By Brian J. Donovan
Renergie, Inc.
Use of Hydrous Ethanol in Brazil
The oil price shocks of the 1970s led the Brazilian government to address the strain high prices were placing on its fragile economy. Brazil, the largest and most populous country in South America, was importing 80% of its oil and 40% of its foreign exchange was used to pay for that imported oil.
In 1975, General Ernesto Geisel, then-president of Brazil, ordered the country’s gasoline supply mixed with 10% ethanol. The level was raised to 25% over the next five years, which was intended to maintain a constant Brazilian gasoline supply for an ever-increasing demand. The government assisted the shift by giving sugar companies subsidized loans to build ethanol plants, as well as guaranteeing prices for their ethanol products. Already the world’s biggest producer and exporter of sugar, farmers reaped the benefits of this new demand.
The 1979 Iranian crisis and related oil price shock accelerated Brazil’s conversion of its gasoline supply and automobile fleet. Under the Proalcool Program, sugar companies were ordered to increase production and the state-run oil company, Petrobras, was required to make álcool (ethanol) available at its fuel stations. The growth in hydrous ethanol, which uses a blend of 94-95% ethanol to 5-6% water, rapidly increased during the 1980s, with consumption peaking in 1989.
Automobile manufacturers were given tax breaks to produce cars that ran on hydrous ethanol, and, by 1980, every automobile company in Brazil was following this lead. By the mid-1980s, three quarters of the cars manufactured in Brazil were capable of running on sugarcane-based hydrous ethanol.
However, the drop in oil prices throughout the 1980s and 1990s made it uneconomic for the Brazilian government to continue its ethanol program. Both production and consumption of ethanol were basically flat for much of the mid-1980s to the mid-1990s. After 1995, both production and consumption of hydrous ethanol began falling quickly. The Brazilian government’s dedication to the ethanol industry declined and incentives given by the government wore off, causing hydrous ethanol fueled vehicle production to decline in the late 1980s to early 1990s. As oil prices decreased in the 1990s, the consumer acceptance of hydrous ethanol fueled cars greatly decreased and purchases of gasoline fueled automobiles returned to previous levels. The production and consumption of hydrous ethanol fuel followed an expected pattern.
The second wave of ethanol fuel production and consumption in the Brazilian market began in the 1990s when the use of anhydrous ethanol started to rise. Consumption of anhydrous ethanol has grown steadily since the 1990s, peaking in 2003.
The start of the new millennium brought with it increased oil prices, which in turn sparked a resurgence of Brazil’s drive toward energy independence, including a revival of its ethanol program. Although it previously used a hydrous ethanol blend, Brazil shifted toward the aforementioned anhydrous ethanol, which is used in a ratio of ethanol to gasoline of 20-24:80-76.
Brazil introduced its current generation of ethanol-powered cars in 2003, the same year in which anhydrous ethanol consumption peaked. Named flex-fuel vehicles (“FFVs”), these automobiles run on gasoline, ethanol, or any blend of the two. When the car is filled at the pump, an internal system analyses the mix of the two fuel types and adjusts accordingly. The first such vehicles were introduced by Volkswagen in 2003, and by 2004, they accounted for more than 17% of the Brazilian auto market. In 2005, their sales increased even further, accounting for approximately 54% of all new car sales.
Before the introduction of the flex-fuel car in Brazil in 2003, cars running on ethanol fuel were primarily using pure ethanol or hydrous ethanol blends.
In Brazil, there are currently two fuel types available at the fuel station for passenger vehicles: E100 (“AEHC”) that is the derived from a simple distillation process and has about 4.9% water content in it and Gasoline C, or E25, which is a mixture of 75% Gasoline A and 25% in volume of anhydrous ethanol (“AEAC”) with a maximum of 0.4% of water. It is possible to use gasoline C made with hydrated ethanol (“AEHC”) with minimum risk of phase separation due to Brazilian climate conditions.
The Brazilian experience shows that the presence of small (<10%) amounts of water in the fuel does not in itself cause a greater tendency to misfire in spark ignition engines than a proportionate leaning of the fuel/air mixture would do, provided that the vapor pressure of the hydrated ethanol at the ambient temperature is high enough. Experiments have even shown that the evaporation of the water in the intake manifold acts as a charge air cooling, which improves the volumetric efficiency and thereby the overall efficiency of the engine. One of the most obvious downsides is, of course, that the heating value of water is zero and as such water is simply dead weight in the fuel tank. This clearly means that a vehicle running on water-free (anhydrous) ethanol will still (even with the better volumetric efficiency) have a higher mileage per gallon than one running on hydrous ethanol. However, since the cost of the hydrous ethanol is significantly lower, hydrous ethanol will provide a lower cost per mile travelled, assuming the processing cost savings is passed on to the consumer.
Use of Hydrous Ethanol in the United States
Hydrous ethanol has been used in the United States as a transportation fuel for at least one-hundred years. The Model T Ford, which debuted in 1908, was originally designed to operate on alcohol. The Model T and Model A Fords were later designed to operate on either alcohol or gasoline or a blend of alcohol and gasoline. These were arguably the first “flex-fuel vehicles.” During the early 1900s, a distillery was a standard piece of farm equipment. These distilleries made 192-proof alcohol for human consumption, lantern fuel and transportation fuel. The distilleries were referred to as “stills” and the alcohol became known during the Prohibition period as “moonshine.” This moonshine was hydrous ethanol. Rural America, especially southern rural America, has always used small farm distilleries to process hydrous ethanol for transportation fuel during times of severe oil shortages or high gasoline prices.
Since the 1973 oil crisis, a plethora of books and instruction manuals have been published in the U.S. on the subject of how to build small stills to produce inexpensive 192-proof alcohol (“hydrous ethanol”) to be used to blend with gasoline in motor vehicles. Until fairly recently, these U.S. motor vehicles were non-FFVs.
Current Legal Requirement for Use of Anhydrous Ethanol in the United States
40 C.F.R. § 80.27 addresses controls and prohibitions on gasoline volatility. Pursuant to 40 C.F.R. § 80.27(a)(2), "Prohibited activities in 1992 and beyond. During the 1992 and later high ozone seasons no person, including without limitation, no retailer or wholesale purchaser-consumer, and during the 1992 and later regulatory control periods, no refiner, importer, distributor, reseller, or carrier shall sell, offer for sale, dispense, supply, offer for supply, transport or introduce into commerce gasoline whose Reid vapor pressure exceeds the applicable standard. As used in this section and Sec. 80.28, ``applicable standard'' means:
(i) 9.0 psi for all designated volatility attainment areas; and
(ii) The standard listed in this paragraph for the state and time period in which the gasoline is intended to be dispensed to motor vehicles for any designated volatility nonattainment area within such State or, if such area and time period cannot be determined, the standard listed in this paragraph that specifies the lowest Reid vapor pressure for the year in which the gasoline is sampled. Designated volatility attainment and designated volatility nonattainment areas and their exact boundaries are described in 40 CFR part 81, or such part as shall later be designated for that purpose. As used in this section and Sec. 80.27, ``high ozone season'' means the period from June 1 to September 15 of any calendar year and ``regulatory control period'' means the period from May 1 to September 15 of any calendar year."
40 C.F.R. § 80.27(d) further provides for alcohol blends as follows: "Special provisions for alcohol blends. (1) Any gasoline which meets the requirements of paragraph (d)(2) of this section shall not be in violation of this section if its Reid vapor pressure does not exceed the applicable standard in paragraph (a) of this section by more than one pound per square inch (1.0 psi). (2) In order to qualify for the special regulatory treatment specified in paragraph (d)(1) of this section, gasoline must contain denatured, anhydrous ethanol. The concentration of the ethanol, excluding the required denaturing agent, must be at least 9% and no more than 10% (by volume) of the gasoline. The ethanol content of the gasoline shall be determined by use of one of the testing methodologies specified in appendix F to this part. The maximum ethanol content of gasoline shall not exceed any applicable waiver conditions under section 211(f)(4) of the Clean Air Act."
U.S. Environmental Protection Agency Grants Testing Waiver
In February, 2009, the U.S. EPA granted Renergie, Inc. ("Renergie") a first-of-its-kind waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in the State of Louisiana. Under this test program, Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability.
Anhydrous Ethanol vs. Hydrous Ethanol
Ethanol (C2H5OH), otherwise known as ethyl alcohol, alcohol, or grain spirit, is a clear, colorless, flammable oxygenated hydrocarbon with a boiling point of 78.5 degrees Celsius in the anhydrous state. In transportation, ethanol is used as a vehicle fuel by itself (E100), blended with gasoline (E85), or as a gasoline octane enhancer and oxygenate (10 percent concentration).
Anhydrous ethanol means an ethyl alcohol that has a purity of at least ninety-nine percent, exclusive of added denaturants, that meets all the requirements of the American Society of Testing and Materials (ASTM) D4806, the standard specification for ethanol used as motor fuel.
Hydrous (or wet) ethanol is the most concentrated grade of ethanol that can be produced by simple distillation, without the further dehydration step necessary to produce anhydrous (or dry) ethanol. Hydrous ethanol (also sometimes known as azeotropic ethanol) typically ranges from 186 proof (93% ethanol, 7% water) to 192 proof (96% ethanol, 4% water).
Initial tests conducted in Europe have confirmed that hydrous ethanol can be blended effectively with gasoline without phase separation or other problems. An unmodified Volkswagen Golf 5 FSI was operated successfully on HE15 (15% hydrous ethanol blended with gasoline), meeting European exhaust emission standards in testing conducted by the Netherlands research organization TNO Automotive and by SGS Drive Technology Center of Austria. In addition to confirming the effectiveness of hydrous ethanol for gasoline blending in actual vehicle trials, these initial tests have shown measurable increases in volumetric fuel economy, indicating higher thermodynamic efficiencies resulting from hydrous ethanol. This recently discovered phenomena for mid-level ethanol blends appears to be due to the benefits of oxygenation and heat of vaporization in conjunction with capitalizing on the change in chemical and physical properties which occur as a result of combining water, ethanol, and gasoline. When appropriately combined in mid-level ethanol blends, the chemical reactions of these compounds optimize the efficiency at which internal combustion engines operate. For hydrous ethanol blends, this is accomplished primarily through the total heat of vaporization resulting from combining ethanol and water. Essentially, the lower energy content of hydrous ethanol is counteracted by increasing engine performance due to higher heat of vaporization of ethanol and water in comparison with gasoline and anhydrous blends.
