Pocket Guide to Ethanol

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1 Pocket Guide to Ethanol

2 1. ETHANOL FACTS AT A GLANCE 2. CORN USE/ DDG PRODUCTION 3. ECONOMIC IMPACTS/ OIL REDUCTIONS 4. ENVIRONMENTAL PROFILE 5. RFS2 6. TAX INCENTIVE/TARIFF 7. CELLULOSIC 8. HIGHER LEVEL BLENDS Renewable Fuels Association. All rights reserved.

3 2 ETHANOL AT A GLANCE: What is Ethanol? Ethanol is a high-octane, clean-burning renewable fuel produced from plant sugars. It is used as a blend component in 80% of the nation s gasoline supply today and increasingly as a gasoline replacement in the form of E85. Ethanol Stats (Jan. 2010) Ethanol Facilities: States...26 Operating Capacity: billion gallons per year (bgy) Under Construction/ Expansion Capacity (16): bgy Idled Capacity: bgy Source: RFA, February 2010 Historic Ethanol Production (in billions of gallons) 2009: * 2008: : : : : *estimated Top Ethanol Producing States 2009 Iowa Nebraska Illinois Minnesota South Dakota 3 Important Facts about Ethanol Production 2.8 gallons of ethanol and 17 pounds of livestock feed from each bushel of grain used Ethanol production requires ~3 gallons of water per gallon of ethanol produced Requirements for water and overall energy fell by 26% and 22%, respectively, between 2001 and 2006, according to most recent data available from Department of Energy.

4 4 FUEL AND FEED More than 98 percent of U.S. ethanol today is produced from grains such as corn and sorghum. This process yields both fuel and livestock feed. One-third of each bushel of grain used to produce ethanol is returned to the market in the form of livestock feed distillers grains, corn gluten feed, and corn gluten meal. Historic Corn Use (Gross bushels in billions, not accounting for the 1/3 bushel returned to feed market) 2009:...3.8* 2008: : : : : *estimated Historic Feed Production (in millions of metric tons) 2009: * 2008: : : : : *estimated HISTORIC U.S. FUEL ETHANOL PRODUCTION Source: Renewable Fuels Association, January ,600* ,500 10, Millions of gallons *Estimated Historic Distillers Grains Exports (million metric tons) 2009:...5.5* 2008: : : : : *estimated Farmers Producing Food, Feed, and Fuel U.S. farmers are producing more corn than is demanded by markets for food, feed, and fuel. Farmers produced more corn on fewer acres in USDA reports show 2009 was a record harvest (13.2 billion bushels) with record yields (165.2 bushels per acre) while needing 7 million fewer acres than the previous record crop (13 billion bushels) in Average corn yields have increased by 2.5 bushels per acre per year over the past 20 years and 3.1 bushels per acre per year over the past decade. By 2015, estimated yields will average 177 bushels per acre. Seed companies predict 300 bushels per acre yields are possible by

5 6 CREATING JOBS, REDUCING OIL DEPENDENCE The domestic ethanol industry in many ways is the original green jobs sector. The growth of the industry has led to increased job creation, new tax revenues at all levels of government, and a reduction in costly oil imports. Ethanol Creates Jobs Ethanol production today helps support nearly 400,000 jobs across the entire economy, many of which are in small, rural communities often hardest hit in bad economic times. The average ethanol facility employs approximately 50 individuals, including chemists, engineers, accountants, managers, and all levels of support staff. Example: The ethanol plant in Janesville, MN, is the second largest employer in the county behind only the school district. Industry survey reports good paying jobs with more than 75% of employees making $50,000 a year. In addition, 99% of employees report receiving health care benefits from their employers. Ethanol Increases Economic Opportunity In 2009, ethanol production contributed $53.3 billion to the Gross Domestic Product. The jobs supported by ethanol production in 2009 added $16 billion in increased household income across the nation. Ethanol Reduces Oil Imports The production and use of 10.6 billion gallons of ethanol in 2009 displaced the need for 364 million barrels of oil. Replacing 364 million barrels of oil saved U.S. taxpayers $21.3 billion that would have otherwise been sent to foreign oil producers. 7

