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Dave Ripplinger, North Dakota State University agricultural economist, says the Trump Administration’s small refinery waivers and trade disruptions with China on the corn ethanol industry in the Upper Midwest. Photo taken Aug. 27,2019, in Fargo, N.D. (Forum News Service/Agweek/Mikkel Pates)

Next year critical as ethanol plants struggle

FARGO, N.D. — The Trump administration says it loves farmers, the Environmental Protection Agency policies on granting waivers for petroleum blenders are leading to idling or shut-downs in ethanol facilities.

"You're losing that home for a lot of corn," says David Ripplinger is a bioenergy economic specialist with North Dakota State University Extension. North Dakota's ethanol plants are all continuing to operate, but some in Iowa have idled or shut down.

Some older ethanol plants or ones in competitive cases may "have to fold, they're going to have to leave the table," he says.

The administration's handling of the Renewable Fuel Standard has hit ethanol plants in the eastern Corn Belt will have a double-whammy of poor local production because of excessive moisture and drown-out, and the need to source higher-priced corn from greater distances.

The EPA is hurting the ethanol industry by continuing to grant Small Refinery Waivers to refiners who use the product. The waivers are issued to refineries that refine 75,000 barrels of oil a day.

But it's had an out-sized effect of effect of creating "slack" for all blenders, because the RINs (renewable identification numbers that identify production for tax purposes), weren't re-allocated to other producers, which removed the incentive for larger refineries to use more ethanol.

The small refineries have asked for relief from the RFS requirements, which also hurts producers of biodiesel, made from soybeans. The EPA declines to say exactly how it determined which small refineries qualified for a waiver, based on disproportionate impacts.

The Trump administration has competing goals of supporting ethanol and cutting regulations, including the RFS.

In 2016, ethanol production had been expanded and constructed to meet expanding demands.

China has always been an "iffy" trade partner. U.S. tariff disputes with China on steel and retaliation in February 2018 made U.S. ethanol exports to China disappear. That dashed hopes that the U.S. could play a role in meeting a Chinese ethanol use mandate.

Domestic use will be driven by adoption of E-15, a 15% blend of ethanol in gasoline. Most regular gas in the U.S. is E-10, a 10% blend for regular gas that is now everywhere in the U.S.

If E-15 is less than 2% of the price of E-10, consumers are getting a better deal, Ripplinger says. The advantage could be even greater if engines were designed for the purpose. Further, there is "truth" in the idea that E-30 would make it even more advantageous.

Brighter spots on the marketing horizon include that Brazil is buying more U.S. ethanol. Ironically, Brazil is famous for an aggressive role in growing the industry, making ethanol from sugarcane.

"There are certain times and locations where the United States has a tremendous advantage to certain parts of the country," Ripplinger says. The U.S. exports 300 million gallons of ethanol a year to northeast Brazil. Brazil is looking to enact a low-carbon fuel standard, which bodes well for ethanol.

Ironically, Brazil's sugarcane-based ethanol has a smaller greenhouse gas footprint, so central California imports it. "The joke is we have ethanol tankers passing in the night," Ripplinger says.

U.S. ethanol exports account for 5 to 10% of production. "The global trading system is really on-and-off, driven in large part by the price of sugar," he says. When sugar prices collapses, Brazil goes into the market.