Hydrous ethanol blends (oxygenated hydrocarbons) lower engine operating temperatures due to cooling of intake fuel mixture with 3-6% more water and increasing heat of vaporization when compared to anhydrous ethanol. The result is more efficient combustion, cooler running engines, lower exhaust temperatures, and increased longevity of engine life. The water contained in hydrous ethanol blends also reduces NOx emissions. In addition to the effects of higher water content in hydrous ethanol, ethanol increases compression ratios and decreases engine knocking (detonation). Essentially, both water and ethanol increase the octane level of the fuel mixture. The octane number is a measure of the resistance of a fuel to auto-ignition. It is also defined as a measure of anti-knock performance of a gasoline or gasoline component such as hydrous ethanol. Higher octane levels contribute to enhancing the thermodynamic efficiency of combustion engines, which subsequently increases fuel efficiency. The increase in total engine efficiency results in optimizing fuel efficiency for both ethanol and gasoline.
In addition to the strong hydrogen bonds contained in water molecules, the polarity of the OH groups contained in ethanol molecules can form hydrogen bridges causing relatively strong attractive forces between molecules in liquid phases. Upon vaporization of hydrous ethanol as a fuel, the distance between the water and ethanol molecules increase such that molecular interactions including physical properties are disrupted. This process accumulates a certain amount of latent (stored) energy. During combustion of these vapors, this explains why the heat of vaporization of hydrous ethanol blends is so much higher than that of regular gasoline components and non-alcohol oxygenates like methyl tertiary butyl ether (MTBE) which do not contain OH groups (non-alcohols). High heat of vaporization values are typical for water and alcohols including hydrous ethanol and hydrous ethanol blends (oxygenated hydrocarbons). According to Baylor University, “as far as safety and performance is concerned, hydrous ethanol is a slightly better fuel [than anhydrous ethanol] in every respect (except specific fuel consumption since water does not provide any caloric content). Small quantities of water absorbed in the fuel result in a slight increase in power caused by the higher latent heat of vaporization of the fuel.”
Previous assumptions held that ethanol's lower energy content directly correlates with lower fuel economy for automobiles. Those assumptions were found to be incorrect. Instead, the new research strongly suggests that there is an “optimal blend level” of ethanol and gasoline - most likely E20 or E30 - at which cars will get better mileage than predicted based strictly on the fuel's per-gallon Btu content. The 2007 flex-fuel Chevrolet Impala utilized in midlevel blends testing revealed a 15% increase in fuel efficiency using the Highway Fuel Economy Test (HWFET) for E20 in comparison with unleaded regular gasoline. For the same vehicle, the highway fuel economy was greater than calculated for all tested blends, with an especially high peak at E20. The new study, co-sponsored by the U.S. Department of Energy (“DOE”) and the American Coalition for Ethanol (“ACE”), also found that mid-range ethanol blends reduce harmful tailpipe emissions.
Conclusion
Rapid expansion of the ethanol industry is creating global supply/demand issues. In some geographical areas, like the U.S. for example, supply is outgrowing demand. This is having a negative effect on the price of ethanol for producers and sustainability of the ethanol industry. Due to emissions and durability testing requirements, ethanol producers are having difficulty with assessing the economic and environmental impacts of midlevel anhydrous ethanol blends on current auto engines in order to increase blending rates and the RFS. In contrast to higher percentage anhydrous ethanol blends, HE15 and higher blends can be utilized in legacy vehicles (existing auto engines) as well as FFVs. Once parallel testing has been conducted for midlevel and E85/HE85 anhydrous and hydrous ethanol blends, further fuel efficiency and emissions testing may not be necessary. In addition to raising blending rates and the RFS, the high price of corn and competition between food and fuel is squeezing profit margins of ethanol producers, resulting in global inflation of fertilizers, and reducing food supplies for staple food products including rice, corn, potatoes and wheat. Hydrous ethanol blends could reduce some of this inflationary pressure by increasing efficiencies of production.
Current U.S. FFVs are not designed to use either hydrous or anhydrous ethanol by itself, but rely on a blend of ethanol and gasoline to alleviate cold start problems. It should be noted that since the miscibility of liquids depends heavily on the ambient temperature, though not in a strictly linear way, it is unknown what the water tolerances would be at the lowest northern U.S. winter temperatures.
However, a 3-6% increase in hydrous ethanol production accompanied by a decrease in energy costs, plus an increase in fuel efficiency, will help to increase ethanol sales and profit margins for ethanol producers. Existing gasoline pipelines will be able to utilize midlevel hydrous ethanol blends as a much more compatible blendstock. This will dramatically reduce transportation costs by allowing petro-refineries and blenders to leverage existing infrastructures for distribution of hydrous ethanol. New turbocharged engines designed for ethanol only, FFV, and ethanol hybrid vehicle technologies allow for utilizing hydrous ethanol in E85 and E100 fuels in conjunction with electric power to provide unprecedented power, fuel efficiency and emissions reductions. Such combinations can substantially reduce and eventually eliminate dependence on fossil fuels.
In summary, a transition from anhydrous to hydrous ethanol in the United States is expected to make a significant contribution to ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
Thursday, August 27, 2009
Sunday, August 2, 2009
The Renergie "Field-to-Pump" Strategy
“Field-to-Pump” is a unique strategy created by Renergie, Inc. (“Renergie”) to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities ("SABMFs"). The purpose of “Field-to-Pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.
On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative(“Act 382”), the most comprehensive and far-reaching state legislation in the United States enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy. Louisiana is the first state to enact alternative transportation fuel legislation that moves fuel ethanol beyond being just a blending component in gasoline by including a mandatory variable blending pump pilot program and hydrous ethanol pilot program.
TABLE OF CONTENTS
1. History
2. Recent “Field-to-Pump” Developments
3. “Field-to-Pump” Strategy
3.1 Cost of Feedstock
3.2 Feedstock Selection
3.3 Harvesting
3.4 Processing
3.5 Marketing
3.5.1 Blender’s Tax Credit
3.5.2 Blending Pumps
3.5.3 Hydrous Ethanol
3.5.3.1 Use of Hydrous Ethanol in the U.S.
3.5.3.2 Use of Hydrous Ethanol in Brazil
4. “Field-to-Pump” Challenges
4.1 Access to Wholesale Unblended Gasoline
4.2 Importation of Duty-free Foreign Fuel Ethanol
4.2.1 Ethanol Import Tariff
4.2.2 Caribbean Basin Initiative
5. Act 382
5.1 Economic Benefits
5.2 State Vehicle Fleets
1. History
Renergie, a corporation organized under the laws of the State of Florida, created the “Field-to-Pump” strategy. Renergie was formed on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten small advanced biofuel manufacturing facilities in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Renergie produces fuel ethanol solely from sweet sorghum juice. Each small advanced biofuel manufacturing facility has a production capacity of five million gallons per year (“5 MGY”).
2. Recent ”Field-to-Pump” Developments
Renergie drafted the legislation (“HB 1270”) for the creation of an advanced biofuel industry development initiative in Louisiana. On June 9, 2008, the Louisiana Senate passed HB 1270 by a vote of 38-0. On June 21, 2008, Governor Bobby Jindal signed HB 1270 into law. On December 20, 2008, Renergie submitted a testing exemption application to the U.S. Environmental Protection Agency (“EPA”) for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. On-site blending pumps, in lieu of splash blending, are used for this test. On February 4, 2009, the U.S. EPA granted Renergie a tampering waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles in Louisiana. On February 24, 2009, the U.S. EPA granted Renergie a RVP waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana.
On October 18, 2007, Renergie submitted a grant application to the Florida Department of Environmental Protection (“DEP”), pursuant to the Renewable Energy Technologies Grant Program, for the purpose of partially funding the comprehensive development of a sweet sorghum-to-ethanol industry in Florida. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida DEP’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, the Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000.
3. “Field-to-Pump” Strategy
Renergie’s unique “Field-to-Pump” strategy is best explained by studying the five risk areas in the production of fuel ethanol: cost of feedstock, feedstock selection, harvesting, processing, and marketing.
3.1 Cost of Feedstock
It is the cost of producing the feedstock which ultimately determines the relative economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an ethanol producer to fall victim to rising feedstock costs. There is a link between the compensation paid to “Field-to-Pump” farmers/landowners and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of fuel ethanol. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.
3.2 Feedstock Selection
In Louisiana, “Field-to-Pump” produces ethanol solely from sweet sorghum juice. The controversial “food vs. fuel” debate which is ongoing in agricultural, energy and academic circles in regard to Midwest corn-to-ethanol production does not apply to “Field-to-Pump.”