6 8 IMPROVING CARBON FOOTPRINT Ethanol is the only low carbon alternative to gasoline available in adequate and growing supplies today. All credible comparisons to gasoline demonstrate a clear reduction in greenhouse gas emissions with the use of ethanol, ranging from 40-60%. Ethanol-blended Fuel By using 10.6 billion gallons of ethanol in our nation s motor fuel supply, 16.5 million metric tons of GHG emissions were avoided from motor vehicles. That is the equivalent of removing 2.7 million vehicles from the road. Challenges to Ethanol s Green Credentials Detractors of renewable fuels like ethanol are seeking to assess unproven and speculative carbon penalties on such fuels. Specifically, the flawed and unproven theory of international indirect land use change (ILUC) penalizes U.S. ethanol production with carbon emissions resulting from the land use decisions made by farmers and others in nations around the world. However, such a theory does not stand up to scrutiny. The dramatic improvements in on-farm productivity are allowing farmers to meet market demands through virtual acres. Since 1980, American farmers have been able to produce twice as much corn on just 3 percent more acres due to the dramatic increases in yields per acre. Meanwhile, exports of corn and ending surplus have all remained steady, if not increasing. Seeing the Forest through the Trees In a November 2009 report from Brazil s National Institute for Space Research, it showed deforestation rates falling by 46 percent between August 2008 and August By comparison, U.S. ethanol production rose 12 percent over the same time period. An Unfair Dichotomy Similar penalties are not being assessed to other potential sources of motor fuels such as Canadian tar sands, oil shale, and electric generation from coal. All of these fuel sources have significant indirect environmental impacts which are accounted for in the same manner ILUC is charged to ethanol. By disadvantaging domestic renewable fuels, the playing field is tilted to favor imports of fuel, including ethanol and petroleum. 9

7 America s Evolving Ethanol Industry American ethanol production is constantly evolving. Cellulosic feedstocks and other next generational technologies are rapidly nearing commercial production. Unfortunately, difficult economic conditions and uncertainty about federal biofuel policy is chilling investment, preventing these technologies from taking the commercialization step. private sector. In order for this to happen, the federal government must: Review and revise Department of Energy loan guarantee programs to make them more accessible for cellulosic ethanol producers Provide consistent federal policy, including reasserting the importance of the RFS2 and its cellulosic ethanol requirement for use Increase the amount of ethanol used in a gallon of gasoline from the arbitrary cap of 10 percent 10 Cellulosic Ethanol at a Glance More than 28 pilot and demonstration-scale cellulosic facilities are operating today. Each facility is utilizing its own proprietary technology while looking to convert wood waste, agricultural residues, municipal waste, and other non-grain feedstocks into ethanol. Government estimates suggest ethanol production from these sources could exceed 90 billion gallons per year. Cellulosic Ethanol s Next Steps Accelerating commercialization of these technologies requires the continued partnership of the federal government to ensure investments are made by the Current Next Generation Feedstocks Under Development Crop residues, such as corn cobs and stalks, wheat straw, and rice hulls Grasses, such as switchgrass and myscanthus Sugar wastes Wood wastes and fast growing trees Municipal solid waste Algae 11

8 Increasing Ethanol s Market Share From E10 to E15 To ensure the success of the Renewable Fuels Standard, ethanol use must increase both in traditional vehicles as well as those specifically designed to use high level ethanol blends. Additionally, infrastructure to dispense these fuels must be installed. Ethanol Use at a Glance Ethanol is blended into approximately 80% of the nation s gasoline supply. More than 2,200 gas stations now offer E85 (85% ethanol/15% gasoline) An additional 300 stations offer consumers more choice through the use of blender pumps, offering blends such as E20, E30, E40, and E85. 8 million flex fuel vehicles (FFVs) designed to use ethanol blends above 10%. Increasing ethanol blending from 10% to 15% is critical to the ultimate success of the Renewable Fuels Standard and next generation ethanol producers. Data has clearly demonstrated that all vehicles on the road today are capable of using 15% ethanol blends safely. Advancing the ethanol market in this manner, together with efforts to expand higher level blend infrastructure, will ensure current ethanol producers remain successful and emerging producers have the opportunity to succeed. 12 To expand ethanol s market share, the federal government should Immediately approve the use of E12, based on the existing statutory authority to do so. When testing is complete in mid-2010, allow for the use of E15 in all vehicles, regardless of model year. Partner with fuel marketers and retailers to install higher level blend infrastructure through the effective use of grants and tax incentives. Require new vehicles to be FFVs, capable of using any level of ethanol from 0% up to 85%. 13

9 14 AMERICA S RENEWABLE FUELS STANDARD In 2005, Congress passed the first Renewable Fuels Standard (RFS) aimed at replacing oil imports with domestically produced renewable fuels by requiring oil companies and gasoline manufacturers use these fuels. In 2007, Congress expanded upon the RFS, making it a far more robust policy with clear goals to accelerate the development of new renewable fuel technologies. Specifics of the RFS2 Requires increasing amount of renewable fuel use annually through 2022, when total use must be at least 36 billion gallons. Requires increasing levels of advanced, cellulosic, and next generation renewable fuels to be used each year, culminating with 21 billion of the 36 billion gallon requirement in 2022 coming from these sources. The RFS2 also differs from its predecessor in that it requires greenhouse gas reduction from each fuel compared to a base level gasoline measurement. It is the first effort by the federal government to require GHG reductions from any sector. Grain-based ethanol must reduce GHGs by 20% EPA calculates a 21% reduction. Advanced biofuels, such as biodiesel and sugarbased ethanol, must reduce GHGs by 50%. Cellulosic-based biofuels must reduce GHGs by 60% EPA calculates reductions of % based on feedstock & technology. Implementing the RFS Ultimately, EPA has created a program that is workable for all parties. The RFS provides the critical policy framework needed to give assurance to emerging ethanol technologies that a market will exist. EPA made some necessary and justifiable changes to its modeling that clearly demonstrate a GHG benefit from grain-based ethanol. Unfortunately, EPA continues to include unproven ILUC calculations to penalize ethanol, reducing its carbon benefit significantly. Such speculative theories have no place in federal regulation. 15

