Renewable Fuel Standard Offers Stability For International Buyers

A U.S. ethanol production facility. Many are located in the Corn Belt, where a majority of the primary feedstock, corn, grows.
A U.S. ethanol production facility. Many are located in the Corn Belt, where a majority of the primary feedstock, corn, grows.

The Renewable Fuel Standard (RFS), established in 2005 by the United States government, requires U.S. energy companies to blend renewable fuels like ethanol into petroleum-based transportation fuel. The target amount of conventional renewable fuel blending for 2016 is set at 14.5 billion gallons (54.8 billion liters), more than triple the target blend mandated when the program originated.

“The purpose of the RFS was to create a floor for U.S. renewable fuel consumption, however, we can - and are - producing more ethanol than we are consuming,” said Mike Dwyer, U.S. Grains Council chief economist. “This puts the United States in the position of being the largest net exporter of ethanol in the world and sends a clear signal to international buyers that we can be the long-term, reliable supplier of ethanol.”

International buyers have good reason to be confident in U.S. ethanol exports, not just because of the supply available, but because U.S. ethanol has a favorable cost advantage compared to other world ethanol producers.

The main feedstock used in the production of U.S. ethanol is corn. The USDA outlook remains stable for planted corn acreage over the next ten years, yet production is set to grow to nearly 15 billion bushels (381 million metric tons). The production growth is due to efficiency and higher yields, and it contributes to a steady and reliable feedstock supply for U.S. ethanol producers.

Dwyer said ethanol export demands will continue to grow over the next 10 years, further increasing the export percentage of U.S. production.

“Regions like Asia are not only increasing their overall fuel usage, but have the potential to increase their current ethanol blend rates,” he said.

Additionally, export development programs facilitated by the Council and industry partners contribute to growing demand for U.S. ethanol. These marketing programs focus on helping international buyers understand the properties of ethanol as an octane enhancer as well as an energy source and as a way to reduce greenhouse gas (GHG) emissions and improve air quality.

“Ethanol may be the single easiest way for countries to address air quality and GHGs because it is relatively affordable,” Dwyer said. “Through increased blending of ethanol, international markets can achieve improvement in the economics of petroleum refining by getting more gasoline out of a barrel of oil.

“The prospects for U.S. ethanol export growth are superior to any other sort of domestic demand. The key to developing export markets is permanent demand.”