Advantages of Producing Ethanol Directly from Sweet Sorghum Juice:
(1) High Yield – Renergie’s sweet sorghum juice yields between 800 to 1,000 gallons of ethanol per acre;
(2) Water Efficient Crop – Sweet sorghum, a seed-propagated crop with more than 4,600 known varieties, has very low irrigation needs compared to corn and sugarcane. It requires one-half of the water required to grow corn and one third of the water required to grow sugarcane;
(3) Ability to Grow in “Marginal Soil” – Sweet sorghum can grow in marginal soils, ranging from heavy clay to light sand. Sweet sorghum has been called a “camel among crops,” owing to its wide adaptability, its marked resistance to drought and saline-alkaline soils, and tolerance to high temperature and waterlogging;
(4) Not Harmful to the Environment – Sweet sorghum requires the use of only 40 to 60 pounds of nitrogen per acre whereas corn growers use more than 150 pounds per acre, according to the U.S. Environmental Protection Agency. Less fertilizer reduces the risk of water contamination;
(5) Rapid Growth – Sweet sorghum takes only 4 months to reach maturity, which is short enough to allow harvesting twice a year. Sugarcane requires 14 months to reach maturity. Sweet sorghum hybrids, which are not photoperiod sensitive, will flower when daylight is less than 13 hours a day;
(6) Energy Efficient – The energy requirement for converting sweet sorghum juice into ethanol is less than half of that required to convert corn into ethanol. This is due to the fact that the sugars in sweet sorghum juice are fermented directly. There is no need to excessively heat the juice to breakdown starch into sugars as required for corn; and
(7) Benefits Marine Life in Gulf of Mexico – Corn requires a large amount of fertilizers. Fertilizers from cornfields wash into streams and rivers that lead to the Mississippi River, funneling large amounts of nitrogen and phosphorus into the Gulf of Mexico. As temperatures rise in late spring, those nutrients combine with sunlight to fuel explosive algae blooms that cloud waters and suck up the oxygen available for marine life. For the commercial and recreational fishing industries, a huge swath of the Gulf of Mexico is off limits. This dead zone measured 7,915 square miles in 2007. Scientists at Louisiana State University and the Louisiana Universities Marine Consortium predict the “dead zone” of oxygen-depleted waters off the Louisiana and Texas coasts could grow this summer to 10,084 square miles. If this prediction is correct, the “dead zone” in 2008 would be 17-21 percent larger than at anytime since the mapping began in 1985 — and about as large as the state of Massachusetts. A recent report by the National Research Council finds that producing biofuels in an environmentally friendly way is imperative if Louisiana is to continue reaping the benefits of a strong fishing industry. Sweet sorghum requires one-third of the nitrogen required to grow corn. Producing ethanol from sweet sorghum, rather than increasing corn-to-ethanol production, will reduce the risk of the formation of dead zones.
3.3 Harvesting
One challenge of producing ethanol from sweet sorghum is that, unless fermentation of the juice is started within a few hours after harvesting, a 50% sugar loss may occur in only 24 hours. Renergie’s “Field-to-Pump” is the only strategy with a proven mechanical harvesting system capable of: (a) harvesting and transporting whole stalks of sweet sorghum to small advanced biofuel manufacturing facilities; and (b) ensuring that juice extraction and fermentation are started within a few hours after harvesting.
3.4 Processing
Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities in the United States capable of operating 210 days out of the year. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. “Field-to-Pump” employs a decentralized network of small advanced biofuel manufacturing facilities in Louisiana, each small advanced biofuel manufacturing facility utilizing feedstock from a reasonable transportation distance. The distributed nature of a smaller advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development.
The U.S. EPA is encouraging the development of renewable energy by identifying currently and formerly contaminated lands and mining sites that present opportunities for renewable energy development. “Field-to-Pump” agrees with the U.S. EPA’s position that, “By using these sites, we can help meet the growing national demand for renewable energy while lessening pressure on greenspace and providing economically viable and socially beneficial futures for sites that are currently under used or vacant.” The map of EPA sites in Louisiana with biorefinery facility siting potential indicates that a few sites may be suitable for one or more Renergie “Field-to-Pump” small advanced biofuel manufacturing facilities.
3.5 Marketing
“Field-to-Pump” focuses on growing ethanol demand beyond the 10% blend market. Each Renergie “Field-to-Pump” SABMF produces fuel ethanol, transports the fuel ethanol by tanker trucks to its storage tanks at its local gas stations and, via Renergie blending pumps, blends the fuel ethanol with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each “Field-to-Pump” SABMF captures the blender’s tax credit of 45-cents-per-gallon. “Field-to-Pump” captures the blender’s tax credit in order to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive.
3.5.1 Blender’s Tax Credit
The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The Blender’s Tax Credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.
The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.
Fair and healthy competition in the marketing of fuel ethanol is essential. It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
3.5.2 Variable Blending Pumps
“Field-to-Pump” uses variable blending pumps to blend fuel ethanol with unblended gasoline at the gas station pump. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. “Field-to-Pump” eliminates the inaccuracy and manipulation of splash blending by precisely blending the fuel ethanol and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.
3.5.3 Hydrous Ethanol
Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. The U.S. Environmental Protection Agency has granted a testing exemption to Renergie. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.
3.5.3.1 Use of Hydrous Ethanol in the U.S.
Hydrous ethanol has been used in the United States as a transportation fuel for at least one-hundred years. The Model T Ford, which debuted in 1908, was originally designed to operate on alcohol. The Model T and Model A Fords were later designed to operate on either alcohol or gasoline or a blend of alcohol and gasoline. These were arguably the first “flex-fuel vehicles.” During the early 1900s, a distillery was a standard piece of farm equipment. These distilleries made 192-proof alcohol for human consumption, lantern fuel and transportation fuel. The distilleries were referred to as “stills” and the alcohol became known during the Prohibition period as “moonshine.” This moonshine was hydrous ethanol. Rural America, especially southern rural America, has always used small farm distilleries to process hydrous ethanol for transportation fuel during times of severe oil shortages or high gasoline prices.
3.5.3.2 Use of Hydrous Ethanol in Brazil
Brazil introduced its current generation of ethanol-powered cars in 2003, the same year in which anhydrous ethanol consumption peaked. Named flex-fuel vehicles (“FFVs”), these automobiles run on gasoline, ethanol, or any blend of the two. When the car is filled at the pump, an internal system analyses the mix of the two fuel types and adjusts accordingly. The first such vehicles were introduced by Volkswagen in 2003, and by 2004, they accounted for more than 17% of the Brazilian auto market. In 2005, their sales increased even further, accounting for approximately 54% of all new car sales.
Before the introduction of the flex-fuel car in Brazil in 2003, cars running on ethanol fuel were primarily using pure ethanol or hydrous ethanol blends.
In Brazil, there are currently two fuel types available at the fuel station for passenger vehicles: E100 (“AEHC”) that is the derived from a simple distillation process and has about 4.9% water content in it and Gasoline C, or E25, which is a mixture of 75% Gasoline A and 25% in volume of anhydrous ethanol (“AEAC”) with a maximum of 0.4% of water. It is possible to use gasoline C made with hydrated ethanol (“AEHC”) with minimum risk of phase separation due to Brazilian climate conditions.
The State of Louisiana believes the “Field-to-Pump” transition from anhydrous to hydrous ethanol for gasoline blending will make a significant contribution to fuel ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
4. “Field-to-Pump” Challenges
“Field-to-Pump” small advanced biofuel manufacturing facilities have two basic challenges: (a) access to wholesale unblended gasoline; and (b) importation of duty-free foreign fuel ethanol by U.S. oil companies and their blending affiliates.
4.1 Access to Wholesale Unblended Gasoline
In Louisiana, “field-to-pump” SABMFs have easy access to wholesale unblended gasoline in order to blend. However, this is not the case in other states, e.g., Florida, where oil companies have a monopoly on blending fuel ethanol with unblended gasoline and thereby capturing the blender’s tax credit of 45-cents-per-gallon.
4.2 Importation of Duty-free Foreign Fuel Ethanol
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the Caribbean Basin Initiative and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of fuel ethanol. “Field-to-Pump” SABMFs have the right to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
4.2.1 Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
4.2.2 Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
5. Act 382
Act No. 382, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie. Representative Jonathan W. Perry (R – District 47), with the support of Senator Nick Gautreaux (D – District 26), was the primary author of the bill.
5.1 Economic Benefits
§3761 of The Advanced Biofuel Industry Development Initiative states, “The legislature hereby finds and declares that the development of an advanced biofuel industry in Louisiana is a matter of grave public necessity and is vital to the economy of Louisiana. The use of advanced biofuel will expand United States and Louisiana fuel supplies without increasing dependency on foreign oil. The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing: (1) increased value added to the feed stock crops which will benefit the producers and provide more revenue to the local community; (2) increased investments in plants and equipment which would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed; (3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and (4) increased local and state revenues collected from plant operations would stimulate local and state tax revenues and provide funds for improvements to the community and to the region……. Therefore, an advanced biofuel industry development initiative in Louisiana is vital to ensuring the broad-based rural economic development of Louisiana and is a matter of public policy.”
5.2 State Vehicle Fleets
Act 382 further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.
Louisiana realizes that merely building ethanol plants without simultaneously developing the necessary fueling infrastructure, ensuring an open and competitive market for the ethanol producers, and working as a unified team with the state’s Department of Agriculture, the state’s DEQ and the U.S. EPA in regard to the testing and approval of blending pumps, mid-level ethanol blends and hydrous ethanol, is not in the best interest of the state, the ethanol producer, the agricultural community or the consumer. The Louisiana Legislature finds and declares that the proper development of an advanced biofuel industry in Louisiana requires the comprehensive “Field-to-Pump” strategy.
On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative(“Act 382”), the most comprehensive and far-reaching state legislation in the United States enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy. Louisiana is the first state to enact alternative transportation fuel legislation that moves fuel ethanol beyond being just a blending component in gasoline by including a mandatory variable blending pump pilot program and hydrous ethanol pilot program.
TABLE OF CONTENTS
1. History
2. Recent “Field-to-Pump” Developments
3. “Field-to-Pump” Strategy
3.1 Cost of Feedstock
3.2 Feedstock Selection
3.3 Harvesting
3.4 Processing
3.5 Marketing
3.5.1 Blender’s Tax Credit
3.5.2 Blending Pumps
3.5.3 Hydrous Ethanol
3.5.3.1 Use of Hydrous Ethanol in the U.S.
3.5.3.2 Use of Hydrous Ethanol in Brazil
4. “Field-to-Pump” Challenges
4.1 Access to Wholesale Unblended Gasoline
4.2 Importation of Duty-free Foreign Fuel Ethanol
4.2.1 Ethanol Import Tariff
4.2.2 Caribbean Basin Initiative
5. Act 382
5.1 Economic Benefits
5.2 State Vehicle Fleets
1. History
Renergie, a corporation organized under the laws of the State of Florida, created the “Field-to-Pump” strategy. Renergie was formed on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten small advanced biofuel manufacturing facilities in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Renergie produces fuel ethanol solely from sweet sorghum juice. Each small advanced biofuel manufacturing facility has a production capacity of five million gallons per year (“5 MGY”).
