Demand in many countries for lower-carbon fuel blending stocks to meet environmental goals is underpinning a boom in exports of U.S. ethanol so far this year.
Census Bureau data show ethanol exports through July increased by 38% year-to-date to 1.1 billion gallons, which is a record high, according to the Renewable Fuels Association. And weekly data aggregated for August by the Energy Information Administration, an arm of the Energy Department, showed exports rose by 92% compared to the same month a year ago.
“Exports are a bright spot for ethanol producers this year,” said Scott Richman, chief economist for the Renewable Fuels Association.
Exports of U.S. ethanol have grown significantly since 2010, when production started to exceed domestic consumption. After peaking in 2018 at nearly 1.6 billion gallons, net exports slackened at the end of the last decade and have slowly climbed in recent years to 1.4 billion gallons in 2023, which was 9% of U.S. output.
With data available for 11 months of the 2023-2024 marketing year, just over 1.6 billion gallons of U.S. ethanol has been exported, according to Mackenzie Boubin, director of global ethanol export development for the U.S. Grains Council. Five of the top 10 market destinations are up over 100% year on year, she said.
ADM expected solid demand for exports to continue in the third quarter of the year. Upside opportunities were possible if fundamentals held, according to Senior Vice President and Interim Chief Financial Officer Ismael Roig.
Imports favored in Canada
Canada has been the leading destination for exports for nearly a decade. It imported about 35% of all U.S.-exported supply so far this year.
Richman described Canada as feedstock-constrained, but given its trade ties and low trade barriers with the U.S., supply is readily available. Canada produced 450 million gallons in 2022, about half of its consumption.
Canada's Clean Fuels Regulations have changed the game for U.S. producers, putting American ethanol at parity or at an advantage, Mogler said.
The regulations use a performance-based approach to establish a carbon credit market. Gasoline and diesel suppliers are supposed to reduce the carbon intensity, or greenhouse gas emissions, from the fuels they produce and sell 15% less than 2016 by 2030.
Carbon intensity is calculated from the extraction, refining, distribution and use of a fuel and is measured in grams of equivalent carbon dioxide per unit of energy. Fuel producers are expected to find lower carbon alternatives and, if not, buy financial credits to comply with Canada’s greenhouse gas reduction requirements. Parties with extra credits can bank them in a compliance trading market that is three years old.
For a cleaner fuel to be determined to have lower carbon intensity, its production needs to fit into an accepted methodological pathway.
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Canada uses a model for carbon reduction based on one developed 30 years ago by the U.S. DOE’s Argonne National Laboratory. The GREET model – for greenhouse gases, regulated emissions, and energy use in technologies – takes into account crop, yield, energy consumption, fertilizer sources, lime, herbicides and insecticides.
California, Oregon and Washington use the model for clean fuels and carbon reduction efforts. The Canadian life cycle assessment model uses the GREET model's lifecycle emission factors, process energy, material inputs and process emissions in combination with Canadian data.
Ethanol produced with lower carbon intensity has a higher credit value.
“It comes down to the feedstock and farm practices,” Mogler said. “If your facility is more efficient and you employ carbon capture and storage, that can count [in your favor].”
While the national government has a carbon reduction plan, individual Canadian provinces have separate ethanol blend targets which increase usage.
India, EU among other buyers of U.S. ethanol
Other large-scale destinations that have adopted tighter requirements are the United Kingdom, European Union and India.
“We have been on track to export more than 1.8 billion gallons this year, which is over 10% of our production,” the RFA’s Richman said. “The common theme is different countries promoting the use of renewable fuels.”
The U.K. has a 10% ethanol standard based on the Renewable Transport Fuel Obligation, which has been ratcheting up since it began in 2008. An ethanol standard of 14.6% is foreseen in 2032, although there is political pressure to count renewable electricity for vehicles for compliance. The Conservative Party, or Tories, proposed last year a goal of 100% zero emission sales in 2035.
EU member states such as Poland and the Czech Republic have shifted to a 10% ethanol blend level. Richman said E-85 has become popular in France, which is expected to get 100 million gallons of exports each month this year.
Among Asian countries, Japan began to allow U.S. ethanol to have 100% market access since April 2023. For many years, only cane ethanol from Brazil met Japan’s biofuel sustainability requirements, but over time the U.S. was able to change that policy.
The Philippines government said in June that it will allow discretionary E20 blending.
Iowa Gov. Kim Reynolds began a state-led trade mission last week to India to promote exports of ethanol and livestock feed. India is on its way to a 20% fuel ethanol target and is somewhat feedstock-constrained because of issues with its sugar crop, Richman said.
Significant trade barriers remain with some countries. An 18% tariff on ethanol imports by Brazil deters imports of U.S. production. Brazil’s mandatory ethanol blend requirement is met mostly with domestic sugarcane-based production.
Frictions with China in the trade and diplomatic spheres are believed to have slashed U.S. ethanol market penetration.
“China has leaned in on an all-electric vehicle strategy, and it is unlikely that they start buying [ethanol] from us,” Mogler said.
Ethanol is still attractive on the world market, he said, in part because of low corn prices and high crude oil values.
Even though ethanol prices are competitive, the RFA’s Richman said it needs more markets. Gasoline demand has not recovered to pre-pandemic levels, and the expansion to 15% of ethanol in the U.S. fuel pool faces headwinds.
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