10 16 WHY A TAX INCENTIVE FOR ETHANOL USE MAKES SENSE Congress has put in place a tax incentive designed to spur domestic production and accelerate innovation. Today, that tax incentive, known as the Volumetric Ethanol Excise Tax Credit (VEETC), is $0.45 per gallon. The tax incentive is set to expire at the end of Who Gets the Tax Incentive? VEETC is available to the oil and gasoline industry for each gallon of ethanol they blend. Oil refiners and gasoline marketers can apply a $0.45 tax credit against its profits for each gallon of ethanol it blends. This tax incentive does not go to farmers or ethanol producers. Why is it necessary? VEETC provides a necessary compliment to the Renewable Fuels Standard to ensure cutting edge technologies are adopted, increasing productivity and improving efficiencies. It ensures that ethanol is blended in gasoline markets that don t require ethanol either as a state mandate or to meet Clean Air Act requirements. A long term extension of the tax credit is required for the continued evolution of America s ethanol industry. Federal tax revenue generated by the U.S. ethanol industry in 2009 alone totaled $8.4 billion. The tax incentives for ethanol totaled just $5 billion. Ethanol alone generated $3.4 billion in new tax revenue surplus for the Federal Treasury. Factoring in the additional $7.5 billion in tax revenue for state and local governments and the $21.3 billion saved in foreign oil payments, each federal tax dollar invested in ethanol incentives returned more than $7 to government and the economy at large. 17

11 18 Protecting American Taxpayers The U.S. places a 2.5% ad valorem tariff and $0.54 per gallon secondary tariff on imports of ethanol. The ad valorem tariff is commonplace around the world and is significantly lower than other nations, like Brazil, that place a 25% tariff on ethanol imports. Why a Secondary Tariff? The secondary tariff exists strictly to offset the benefit of the $0.45 per gallon tax incentive available to every gallon of ethanol used in the U.S. Oil companies receive this tax incentive for each gallon they use, regardless of the ethanol s origin. As such, the tariff simply offsets that incentive, protecting American taxpayers from subsidizing foreign ethanol production. The secondary tariff expires at the end of Congress should extend the tariff and the tax incentive in 2010 The tariff simply offsets the tax incentive. It is there to protect the taxpayer, not ethanol producers or corn farmers. The tariff is not a barrier to entry. When the U.S. market needs imports, they have entered the market with some years seeing hundreds of millions of gallons of imports. Trade loopholes, such as CAFTA and the Caribbean Basin Initiative (CBI), provide quotas for the import of ethanol duty free through these nations. Never have such imports approached the quota levels. Other nations, such as Brazil, place much more punitive tariffs on ethanol imports. As a global market develops, U.S. ethanol producers should not be disadvantaged. 19

12 GLOSSARY 1 bushel of corn = 2.8 gallons of ethanol and 18 pounds of livestock feed A gallon of ethanol contains 77,000 BTUs Ethanol has an octane rating of 113 Ethanol a colorless, renewable alcohol fuel processed from grain, plant sugars, and other plant material Feedstock the raw materials that are used to make ethanol such as corn, corn cobs, switchgrass, wood chips, beverage waste, municipal waste Flex Fuel Vehicle a specifically designed vehicle with an engine capable of running on ethanol blends up to 85% ILUC indirect land use change is a theory that an acre of grain used in ethanol production requires a new acre of land to come into food production; most often applied internationally and under the assumption that all new acres are from rainforests or virgin acres Secondary Tariff an offsetting tariff of $0.54 per gallon placed on imports of ethanol to recoup the VEETC of which imports are eligible VEETC the Volumetric Ethanol Excise Tax Credit of $0.45 per gallon is available to end users of ethanol for every gallon they blend into their finished fuels, regardless of the origin of the ethanol Virtual Acres the amount of land that would have been needed to achieve recent corn production without the dramatic increases in corn yields Virtual Pipeline the efficient system of unit trains, trucks and barges that deliver ethanol to all parts of the country 20 Biomass collectively it is all of the organic matter produced consisting of wood wastes, corn cobs, grasses, citrus wastes, other agricultural residues, wheat straw, etc. Blend Wall the cap on ethanol use based on saturation of all gasoline gallons sold containing 10% ethanol (currently around 13 billion gallons of ethanol) Carbon Intensity the measurement of lifecycle carbon emissions for any product, including fuels Cellulose a developing feedstock for ethanol production, it is the material in plants that holds them together and contains sugars that are increasingly cost effective to convert into ethanol Distillers Grains the nutrient-rich livestock feed co-product of ethanol production from grain sources 21

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