2. Recent ”Field-to-Pump” Developments
Renergie drafted the legislation (“HB 1270”) for the creation of an advanced biofuel industry development initiative in Louisiana. On June 9, 2008, the Louisiana Senate passed HB 1270 by a vote of 38-0. On June 21, 2008, Governor Bobby Jindal signed HB 1270 into law. On December 20, 2008, Renergie submitted a testing exemption application to the U.S. Environmental Protection Agency (“EPA”) for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. On-site blending pumps, in lieu of splash blending, are used for this test. On February 4, 2009, the U.S. EPA granted Renergie a tampering waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles in Louisiana. On February 24, 2009, the U.S. EPA granted Renergie a RVP waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana.
On October 18, 2007, Renergie submitted a grant application to the Florida Department of Environmental Protection (“DEP”), pursuant to the Renewable Energy Technologies Grant Program, for the purpose of partially funding the comprehensive development of a sweet sorghum-to-ethanol industry in Florida. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida DEP’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, the Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000.
3. “Field-to-Pump” Strategy
Renergie’s unique “Field-to-Pump” strategy is best explained by studying the five risk areas in the production of fuel ethanol: cost of feedstock, feedstock selection, harvesting, processing, and marketing.
3.1 Cost of Feedstock
It is the cost of producing the feedstock which ultimately determines the relative economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an ethanol producer to fall victim to rising feedstock costs. There is a link between the compensation paid to “Field-to-Pump” farmers/landowners and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of fuel ethanol. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.
3.2 Feedstock Selection
In Louisiana, “Field-to-Pump” produces ethanol solely from sweet sorghum juice. The controversial “food vs. fuel” debate which is ongoing in agricultural, energy and academic circles in regard to Midwest corn-to-ethanol production does not apply to “Field-to-Pump.”
Advantages of Producing Ethanol Directly from Sweet Sorghum Juice:
(1) High Yield – Renergie’s sweet sorghum juice yields between 800 to 1,000 gallons of ethanol per acre;
(2) Water Efficient Crop – Sweet sorghum, a seed-propagated crop with more than 4,600 known varieties, has very low irrigation needs compared to corn and sugarcane. It requires one-half of the water required to grow corn and one third of the water required to grow sugarcane;
(3) Ability to Grow in “Marginal Soil” – Sweet sorghum can grow in marginal soils, ranging from heavy clay to light sand. Sweet sorghum has been called a “camel among crops,” owing to its wide adaptability, its marked resistance to drought and saline-alkaline soils, and tolerance to high temperature and waterlogging;
(4) Not Harmful to the Environment – Sweet sorghum requires the use of only 40 to 60 pounds of nitrogen per acre whereas corn growers use more than 150 pounds per acre, according to the U.S. Environmental Protection Agency. Less fertilizer reduces the risk of water contamination;
(5) Rapid Growth – Sweet sorghum takes only 4 months to reach maturity, which is short enough to allow harvesting twice a year. Sugarcane requires 14 months to reach maturity. Sweet sorghum hybrids, which are not photoperiod sensitive, will flower when daylight is less than 13 hours a day;
(6) Energy Efficient – The energy requirement for converting sweet sorghum juice into ethanol is less than half of that required to convert corn into ethanol. This is due to the fact that the sugars in sweet sorghum juice are fermented directly. There is no need to excessively heat the juice to breakdown starch into sugars as required for corn; and
(7) Benefits Marine Life in Gulf of Mexico – Corn requires a large amount of fertilizers. Fertilizers from cornfields wash into streams and rivers that lead to the Mississippi River, funneling large amounts of nitrogen and phosphorus into the Gulf of Mexico. As temperatures rise in late spring, those nutrients combine with sunlight to fuel explosive algae blooms that cloud waters and suck up the oxygen available for marine life. For the commercial and recreational fishing industries, a huge swath of the Gulf of Mexico is off limits. This dead zone measured 7,915 square miles in 2007. Scientists at Louisiana State University and the Louisiana Universities Marine Consortium predict the “dead zone” of oxygen-depleted waters off the Louisiana and Texas coasts could grow this summer to 10,084 square miles. If this prediction is correct, the “dead zone” in 2008 would be 17-21 percent larger than at anytime since the mapping began in 1985 — and about as large as the state of Massachusetts. A recent report by the National Research Council finds that producing biofuels in an environmentally friendly way is imperative if Louisiana is to continue reaping the benefits of a strong fishing industry. Sweet sorghum requires one-third of the nitrogen required to grow corn. Producing ethanol from sweet sorghum, rather than increasing corn-to-ethanol production, will reduce the risk of the formation of dead zones.
3.3 Harvesting
One challenge of producing ethanol from sweet sorghum is that, unless fermentation of the juice is started within a few hours after harvesting, a 50% sugar loss may occur in only 24 hours. Renergie’s “Field-to-Pump” is the only strategy with a proven mechanical harvesting system capable of: (a) harvesting and transporting whole stalks of sweet sorghum to small advanced biofuel manufacturing facilities; and (b) ensuring that juice extraction and fermentation are started within a few hours after harvesting.
3.4 Processing
Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities in the United States capable of operating 210 days out of the year. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. “Field-to-Pump” employs a decentralized network of small advanced biofuel manufacturing facilities in Louisiana, each small advanced biofuel manufacturing facility utilizing feedstock from a reasonable transportation distance. The distributed nature of a smaller advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development.
The U.S. EPA is encouraging the development of renewable energy by identifying currently and formerly contaminated lands and mining sites that present opportunities for renewable energy development. “Field-to-Pump” agrees with the U.S. EPA’s position that, “By using these sites, we can help meet the growing national demand for renewable energy while lessening pressure on greenspace and providing economically viable and socially beneficial futures for sites that are currently under used or vacant.” The map of EPA sites in Louisiana with biorefinery facility siting potential indicates that a few sites may be suitable for one or more Renergie “Field-to-Pump” small advanced biofuel manufacturing facilities.
3.5 Marketing
“Field-to-Pump” focuses on growing ethanol demand beyond the 10% blend market. Each Renergie “Field-to-Pump” SABMF produces fuel ethanol, transports the fuel ethanol by tanker trucks to its storage tanks at its local gas stations and, via Renergie blending pumps, blends the fuel ethanol with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each “Field-to-Pump” SABMF captures the blender’s tax credit of 45-cents-per-gallon. “Field-to-Pump” captures the blender’s tax credit in order to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive.
3.5.1 Blender’s Tax Credit
The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The Blender’s Tax Credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.
The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.
Fair and healthy competition in the marketing of fuel ethanol is essential. It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
3.5.2 Variable Blending Pumps
“Field-to-Pump” uses variable blending pumps to blend fuel ethanol with unblended gasoline at the gas station pump. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. “Field-to-Pump” eliminates the inaccuracy and manipulation of splash blending by precisely blending the fuel ethanol and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.
3.5.3 Hydrous Ethanol
Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. The U.S. Environmental Protection Agency has granted a testing exemption to Renergie. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.
3.5.3.1 Use of Hydrous Ethanol in the U.S.
Hydrous ethanol has been used in the United States as a transportation fuel for at least one-hundred years. The Model T Ford, which debuted in 1908, was originally designed to operate on alcohol. The Model T and Model A Fords were later designed to operate on either alcohol or gasoline or a blend of alcohol and gasoline. These were arguably the first “flex-fuel vehicles.” During the early 1900s, a distillery was a standard piece of farm equipment. These distilleries made 192-proof alcohol for human consumption, lantern fuel and transportation fuel. The distilleries were referred to as “stills” and the alcohol became known during the Prohibition period as “moonshine.” This moonshine was hydrous ethanol. Rural America, especially southern rural America, has always used small farm distilleries to process hydrous ethanol for transportation fuel during times of severe oil shortages or high gasoline prices.
3.5.3.2 Use of Hydrous Ethanol in Brazil
Brazil introduced its current generation of ethanol-powered cars in 2003, the same year in which anhydrous ethanol consumption peaked. Named flex-fuel vehicles (“FFVs”), these automobiles run on gasoline, ethanol, or any blend of the two. When the car is filled at the pump, an internal system analyses the mix of the two fuel types and adjusts accordingly. The first such vehicles were introduced by Volkswagen in 2003, and by 2004, they accounted for more than 17% of the Brazilian auto market. In 2005, their sales increased even further, accounting for approximately 54% of all new car sales.
Before the introduction of the flex-fuel car in Brazil in 2003, cars running on ethanol fuel were primarily using pure ethanol or hydrous ethanol blends.
In Brazil, there are currently two fuel types available at the fuel station for passenger vehicles: E100 (“AEHC”) that is the derived from a simple distillation process and has about 4.9% water content in it and Gasoline C, or E25, which is a mixture of 75% Gasoline A and 25% in volume of anhydrous ethanol (“AEAC”) with a maximum of 0.4% of water. It is possible to use gasoline C made with hydrated ethanol (“AEHC”) with minimum risk of phase separation due to Brazilian climate conditions.
The State of Louisiana believes the “Field-to-Pump” transition from anhydrous to hydrous ethanol for gasoline blending will make a significant contribution to fuel ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
4. “Field-to-Pump” Challenges
“Field-to-Pump” small advanced biofuel manufacturing facilities have two basic challenges: (a) access to wholesale unblended gasoline; and (b) importation of duty-free foreign fuel ethanol by U.S. oil companies and their blending affiliates.
