and small refinery waivers made 2019 a challenging year for the U.S. ethanol industry. Production fell to 15.8 billion gallons, a drop of 300 million gallons from 2018, even though new production came online, the RFA said.
In 2019, the US Environmental Protection Agency (EPA) granted 85 retroactive refinery exemptions for the 2016-18 compliance years. This undercut the statutory renewable fuel volumes by 4.04 billion gallons.
Congress had established an annual requirement of 15 billion gallons starting in 2015, but due to the increase in waivers, the EPA has enforced a renewable fuel requirement of just 13.78 billion gallons for 2016-18, the RFA said.
“Given the furor that has arisen and the EPA response — which also includes a first-ever commitment to only grant partial waivers when warranted and recommended by DOE — we anticipate fewer full exemptions to be granted in 2020, for current and future 2019 applications, and less of a direct impact on domestic ethanol demand,” the RFA said.
The United States is still the world leader in ethanol production with its nearly 16 billion gallons representing 54% of global output. Exports declined slightly in 2019 to 1.5 billion gallons, which was second only to the record 1.7 billion gallons shipped in 2018.
Brazil and Canada were the top two destinations, taking nearly half of the U.S. exports. Canadian shipments have been stable but those to Brazil did fall in 2019 because of higher ethanol production, continued implementation of a tariff rate quota and restriction of quota volumes from September to February, the RFA said.
“Prohibitive tariffs imposed by China in connection with the trade conflict with the United States caused shipments to fall to negligible levels for most of 2019,” the RFA said. “On the other hand, longstanding antidumping duties by the European Union, which the U.S. industry had actively worked to overturn, were allowed to end.”
The RFA said resolution of the trade conflict with China could reopen a large-scale market. In addition, Canadian provinces are moving to higher blends as is India.
Domestically, sales of E15 grew significantly to 450 million gallons after the EPA created a rule allowing the year-round use of the higher blend. There are nearly 2,000 E15 fueling stations in the United States and more than 95% of the vehicles sold in the United States are approved for E15, the RFA said.
“As a result, in 2019 E15 sales surpassed E85 sales for the first time,” the RFA said. “E85 and other flex fuels encountered challenges in 2019, even as the number of E85 blender pumps increased and market economics provided a significant incentive for consumers.”
The US Department of Agriculture (USDA) is asking for public input in creating the Higher Blends Infrastructure Incentive Program. The USDA is looking at options to expand domestic ethanol and biodiesel availability and wants information on infrastructure projects to facilitate increased sales of higher blends (E15/B20 or higher).
Like the ethanol industry, the US biodiesel industry was hurt by the refinery waivers. The National Biodiesel Board (NBB) said nine biodiesel plants closed or cut production because the waivers destroyed demand for hundreds of millions of gallons of biomass-based diesel.
Another major concern, and one that has been solved for 2020, was uncertainty surrounding reinstatement and retroactivity of the biodiesel tax credit. The credit was first enacted in 2005 to incentivize US fuel blenders to use biodiesel by providing a tax credit of $1 per gallon. The credit expired several times but typically was extended.
The last time it expired on Dec. 31, 2017, it was not extended until the end of December 2019. The federal spending bill approved at the end of the year extended the biodiesel tax credit through 2022 and made it retroactive for 2018 and 2019. Three years forward is the longest time period the industry has been able to count on the credit since 2005, the NBB said.
“2020 will see us aggressively claim our space in the RFS and advocate at all levels of government for the recognition that significant growth of biomass-based diesel in the RFS is not just warranted and earned by our industry but is good federal policy in an environment of carbon reduction,” said Donnell Rehagen, chief executive officer of the NBB.
In 2019, the biodiesel industry had 102 operation plants with 2.6 billion gallons per year in production capacity. The US Energy Information Association (EIA) estimates production will reach 2 billion gallons, for a 77% utilization rate. That would be slightly higher than production in 2018, which was 1.8 billion gallons, or 72% utilization.
Brazil expanding feedstocks
In Brazil, the world’s second largest biofuels producer, sugarcane has been the main staple of ethanol production. But in the last five years, corn-based ethanol production has surged and it is not slowing down.
For the 2019 season, the USDA estimated the nation’s corn-based ethanol production at 1.4 billion liters, up from 609 million liters in 2018. The nation has 10 ethanol plants producing fuel from corn. Some facilities are “flex” plants, meaning they can use either corn or sugarcane, while a few are dedicated to corn only as a feedstock.
Unem, the Brazilian corn ethanol producers’ association, estimates that will jump 86% in the 2020-21 season to 2.6 billion liters as new capacity comes online. Three new plants are expected to start operations this year — FS Bioenergia’s plant in Sorriso, Mato Grasso, with a capacity of 530 million liters per year; CerradinhowBio in Chapadao do Ceu, Goias with a capacity of 230 million liters per year; and Etamil in Campo Novo de Parecis, Mato Grasso, with a capacity of 290 million liters per year.
Another seven corn-based ethanol plants are under construction, according to Unem, and two of the largest sugarcane mills are considering adding corn ethanol production capacity.
Even with this growth, corn-based ethanol is still only 4% of the country’s overall production. Brazil has 370 sugarcane ethanol facilities with total hydrated ethanol production capacity for 2019 at 43.105 billion liters.
Still, by 2028 Brazil is expected to produce 8 billion liters of corn-based ethanol, which will represent 19% of the country’s total ethanol output. Investment in the sector over the next eight years is estimated at nearly half a billion dollars.
Production is primarily in central Brazil, where corn is abundant and cheap. The area also produces eucalyptus, which is burned to power the corn ethanol plants. About 66% of ethanol produced in that region uses corn as a feedstock.
