End All Trade Barriers
As America’s ethanol industry continues to fight to expand the domestic market for ethanol through the increased use of E15, more flex-fuel vehicles (FFVs) on the road, and more consumer fuel choice at the pump, the global market for ethanol has been critical to maintaining the health and profitability of our nation’s ethanol industry. Despite the arrival of the E10 “blend wall” for ethanol in the U.S, the ever-increasing demand for ethanol globally has helped the U.S. industry continue to grow and thrive at the same time it fights to combat an artificially constrained U.S fuel market.
While the U.S. ethanol industry historically only exported a small amount of its product every year, that all changed in 2009 when improving industry economics led to the U.S. ethanol industry becoming the lowest-cost producer on the planet. This ultimately led to a dramatic and sustained surge in U.S. ethanol exports around the globe. Amazingly, annual ethanol exports from the U.S. expanded from a meager 113 million gallons in 2009 to 397 million gallons in 2010 to a record 1.2 billion gallons in 2011. Although exports of U.S. ethanol in 2012 are not expected to be much higher than around 750 million gallons, this amount still represents the second-largest export total in U.S. history.
It is widely accepted that the reduction in U.S. ethanol exports in 2012 is in large part due to the sustained drought conditions suffered in the Midwest that have, in turn, significantly increased ethanol feedstock costs, and thereby hurt global price competitiveness. There is strong evidence, however, to suggest that the reduction of exports in 2012 is not solely the result of recent shifts in industry economics, but has been exacerbated by a recent effort by Brazil to erect new barriers to U.S. ethanol imports. While exports of ethanol to Brazil made up more than one-third of all U.S. ethanol exports in 2011, exports to Brazil have fallen significantly in 2012 due to new protectionist measures put in place over the past 18 months.
Despite repeated pronouncements from Brazil regarding the need for free and fair trade in ethanol with the U.S., American ethanol producers are now being denied fair and equal access to Brazil’s fuel market as a result of several new measures put in place in the South American nation. These measures include a discriminatory tax in Sao Paulo, the primary entrance port for ethanol from the U.S., and the ordered reduction of ethanol blend rates from 25 to 20 percent. As a result of the Sao Paulo tax, an unfair “tariff” is now being placed on ethanol from the U.S. that is deferred or waived for domestic product. And, as a result of the reduction of ethanol blend volumes, the nation of Brazil is artificially controlling U.S. ethanol import demand and instead forcing fuel providers to import more expensive petroleum-based fuel. It is estimated that this measure alone is reducing exports by almost 30 million gallons a month. Additionally, Brazil’s state-owned oil company is fixing gasoline prices at levels below cost, a practice that erodes demand for hydrous ethanol (used in FFVs) by making it less price competitive at the pump.
While the U.S. government has made every effort to remove all of the perceived barriers to imports of Brazilian ethanol, and is, in fact, now encouraging imports of Brazilian ethanol into the U.S. through the renewable fuels standard, the government of Brazil is repaying this effort by restricting the ability of U.S. ethanol producers to access Brazil’s fuel market. It is time for these barriers to end, and for Brazil to join the U.S. in promoting ethanol as a global commodity.
Author: Bob Dinneen
President and CEO,
Renewable Fuels Association