4.1 Access to Wholesale Unblended Gasoline
In Louisiana, “field-to-pump” SABMFs have easy access to wholesale unblended gasoline in order to blend. However, this is not the case in other states, e.g., Florida, where oil companies have a monopoly on blending fuel ethanol with unblended gasoline and thereby capturing the blender’s tax credit of 45-cents-per-gallon.
4.2 Importation of Duty-free Foreign Fuel Ethanol
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the Caribbean Basin Initiative and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of fuel ethanol. “Field-to-Pump” SABMFs have the right to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
4.2.1 Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
4.2.2 Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
5. Act 382
Act No. 382, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie. Representative Jonathan W. Perry (R – District 47), with the support of Senator Nick Gautreaux (D – District 26), was the primary author of the bill.
5.1 Economic Benefits
§3761 of The Advanced Biofuel Industry Development Initiative states, “The legislature hereby finds and declares that the development of an advanced biofuel industry in Louisiana is a matter of grave public necessity and is vital to the economy of Louisiana. The use of advanced biofuel will expand United States and Louisiana fuel supplies without increasing dependency on foreign oil. The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing: (1) increased value added to the feed stock crops which will benefit the producers and provide more revenue to the local community; (2) increased investments in plants and equipment which would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed; (3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and (4) increased local and state revenues collected from plant operations would stimulate local and state tax revenues and provide funds for improvements to the community and to the region……. Therefore, an advanced biofuel industry development initiative in Louisiana is vital to ensuring the broad-based rural economic development of Louisiana and is a matter of public policy.”
5.2 State Vehicle Fleets
Act 382 further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.
Louisiana realizes that merely building ethanol plants without simultaneously developing the necessary fueling infrastructure, ensuring an open and competitive market for the ethanol producers, and working as a unified team with the state’s Department of Agriculture, the state’s DEQ and the U.S. EPA in regard to the testing and approval of blending pumps, mid-level ethanol blends and hydrous ethanol, is not in the best interest of the state, the ethanol producer, the agricultural community or the consumer. The Louisiana Legislature finds and declares that the proper development of an advanced biofuel industry in Louisiana requires the comprehensive “Field-to-Pump” strategy.
Saturday, August 1, 2009
Florida's "Port-to-Pump" Advanced Biofuel Initiative
State's "Farm-to-Fuel" initiative lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009
According to the U.S. Energy Information Administration, for the period from January 1, 2003 to January 1, 2009, the State of Florida consumed an average of approximately 23.1 million gallons of gasoline per day. This equates to an average of approximately 8.43 billion gallons of gasoline per year.
Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline. "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the Florida Department of Revenue. The fuel ethanol portion may be derived from any agricultural source.
For discussion purposes, let us assume Florida's average annual consumption of gasoline does not change. Beginning December 31, 2010, the State of Florida will require an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.
Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
The issue is whether an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida has an unfair competitive advantage in the marketing of motor fuel in the State of Florida.
Fair and Healthy Competition in the Marketing of Ethanol Blends
It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
Section 526.302 of the Florida Statutes clearly states the findings and intent of the Florida Legislature, “The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.”
Section 526.203 of the Florida Statutes provides states:
“(2) FUEL STANDARD.--Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS.--The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender.”
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the CBI and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of ethanol blends in the State of Florida. Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
Florida: Leading Ethanol Producer or Leading Ethanol Importer?
Currently, not a single drop of fuel ethanol is produced in the State of Florida.
In November, 2007, Governor Charlie Crist led a five-day trade and economic development mission to São Paulo, Brazil. During the mission, coordinated by Enterprise Florida, Inc., Governor Crist was quoted as saying that he was determined to fight the U.S. tariff on ethanol, while making Florida a gateway for U.S. imports of the Brazilian biofuel.
As recently as January 30, 2009, the president of Gateway Florida, Brian C. Dean, traveled to the Dominican Republic and was quoted as saying that the State of Florida needs to find permanent suppliers of ethanol to cover a demand estimated at 786 million gallons starting next year, when it implements a norm calling for a 10% mix of that fuel in gasoline. Dean further stated, “Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.”
Clearly, the ethanol import tariff should be repealed for the following reasons:
(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices;
(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff;
(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure;
(d) The Energy Independence and Security Act of 2007 set a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn; and
(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
Repeal of the 54 cent-per-gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders, not only oil companies, to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.
However, equally as clear:
(a) an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida currently has an unfair competitive advantage in the marketing of motor fuel in the State of Florida; and
(b) an oil company or refiner, or an affiliate of such oil company or refiner, must not be allowed to have a monopoly on blending fuel ethanol with unblended gasoline when the fuel ethanol and unblended gasoline are blended in the State of Florida.
Currently, the sole beneficiaries of the duty-free import of fuel ethanol to Florida from the Dominican Republic, or any CBI nation, are the oil companies and refiners and their affiliates in Florida. These same oil companies and refiners and affiliates blend these duty-free ethanol imports with unblended gasoline in the State of Florida and capture the additional blender’s tax credit of 45 cents-per-gallon. As a result, the farmers/landowners and consumers never realize any benefit, rural economic development is ignored, and jobs are not created in Florida.
Rural Development and Job Creation
Beginning December 31, 2010, the State of Florida will need to import an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.
Let's calculate the Blender's Tax Credit:
(843 million gallons of imported ethanol per year)($0.45/gallon) = $379,350,000
This $379 million per year will go directly into the coffers of out-of-state oil companies. Not one cent of this $379 million per year will be made available for rural development and job creation in the State of Florida! I doubt this issue will be addressed at the 4th Annual Farm-to-Fuel Summit currently being held in Orlando.
The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009
According to the U.S. Energy Information Administration, for the period from January 1, 2003 to January 1, 2009, the State of Florida consumed an average of approximately 23.1 million gallons of gasoline per day. This equates to an average of approximately 8.43 billion gallons of gasoline per year.
Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline. "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the Florida Department of Revenue. The fuel ethanol portion may be derived from any agricultural source.
For discussion purposes, let us assume Florida's average annual consumption of gasoline does not change. Beginning December 31, 2010, the State of Florida will require an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.
Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
The issue is whether an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida has an unfair competitive advantage in the marketing of motor fuel in the State of Florida.
Fair and Healthy Competition in the Marketing of Ethanol Blends
It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
Section 526.302 of the Florida Statutes clearly states the findings and intent of the Florida Legislature, “The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.”
Section 526.203 of the Florida Statutes provides states:
“(2) FUEL STANDARD.--Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS.--The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender.”
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the CBI and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of ethanol blends in the State of Florida. Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
Florida: Leading Ethanol Producer or Leading Ethanol Importer?
Currently, not a single drop of fuel ethanol is produced in the State of Florida.
In November, 2007, Governor Charlie Crist led a five-day trade and economic development mission to São Paulo, Brazil. During the mission, coordinated by Enterprise Florida, Inc., Governor Crist was quoted as saying that he was determined to fight the U.S. tariff on ethanol, while making Florida a gateway for U.S. imports of the Brazilian biofuel.
As recently as January 30, 2009, the president of Gateway Florida, Brian C. Dean, traveled to the Dominican Republic and was quoted as saying that the State of Florida needs to find permanent suppliers of ethanol to cover a demand estimated at 786 million gallons starting next year, when it implements a norm calling for a 10% mix of that fuel in gasoline. Dean further stated, “Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.”
Clearly, the ethanol import tariff should be repealed for the following reasons:
(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices;
(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff;
(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure;
(d) The Energy Independence and Security Act of 2007 set a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn; and
(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
Repeal of the 54 cent-per-gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders, not only oil companies, to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.
However, equally as clear:
(a) an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida currently has an unfair competitive advantage in the marketing of motor fuel in the State of Florida; and
(b) an oil company or refiner, or an affiliate of such oil company or refiner, must not be allowed to have a monopoly on blending fuel ethanol with unblended gasoline when the fuel ethanol and unblended gasoline are blended in the State of Florida.
Currently, the sole beneficiaries of the duty-free import of fuel ethanol to Florida from the Dominican Republic, or any CBI nation, are the oil companies and refiners and their affiliates in Florida. These same oil companies and refiners and affiliates blend these duty-free ethanol imports with unblended gasoline in the State of Florida and capture the additional blender’s tax credit of 45 cents-per-gallon. As a result, the farmers/landowners and consumers never realize any benefit, rural economic development is ignored, and jobs are not created in Florida.
Rural Development and Job Creation
Beginning December 31, 2010, the State of Florida will need to import an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.
Let's calculate the Blender's Tax Credit:
(843 million gallons of imported ethanol per year)($0.45/gallon) = $379,350,000
This $379 million per year will go directly into the coffers of out-of-state oil companies. Not one cent of this $379 million per year will be made available for rural development and job creation in the State of Florida! I doubt this issue will be addressed at the 4th Annual Farm-to-Fuel Summit currently being held in Orlando.
The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
Independent Ethanol Producers in Florida Have the Legal Right to Receive Blender's Tax Credit
State's "Farm-to-Fuel" initiative lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009
The issue is whether an independent ethanol producer that produces fuel ethanol in the State of Florida has a legal right to be a blender of fuel ethanol with unblended gasoline, and receive the $0.45 per gallon Blender's Tax Credit, when the fuel ethanol and unblended gasoline are blended in the State of Florida if such independent ethanol producer has been licensed or authorized by the Department of Revenue as a blender.
Relevant Federal Legislation
A. The American Jobs Creation Act of 2004
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (P.L. 108-357).
Effective January 1, 2005, the American Jobs Creation Act of 2004 established a new system for federal taxation of ethanol blends. The major changes are as follows:
• Eliminates the reduced rate of excise tax for gasohol blends containing 10%, 7.7%, and 5.7% ethanol, and instead, provides a 51 cents-per-gallon excise tax credit for each gallon of ethanol blended with gasoline. The new excise tax credit system is called the “Volumetric Ethanol Excise Tax Credit” (VEETC). In January, 2009, the excise tax credit was reduced to 45 cents-per-gallon for each gallon of ethanol blended with gasoline.
