US ethanol needs investment, innovation to overcome future hurdles

10 November 2011 13:00  [Source: ICIS news]

BARCELONA (ICIS)--The US ethanol industry needs investment, innovation and commitment from the government as well as regulatory bodies in order to overcome a number of future challenges, a renewable fuels executive said on Thursday.

Although US exports of ethanol have more than doubled to an estimated 865m gallons/year in 2011 from 400m gallons/year in 2010, regulations such as the European renewable energy directive (RED) and fuel quality directive (FQD) could dampen exports, said Max Thomasson, global manager of CHS Renewable Fuels.

However, it is evident that the number of US ethanol plants certified by the International Sustainability and Carbon Certification (ISCC) - a European-based voluntary scheme which certifies biomass and bioenergy as sustainable in accordance with the RED - is growing, with around 12 plants approved.

This means around 1.19bn gallons of sustainable material are available for export, Thomasson said at the FO Licht World Ethanol and Biofuels conference.

Another hurdle the industry faces in the US is achieving greenhouse gas savings of 50% by 2017. Thomasson said US ethanol will be unable to achieve these targets unless it changes from corn to a cleaner feedstock, such as sugarcane, or produces cellulosic ethanol.

Increasing cellulosic production of ethanol, however, would demand a significant investment and expansion of cellulosic ethanol capacities. However, the investment community remains wary of ethanol due to its volatile margins and feedstock prices.

More fluid market conditions could attract investors but the removal of the US Volumetric Ethanol and Excise Tax Credit (VEETC) - a policy which subsidises ethanol production in the US - and the amendment to import tariffs on US ethanol in Europe could lead to market illiquidity.

This is due to the possibility that fewer US imports, specifically E90 (90% ethanol blended gasoline), will arrive in Europe as their prices will no longer be as competitive when compared to domestic European product.

Thomasson believes that this will result in the need for European and Brazilian ethanol prices to increase in order to attract imports from the US if the movement of product between countries is to remain fluid.

If the US is to overcome these challenges, Thomasson believes that investment, innovation and commitment from the government and regulatory bodies will be key.

By: Sarah Trinder
+44 20 8652 3214

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