How to move your business forward in a time of too much ethanol

ethanol hardships

 

Many hardships facing ethanol producers, but there is a silver lining

 

By Jim Ramm, P.E., EcoEngineers

 

There are multiple hardships facing ethanol producers in the U.S. today: the pandemic has resulted in excess production capacity compared to demand; the RFS provides an advantage to blenders to monetize RIN values; export markets are unstable; and E15 distribution is slow to develop.

The USEPA structured the Renewable Fuel Standard (RFS) so that its energy credits — or Renewable Identification Numbers (RINs) — could only be separated and sold by the fuel blender. Because ethanol plants produce large volumes of ethanol in rural America, they cannot practically act as the blender. Ethanol producers may see some benefit from RIN prices but only as a small share coming back from the blender. Another wrinkle in the RFS is the inability of corn starch ethanol to qualify as an advanced biofuel and generate a D5 RIN, no matter how much a plant reduces its GHG emissions.

A silver lining in this near-perfect storm is the ability to lower the life cycle carbon emissions of ethanol and take advantage of low-carbon fuel markets such as California’s LCFS. However, it seems like much of the LCFS regulation and oversight is also stacked against ethanol producers.  Under the LCFS, burdens are placed on U.S. ethanol for corn farming practices, which disadvantage producers. Ethanol plants are forced to take a penalty of about 30 carbon intensity (CI) points even if they can demonstrate low-carbon farming practices.

Faced with all these headwinds, what can ethanol producers do to continue to benefit their shareholders? Producers have done an incredible job bringing the first generation of low-carbon fuel technology to their communities, but the market is tough, and new investments have to have real, short-term payback.

In order for ethanol producers to move forward, they must differentiate themselves and lower their CI, so they can require price premiums in low-carbon fuel marketplaces. The amount of decrease in carbon directly correlates to potential revenue. Technologies to consider include: kernel fiber ethanol, which has a 20-40 CI range; carbon capture, reuse, and sequestration, which results in ethanol with a 40-45 CI range; combinations of energy efficiency, direct-feed wind and solar, or CHP, and wet distiller’s grains, which produce ethanol in the 50-60 CI range; and manure-based biogas projects, which can reduce the ethanol CI to 10-40 CI range.

The LCFS will continue to favor differentiated, low-carbon fuels, and the LCFS policy model is gaining popularity in other states across the country. Ethanol producers should be prepared to survive and thrive in the low-carbon economy of the future. The should be making sure LCFS policies are written in a balanced way that rewards all types of low-carbon activity – from farm practices to carbon capture, reuse or sequestration or book-and-claim accounting for low-carbon electricity purchases. The California Air Resources Board (CARB) is currently going through a three-year review of LCFS policies, and ethanol has an opportunity to voice its concerns and persuade CARB to frame a balanced low-carbon fuels policy that is fuel-neutral and rewards all carbon reduction practices.

EcoEngineers is a consulting and auditing firm that specializes in low-carbon fuels and decarbonization strategies. EcoEngineers offers a unique, comprehensive approach designed for the emerging low-carbon marketplace. In our experience, all successful clean energy projects and sustainability programs invest in the following six areas: 1) Knowledge of regulations and carbon markets, 2) Regulatory engagement, 3) carbon Life-Cycle Analysis, 4) Asset Development Consulting, 5) Compliance Management, and 6) Audit.

Jim Ramm headshot

Jim Ramm, P.E.

Jim Ramm, P.E., is the Director of Engineering and cofounder of EcoEngineers. He has over 30 years of experience in civil/environmental engineering including work in the areas of ethanol, cellulosic ethanol, and solid waste and renewable fuel production processes. For more information about low-carbon fuels, decarbonization strategies, or EcoEngineers, contact Jim at jramm@ecoengineers.us.