• Requires blenders to pay the full rate of tax (18.4 cents per gallon) on each gallon of a gasoline-ethanol mixture, but currently provides a 45 cents-per-gallon tax credit or refund for each gallon of ethanol used in the mixture.
• Allows blenders having excise tax liability to apply the excise tax credit against the tax imposed on the gasoline-ethanol mixture. For blenders having limited or no motor fuel excise tax liability, a refund may be claimed. IRS is required to provide refunds within 45 days, or if a claim is filed electronically, the refund must be paid within 20 days, or interest will accrue.
• Deposits all gasohol excise taxes into the Highway Trust Fund, and pays for the credit out of the General Fund.
B. Internal Revenue Code
Excise Tax. Section 4081 of the Internal Revenue Code of 1986, as amended (the “Code”), imposes an excise tax on the removal of a taxable fuel from a refinery or terminal, entry of a taxable fuel into the United States, and sale of a taxable fuel, not previously taxed upon removal or entry. “Taxable fuel” for this purpose includes gasoline, diesel fuel and kerosene.
Excise Tax Credit. Section 6426 of the Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
Relevant Florida Statutes
206.01 Definitions. - As used in this chapter:
(1) "Department" means the Department of Revenue.
(30) "Blender" means any person who blends any product with motor or diesel fuel and who has been licensed or authorized by the department as a blender.
286.29 Climate-friendly public business. - The Legislature recognizes the importance of leadership by state government in the area of energy efficiency and in reducing the greenhouse gas emissions of state government operations. The following shall pertain to all state agencies when conducting public business:
(5) All state agencies shall use ethanol and biodiesel blended fuels when available. State agencies administering central fueling operations for state-owned vehicles shall procure biofuels for fleet needs to the greatest extent practicable. (emphasis added)
526.202 Legislative findings. - The Legislature finds it is vital to the public interest and to the state's economy to establish a market and the necessary infrastructure for renewable fuels in this state by requiring that all gasoline offered for sale in this state include a percentage of agriculturally derived, denatured ethanol. The Legislature further finds that the use of renewable fuel reduces greenhouse gas emissions and dependence on imports of foreign oil, improves the health and quality of life for Floridians, and stimulates economic development and the creation of a sustainable industry that combines agricultural production with state-of-the-art technology.
526.203 Renewable fuel standard. -
(1) DEFINITIONS. - As used in this act:
(a) "Blender," "importer," "terminal supplier," and "wholesaler" are defined as provided in s. 206.01.
(b) "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the department. The fuel ethanol portion may be derived from any agricultural source.
(c) "Fuel ethanol" means an anhydrous denatured alcohol produced by the conversion of carbohydrates that meets the specifications as adopted by the department.
(d) "Unblended gasoline" means gasoline that has not been blended with fuel ethanol and that meets the specifications as adopted by the department.
(2) FUEL STANDARD. - Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS. - The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender. (emphasis added)
526.207 Studies and reports. -
(1) The Florida Energy and Climate Commission shall conduct a study to evaluate and recommend the life-cycle greenhouse gas emissions associated with all renewable fuels, including, but not limited to, biodiesel, renewable diesel, biobutanol, and ethanol derived from any source. In addition, the commission shall evaluate and recommend a requirement that all renewable fuels introduced into commerce in the state, as a result of the renewable fuel standard, shall reduce the life-cycle greenhouse gas emissions by an average percentage. The commission may also evaluate and recommend any benefits associated with the creation, banking, transfer, and sale of credits among fuel refiners, blenders, and importers. (emphasis added)
(2) The Florida Energy and Climate Commission shall submit a report containing specific recommendations to the President of the Senate and the Speaker of the House of Representatives no later than December 31, 2010.
526.302 Legislative findings and intent. - The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.
Market Reality
Currently, oil companies refuse to sell unblended gasoline to prospective independent ethanol producers in Florida. As a result, the sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. The farmers/landowners, independent ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.
Not a single drop of fuel ethanol is produced in the State of Florida. One reason for the lack of development of a fuel ethanol industry may be attributed to the fact that oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline in Florida. This monopoly is apparently supported by the Florida Energy & Climate Commission (“FECC”) which recently rejected a proposal by an independent ethanol producer to use variable blending pumps in Florida.
If independent ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends, broad-based rural economic development and job creation for Floridians.
Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive. The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009
The issue is whether an independent ethanol producer that produces fuel ethanol in the State of Florida has a legal right to be a blender of fuel ethanol with unblended gasoline, and receive the $0.45 per gallon Blender's Tax Credit, when the fuel ethanol and unblended gasoline are blended in the State of Florida if such independent ethanol producer has been licensed or authorized by the Department of Revenue as a blender.
Relevant Federal Legislation
A. The American Jobs Creation Act of 2004
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (P.L. 108-357).
Effective January 1, 2005, the American Jobs Creation Act of 2004 established a new system for federal taxation of ethanol blends. The major changes are as follows:
• Eliminates the reduced rate of excise tax for gasohol blends containing 10%, 7.7%, and 5.7% ethanol, and instead, provides a 51 cents-per-gallon excise tax credit for each gallon of ethanol blended with gasoline. The new excise tax credit system is called the “Volumetric Ethanol Excise Tax Credit” (VEETC). In January, 2009, the excise tax credit was reduced to 45 cents-per-gallon for each gallon of ethanol blended with gasoline.
• Requires blenders to pay the full rate of tax (18.4 cents per gallon) on each gallon of a gasoline-ethanol mixture, but currently provides a 45 cents-per-gallon tax credit or refund for each gallon of ethanol used in the mixture.
• Allows blenders having excise tax liability to apply the excise tax credit against the tax imposed on the gasoline-ethanol mixture. For blenders having limited or no motor fuel excise tax liability, a refund may be claimed. IRS is required to provide refunds within 45 days, or if a claim is filed electronically, the refund must be paid within 20 days, or interest will accrue.
• Deposits all gasohol excise taxes into the Highway Trust Fund, and pays for the credit out of the General Fund.
B. Internal Revenue Code
Excise Tax. Section 4081 of the Internal Revenue Code of 1986, as amended (the “Code”), imposes an excise tax on the removal of a taxable fuel from a refinery or terminal, entry of a taxable fuel into the United States, and sale of a taxable fuel, not previously taxed upon removal or entry. “Taxable fuel” for this purpose includes gasoline, diesel fuel and kerosene.
Excise Tax Credit. Section 6426 of the Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
Relevant Florida Statutes
206.01 Definitions. - As used in this chapter:
(1) "Department" means the Department of Revenue.
(30) "Blender" means any person who blends any product with motor or diesel fuel and who has been licensed or authorized by the department as a blender.
286.29 Climate-friendly public business. - The Legislature recognizes the importance of leadership by state government in the area of energy efficiency and in reducing the greenhouse gas emissions of state government operations. The following shall pertain to all state agencies when conducting public business:
(5) All state agencies shall use ethanol and biodiesel blended fuels when available. State agencies administering central fueling operations for state-owned vehicles shall procure biofuels for fleet needs to the greatest extent practicable. (emphasis added)
526.202 Legislative findings. - The Legislature finds it is vital to the public interest and to the state's economy to establish a market and the necessary infrastructure for renewable fuels in this state by requiring that all gasoline offered for sale in this state include a percentage of agriculturally derived, denatured ethanol. The Legislature further finds that the use of renewable fuel reduces greenhouse gas emissions and dependence on imports of foreign oil, improves the health and quality of life for Floridians, and stimulates economic development and the creation of a sustainable industry that combines agricultural production with state-of-the-art technology.
526.203 Renewable fuel standard. -
(1) DEFINITIONS. - As used in this act:
(a) "Blender," "importer," "terminal supplier," and "wholesaler" are defined as provided in s. 206.01.
(b) "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the department. The fuel ethanol portion may be derived from any agricultural source.
(c) "Fuel ethanol" means an anhydrous denatured alcohol produced by the conversion of carbohydrates that meets the specifications as adopted by the department.
(d) "Unblended gasoline" means gasoline that has not been blended with fuel ethanol and that meets the specifications as adopted by the department.
(2) FUEL STANDARD. - Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS. - The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender. (emphasis added)
526.207 Studies and reports. -
(1) The Florida Energy and Climate Commission shall conduct a study to evaluate and recommend the life-cycle greenhouse gas emissions associated with all renewable fuels, including, but not limited to, biodiesel, renewable diesel, biobutanol, and ethanol derived from any source. In addition, the commission shall evaluate and recommend a requirement that all renewable fuels introduced into commerce in the state, as a result of the renewable fuel standard, shall reduce the life-cycle greenhouse gas emissions by an average percentage. The commission may also evaluate and recommend any benefits associated with the creation, banking, transfer, and sale of credits among fuel refiners, blenders, and importers. (emphasis added)
(2) The Florida Energy and Climate Commission shall submit a report containing specific recommendations to the President of the Senate and the Speaker of the House of Representatives no later than December 31, 2010.
526.302 Legislative findings and intent. - The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.
Market Reality
Currently, oil companies refuse to sell unblended gasoline to prospective independent ethanol producers in Florida. As a result, the sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. The farmers/landowners, independent ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.
Not a single drop of fuel ethanol is produced in the State of Florida. One reason for the lack of development of a fuel ethanol industry may be attributed to the fact that oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline in Florida. This monopoly is apparently supported by the Florida Energy & Climate Commission (“FECC”) which recently rejected a proposal by an independent ethanol producer to use variable blending pumps in Florida.
If independent ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends, broad-based rural economic development and job creation for Floridians.
Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive. The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
Thursday, July 16, 2009
Measuring Corn Ethanol’s Thirst for Water
Ethanol from corn consumes three times more water than previously thought.
By Phil McKenna
MIT Technology Review
April 14, 2009
Ethanol derived from corn consumes up to three times more water than previously thought, according to a new study.