Exponential growth of the nation’s corn crop and new legislation known as RenovaBio, that sets higher federal mandates, is driving increased corn ethanol production. Corn production in 2019-20 is estimated to again reach 101 million tonnes, unchanged from last year. Area is estimated at a record 18.1 million hectares, up 3% from last year.
Yield is estimated at 5.58 tonnes per hectare, up 8% from the five-year average. According to data from Brazil’s agricultural statistics agency, CONAB, almost every Brazilian state that grows second-crop corn saw expanded area, improved yields and double-digit percent growth of production volumes in 2018-19.
Industry sources estimate the ethanol industry will consume 6.5 million to 7 million tonnes of corn, the USDA reported.
Large agriculture companies, including COFCO and Grupo Amaggi, have shown interest in entering the Brazilian corn ethanol market.
Analysts estimate that the corn ethanol plants can turn a profit as long as they purchase corn for R$32 or less per 60-kilogram sack, the USDA said. Ethanol plants also are aggressively marketing their co-products, including DDGS and corn oil. Brazil exported its first-ever DDGS in late December 2019, according to Brazilian news outlets, with small shipments bound for the UK and Turkey.
The RenovaBio program, which took effect Dec. 24, 2019, and will continue to roll out over the next two years, focuses on reducing the emissions intensity of the transportation sector. Specifically, it calls for decreasing carbon emissions from gasoline by 10.1% by 2028.
The program includes carbon savings credits, which are assigned to biofuels producers who can then sell on to fuel distributors. The quantity of credits assigned reflects the lifecycle emissions savings from the biofuels production process when compared to petroleum. Distributors will have to buy a certain number of the carbon savings credits each year.
EU seeking higher blends
In the EU, 2020 is a landmark year with several goals reaching their “due-by” dates, ePURE, the European renewable ethanol group, noted. This is the year EU members will need to reach the target of 10% renewable energy in transport under the Renewable Energy Directive. They will have to determine each country’s cap on the use of crop-based biofuel for the next 10 years.
“The more crop-based biofuels member states incorporate in their transport energy mix this year, the more they will be able to continue using them over the next decade as the need to reduce emissions becomes more urgent,” said Emmanuel Desplechin, ePURE Secretary-General.
So far, only two countries — Finland and Sweden — have reached the target and two others — Austria and France — are close to reaching it.
This is also the year when countries are supposed to meet targets for reducing the greenhouse gas intensity of fuels under the Fuel Quality Directive, Desplechin said. A March 2019 report from the European Environment Agency (EEA), reporting on 2017, showed that many countries are falling short of the 6% reduction target.
Average GHG intensity of fuels is 3.4% lower than it was in 2010, but it needed to be at 4% in order to meet the 2020 goal. Only four of the 22 reporting member states had reductions equal to or greater than 4% and Sweden was the only nation that has exceeded the 6% reduction target for 2020.
“The projected reduction in 2020 is 4.7%, assuming a constant reduction rate,” Desplechin said.
Several nations were adopting E10 usage, including Denmark, Hungary, Lithuania and Slovakia, in attempts to boost the use of renewables. Increasing that to E20, or a 20% blend, could be one solution in increasing total ethanol usage. Multiple studies over the last five years have shown this could be a viable option, according to E4tech Ltd. that was completed for ePURE.
E4tech determined how much ethanol would be needed by 2030 with a 20% blend under different gasoline usage scenarios. In a low gasoline demand situation, the market would require a 3.2-billion-liter increase in the volume supplied as compared to 2017 volumes. In a high demand situation, an increase of 11.5 billion liters would be required.
“Even if all of the ethanol supplied to meet the demand in 2030 was produced from crops, in none of these scenarios would the estimated crop cap set by RED II be exceeded (low demand scenario 1.7%, high demand scenario 3.1%), meaning that the crop cap would not be a barrier to the introduction of E20 to the EU market,” E4tech said.
After a dip in 2016, EU ethanol production recovered, according to a USDA report, mainly due to increased domestic consumption. Production is limited by rising prices for corn and wheat, which hurts profit margins. Still, overall production was expected to reach 5.5 billion liters in 2019, up from 5.4 billion liters a year earlier.
Total EU ethanol production capacity, for fuel, industrial and food uses, was estimated at about 9.3 billion liters in 2018. To reach 5.5 billion liters, the required volume of cereals is estimated at 12.2 million tonnes, or about 6% of total EU cereal production.
Feedstock varies by nation but corn dominates, accounting for about 43% of production, according to ePURE, followed by wheat at 26%, sugar at 21% and other cereals/cellulose making up the remaining 10%. Wheat is mainly used in Germany, France and the UK while corn is common in central Europe, the Netherlands and Spain.
Although the EU is the world’s largest biodiesel producer, the region has seen its production numbers fluctuate over the last eight years. Biodiesel represents about 75% of the total transport biofuels market in the EU, the USDA said. Consumption is driven almost exclusively by mandates and tax incentives.
Biodiesel production dropped 8% from 2017 to 2018 and is expected to drop another 4% in 2019 to 11.1 billion liters. Even though consumption increased, producers did not see a benefit because of increased import and high stocks. In comparison, renewable diesel production is expected to increase by 8% with two new plants starting commercial production.
The EU has 188 biodiesel plants with a total production capacity of 21.23 billion liters, of which only 53% was utilized in 2019. The region also has 14 renewable diesel refineries with a total capacity of 5 billion liters, which is 60% utilized.
“Numerous plants throughout the EU are being run well below full capacity or are shut down,” the USDA said.
Rapeseed oil is the dominant feedstock, accounting for 39% of total production in 2018, but its share has continuously decreased since its peak at 72% in 2008. The USDA said this is partly due to higher use of recycled vegetable oil/used cooking oil and palm oil.