Prior studies have estimated, based on national production averages, that one liter of corn-derived ethanol should require 263 to 784 liters of water to both grow the crop and convert it into fuel. Now, researchers at the University of Minnesota have concluded that the amount of water used in ethanol production varies hugely from state to state, ranging from 5 to 2,138 liters of water per liter of ethanol, depending on regional irrigation needs.
Corn ethanol is already plagued by environmental concerns such as pollution from fertilizer, pesticides, and herbicides; soil erosion; greenhouse-gas emissions from production; and competition for agricultural land with food crops.
The new study, published in the journal Environmental Science and Technology, also found that as corn-based ethanol production has approximately doubled nationwide between 2005 and 2008, related water use has more than tripled.
“Ethanol consumes more water over time as corn production extends to regions that need extensive irrigation,” says Sangwon Suh, an assistant professor of biosystems engineering at the University of Minnesota and coauthor of the study. “That means more water is needed to produce a given unit of ethanol over time.”
Suh and his colleagues examined state and county records on irrigation use for growing corn, both as food and for fuel, as well as the location, production levels, and water usage of existing corn-ethanol facilities. The researchers found that more than 80 percent of the corn used to make ethanol is harvested within a 64-kilometer radius of the refinery where it is converted into fuel. Using this information and data on local rates of irrigation, the researchers were able to estimate the water requirements of individual corn-ethanol production facilities.
In some states, such as Ohio, Iowa, and Kentucky, where corn can grow with little to no irrigation, only five to seven liters of water are required to turn the foodstuff into fuel. Almost all of this water is used to boil, ferment, and distill the biofuel. As ethanol production has increased, however, more corn is being grown in western states such as Nebraska, Colorado, and California, where irrigation needs raise the fuel’s water requirements significantly.
“This is one more nail in the coffin for ethanol,” says David Pimentel of Cornell University, in Ithaca, NY, whose own studies have shown that ethanol requires more energy to produce than it releases when burned, and that the fertilizer used to grow corn for ethanol has contributed significantly to dead zones in the Gulf of Mexico (areas of the ocean with low oxygen content due to increases in chemicals in the water).
The U.S. Energy Independence and Security Act of 2007 mandates that ethanol produced using existing technologies will have to increase from the 34 billion liters produced in 2008 to 57 billion liters per year by 2015. This includes the more arid western states, where corn-based ethanol is currently produced.
Jerry Schnoor of the University of Iowa, in Iowa City, says that ethanol producers are already planning additional production facilities in all states to meet the 2015 goals. “We’re already in an unsustainable situation in terms of water use, already drawing down aquifers like the Ogallala,” Schnoor says of the vast underground water source stretching from South Dakota to northern Texas. “This would exacerbate that decline if we expand in these irrigation states.”
Geoff Cooper, vice president of research at the Renewable Fuels Association in Washington D.C., questions the researchers’ claim that water use has tripling as ethanol production has doubled. “The bulk of expansion from ‘05 to ‘08 occurred in the central corn belt–places that don’t irrigate corn,” he says. “There is a finite limit to how much ethanol you can put in water-constrained areas. We are not putting ethanol plants into areas where water is severely limited.” Suh is also optimistic that water use can be reduced while ethanol production continues to grow. He says that agricultural land that has been set aside for conservation in regions that do not require irrigation could be brought back into production, and genetically engineered corn could maintain high yields with lower water requirements.
“I’m very optimistic we can achieve the ethanol production mandate without sacrificing water security in the U.S.,” he says. Schnoor adds that ethanol production could expand to the south and east, where land is cheaper and water is more plentiful.
Pimentel, however, disagrees. “You read the paper and the conclusion is certainly that it will require more and more water, but [Suh] is from Minnesota, and you have to be cautious because in Minnesota they are promoting ethanol,” he says.
The study was funded in part by the Department of Energy and the state of Minnesota.
By Phil McKenna
MIT Technology Review
April 14, 2009
Ethanol derived from corn consumes up to three times more water than previously thought, according to a new study.
Prior studies have estimated, based on national production averages, that one liter of corn-derived ethanol should require 263 to 784 liters of water to both grow the crop and convert it into fuel. Now, researchers at the University of Minnesota have concluded that the amount of water used in ethanol production varies hugely from state to state, ranging from 5 to 2,138 liters of water per liter of ethanol, depending on regional irrigation needs.
Corn ethanol is already plagued by environmental concerns such as pollution from fertilizer, pesticides, and herbicides; soil erosion; greenhouse-gas emissions from production; and competition for agricultural land with food crops.
The new study, published in the journal Environmental Science and Technology, also found that as corn-based ethanol production has approximately doubled nationwide between 2005 and 2008, related water use has more than tripled.
“Ethanol consumes more water over time as corn production extends to regions that need extensive irrigation,” says Sangwon Suh, an assistant professor of biosystems engineering at the University of Minnesota and coauthor of the study. “That means more water is needed to produce a given unit of ethanol over time.”
Suh and his colleagues examined state and county records on irrigation use for growing corn, both as food and for fuel, as well as the location, production levels, and water usage of existing corn-ethanol facilities. The researchers found that more than 80 percent of the corn used to make ethanol is harvested within a 64-kilometer radius of the refinery where it is converted into fuel. Using this information and data on local rates of irrigation, the researchers were able to estimate the water requirements of individual corn-ethanol production facilities.
In some states, such as Ohio, Iowa, and Kentucky, where corn can grow with little to no irrigation, only five to seven liters of water are required to turn the foodstuff into fuel. Almost all of this water is used to boil, ferment, and distill the biofuel. As ethanol production has increased, however, more corn is being grown in western states such as Nebraska, Colorado, and California, where irrigation needs raise the fuel’s water requirements significantly.
“This is one more nail in the coffin for ethanol,” says David Pimentel of Cornell University, in Ithaca, NY, whose own studies have shown that ethanol requires more energy to produce than it releases when burned, and that the fertilizer used to grow corn for ethanol has contributed significantly to dead zones in the Gulf of Mexico (areas of the ocean with low oxygen content due to increases in chemicals in the water).
The U.S. Energy Independence and Security Act of 2007 mandates that ethanol produced using existing technologies will have to increase from the 34 billion liters produced in 2008 to 57 billion liters per year by 2015. This includes the more arid western states, where corn-based ethanol is currently produced.
Jerry Schnoor of the University of Iowa, in Iowa City, says that ethanol producers are already planning additional production facilities in all states to meet the 2015 goals. “We’re already in an unsustainable situation in terms of water use, already drawing down aquifers like the Ogallala,” Schnoor says of the vast underground water source stretching from South Dakota to northern Texas. “This would exacerbate that decline if we expand in these irrigation states.”
Geoff Cooper, vice president of research at the Renewable Fuels Association in Washington D.C., questions the researchers’ claim that water use has tripling as ethanol production has doubled. “The bulk of expansion from ‘05 to ‘08 occurred in the central corn belt–places that don’t irrigate corn,” he says. “There is a finite limit to how much ethanol you can put in water-constrained areas. We are not putting ethanol plants into areas where water is severely limited.” Suh is also optimistic that water use can be reduced while ethanol production continues to grow. He says that agricultural land that has been set aside for conservation in regions that do not require irrigation could be brought back into production, and genetically engineered corn could maintain high yields with lower water requirements.
“I’m very optimistic we can achieve the ethanol production mandate without sacrificing water security in the U.S.,” he says. Schnoor adds that ethanol production could expand to the south and east, where land is cheaper and water is more plentiful.
Pimentel, however, disagrees. “You read the paper and the conclusion is certainly that it will require more and more water, but [Suh] is from Minnesota, and you have to be cautious because in Minnesota they are promoting ethanol,” he says.
The study was funded in part by the Department of Energy and the state of Minnesota.
Anhydrous Ethanol vs. Hydrous Ethanol in Gasoline Blending
By Brian J. Donovan
Renergie
April 22, 2009
Ethanol (C2H5OH), otherwise known as ethyl alcohol, alcohol, or grain spirit, is a clear, colorless, flammable oxygenated hydrocarbon with a boiling point of 78.5 degrees Celsius in the anhydrous state. In transportation, ethanol is used as a vehicle fuel by itself (E100), blended with gasoline (E85), or as a gasoline octane enhancer and oxygenate (10 percent concentration).
Anhydrous ethanol means an ethyl alcohol that has a purity of at least ninety-nine percent, exclusive of added denaturants, that meets all the requirements of the American Society of Testing and Materials (ASTM) D4806, the standard specification for ethanol used as motor fuel.
Hydrous (or wet) ethanol is the most concentrated grade of ethanol that can be produced by simple distillation, without the further dehydration step necessary to produce anhydrous (or dry) ethanol. Hydrous ethanol (also sometimes known as azeotropic ethanol) typically ranges from 186 proof (93% ethanol, 7% water) to 192 proof (96% ethanol, 4% water).
Initial tests conducted in Europe have confirmed that hydrous ethanol can be blended effectively with gasoline without phase separation or other problems. An unmodified Volkswagen Golf 5 FSI was operated successfully on HE15 (15% hydrous ethanol blended with gasoline), meeting European exhaust emission standards in testing conducted by the Netherlands research organization TNO Automotive and by SGS Drive Technology Center of Austria. In addition to confirming the effectiveness of hydrous ethanol for gasoline blending in actual vehicle trials, these initial tests have shown measurable increases in volumetric fuel economy, indicating higher thermodynamic efficiencies resulting from hydrous ethanol. This recently discovered phenomena for mid-level ethanol blends appears to be due to the benefits of oxygenation and heat of vaporization in conjunction with capitalizing on the change in chemical and physical properties which occur as a result of combining water, ethanol, and gasoline. When appropriately combined in mid-level ethanol blends, the chemical reactions of these compounds optimize the efficiency at which internal combustion engines operate. For hydrous ethanol blends, this is accomplished primarily through the total heat of vaporization resulting from combining ethanol and water. Essentially, the lower energy content of hydrous ethanol is counteracted by increasing engine performance due to higher heat of vaporization of ethanol and water in comparison with gasoline and anhydrous blends.
Hydrous ethanol blends (oxygenated hydrocarbons) lower engine operating temperatures due to cooling of intake fuel mixture with 3-6% more water and increasing heat of vaporization when compared to anhydrous ethanol. The result is more efficient combustion, cooler running engines, lower exhaust temperatures, and increased longevity of engine life. The water contained in hydrous ethanol blends also reduces NOx emissions. In addition to the effects of higher water content in hydrous ethanol, ethanol increases compression ratios and decreases engine knocking (detonation). Essentially, both water and ethanol increase the octane level of the fuel mixture. The octane number is a measure of the resistance of a fuel to auto-ignition. It is also defined as a measure of anti-knock performance of a gasoline or gasoline component such as hydrous ethanol. Higher octane levels contribute to enhancing the thermodynamic efficiency of combustion engines, which subsequently increases fuel efficiency. The increase in total engine efficiency results in optimizing fuel efficiency for both ethanol and gasoline.
In addition to the strong hydrogen bonds contained in water molecules, the polarity of the OH groups contained in ethanol molecules can form hydrogen bridges causing relatively strong attractive forces between molecules in liquid phases. Upon vaporization of hydrous ethanol as a fuel, the distance between the water and ethanol molecules increase such that molecular interactions including physical properties are disrupted. This process accumulates a certain amount of latent (stored) energy. During combustion of these vapors, this explains why the heat of vaporization of hydrous ethanol blends is so much higher than that of regular gasoline components and non-alcohol oxygenates like methyl tertiary butyl ether (MTBE) which do not contain OH groups (non-alcohols). High heat of vaporization values are typical for water and alcohols including hydrous ethanol and hydrous ethanol blends (oxygenated hydrocarbons).
According to Baylor University, “as far as safety and performance is concerned, hydrous ethanol is a slightly better fuel [than anhydrous ethanol] in every respect (except specific fuel consumption since water does not provide any caloric content). Small quantities of water absorbed in the fuel result in a slight increase in power caused by the higher latent heat of vaporization of the fuel.”
Previous assumptions held that ethanol’s lower energy content directly correlates with lower fuel economy for automobiles. Those assumptions were found to be incorrect. Instead, the new research strongly suggests that there is an “optimal blend level” of ethanol and gasoline – most likely E20 or E30 – at which cars will get better mileage than predicted based strictly on the fuel’s per-gallon Btu content. The 2007 flex-fuel Chevrolet Impala utilized in midlevel blends testing revealed a 15% increase in fuel efficiency using the Highway Fuel Economy Test (HWFET) for E20 in comparison with unleaded regular gasoline. For the same vehicle, the highway fuel economy was greater than calculated for all tested blends, with an especially high peak at E20. The new study, co-sponsored by the U.S. Department of Energy (“DOE”) and the American Coalition for Ethanol (“ACE”), also found that mid-range ethanol blends reduce harmful tailpipe emissions.
Rapid expansion of the ethanol industry is creating global supply/demand issues. In some geographical areas, like the U.S. for example, supply is outgrowing demand. This is having a negative effect on the price of ethanol for producers and sustainability of the ethanol industry. Due to emissions and durability testing requirements, ethanol producers are having difficulty with assessing the economic and environmental impacts of midlevel anhydrous ethanol blends on current auto engines in order to increase blending rates and the RFS. In contrast to higher percentage anhydrous ethanol blends, HE15 and higher blends can be utilized in legacy vehicles (existing auto engines) as well as FFVs. Once parallel testing has been conducted for midlevel and E85/HE85 anhydrous and hydrous ethanol blends, further fuel efficiency and emissions testing may not be necessary. In addition to raising blending rates and the RFS, the high price of corn and competition between food and fuel is squeezing profit margins of ethanol producers, resulting in global inflation of fertilizers, and reducing food supplies for staple food products including rice, corn, potatoes and wheat. Hydrous ethanol blends could reduce some of this inflationary pressure by increasing efficiencies of production.
A 3-6% increase in ethanol production accompanied by a decrease in energy costs, plus an increase in fuel efficiency, will help to increase ethanol sales and profit margins for ethanol producers. Existing gasoline pipelines will be able to utilize midlevel hydrous ethanol blends as a much more compatible blendstock. This will dramatically reduce transportation costs by allowing petro-refineries and blenders to leverage existing infrastructures for distribution of hydrous ethanol. New turbocharged engines designed for ethanol only, FFV, and ethanol hybrid vehicle technologies allow for utilizing hydrous ethanol in E85 and E100 fuels in conjunction with electric power to provide unprecedented power, fuel efficiency and emissions reductions. Such combinations can substantially reduce and eventually eliminate dependence on fossil fuels.
In summary, a transition from anhydrous to hydrous ethanol for gasoline blending is expected to make a significant contribution to ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
Renergie
April 22, 2009
Ethanol (C2H5OH), otherwise known as ethyl alcohol, alcohol, or grain spirit, is a clear, colorless, flammable oxygenated hydrocarbon with a boiling point of 78.5 degrees Celsius in the anhydrous state. In transportation, ethanol is used as a vehicle fuel by itself (E100), blended with gasoline (E85), or as a gasoline octane enhancer and oxygenate (10 percent concentration).
Anhydrous ethanol means an ethyl alcohol that has a purity of at least ninety-nine percent, exclusive of added denaturants, that meets all the requirements of the American Society of Testing and Materials (ASTM) D4806, the standard specification for ethanol used as motor fuel.
Hydrous (or wet) ethanol is the most concentrated grade of ethanol that can be produced by simple distillation, without the further dehydration step necessary to produce anhydrous (or dry) ethanol. Hydrous ethanol (also sometimes known as azeotropic ethanol) typically ranges from 186 proof (93% ethanol, 7% water) to 192 proof (96% ethanol, 4% water).
Initial tests conducted in Europe have confirmed that hydrous ethanol can be blended effectively with gasoline without phase separation or other problems. An unmodified Volkswagen Golf 5 FSI was operated successfully on HE15 (15% hydrous ethanol blended with gasoline), meeting European exhaust emission standards in testing conducted by the Netherlands research organization TNO Automotive and by SGS Drive Technology Center of Austria. In addition to confirming the effectiveness of hydrous ethanol for gasoline blending in actual vehicle trials, these initial tests have shown measurable increases in volumetric fuel economy, indicating higher thermodynamic efficiencies resulting from hydrous ethanol. This recently discovered phenomena for mid-level ethanol blends appears to be due to the benefits of oxygenation and heat of vaporization in conjunction with capitalizing on the change in chemical and physical properties which occur as a result of combining water, ethanol, and gasoline. When appropriately combined in mid-level ethanol blends, the chemical reactions of these compounds optimize the efficiency at which internal combustion engines operate. For hydrous ethanol blends, this is accomplished primarily through the total heat of vaporization resulting from combining ethanol and water. Essentially, the lower energy content of hydrous ethanol is counteracted by increasing engine performance due to higher heat of vaporization of ethanol and water in comparison with gasoline and anhydrous blends.
Hydrous ethanol blends (oxygenated hydrocarbons) lower engine operating temperatures due to cooling of intake fuel mixture with 3-6% more water and increasing heat of vaporization when compared to anhydrous ethanol. The result is more efficient combustion, cooler running engines, lower exhaust temperatures, and increased longevity of engine life. The water contained in hydrous ethanol blends also reduces NOx emissions. In addition to the effects of higher water content in hydrous ethanol, ethanol increases compression ratios and decreases engine knocking (detonation). Essentially, both water and ethanol increase the octane level of the fuel mixture. The octane number is a measure of the resistance of a fuel to auto-ignition. It is also defined as a measure of anti-knock performance of a gasoline or gasoline component such as hydrous ethanol. Higher octane levels contribute to enhancing the thermodynamic efficiency of combustion engines, which subsequently increases fuel efficiency. The increase in total engine efficiency results in optimizing fuel efficiency for both ethanol and gasoline.
In addition to the strong hydrogen bonds contained in water molecules, the polarity of the OH groups contained in ethanol molecules can form hydrogen bridges causing relatively strong attractive forces between molecules in liquid phases. Upon vaporization of hydrous ethanol as a fuel, the distance between the water and ethanol molecules increase such that molecular interactions including physical properties are disrupted. This process accumulates a certain amount of latent (stored) energy. During combustion of these vapors, this explains why the heat of vaporization of hydrous ethanol blends is so much higher than that of regular gasoline components and non-alcohol oxygenates like methyl tertiary butyl ether (MTBE) which do not contain OH groups (non-alcohols). High heat of vaporization values are typical for water and alcohols including hydrous ethanol and hydrous ethanol blends (oxygenated hydrocarbons).
According to Baylor University, “as far as safety and performance is concerned, hydrous ethanol is a slightly better fuel [than anhydrous ethanol] in every respect (except specific fuel consumption since water does not provide any caloric content). Small quantities of water absorbed in the fuel result in a slight increase in power caused by the higher latent heat of vaporization of the fuel.”
Previous assumptions held that ethanol’s lower energy content directly correlates with lower fuel economy for automobiles. Those assumptions were found to be incorrect. Instead, the new research strongly suggests that there is an “optimal blend level” of ethanol and gasoline – most likely E20 or E30 – at which cars will get better mileage than predicted based strictly on the fuel’s per-gallon Btu content. The 2007 flex-fuel Chevrolet Impala utilized in midlevel blends testing revealed a 15% increase in fuel efficiency using the Highway Fuel Economy Test (HWFET) for E20 in comparison with unleaded regular gasoline. For the same vehicle, the highway fuel economy was greater than calculated for all tested blends, with an especially high peak at E20. The new study, co-sponsored by the U.S. Department of Energy (“DOE”) and the American Coalition for Ethanol (“ACE”), also found that mid-range ethanol blends reduce harmful tailpipe emissions.
Rapid expansion of the ethanol industry is creating global supply/demand issues. In some geographical areas, like the U.S. for example, supply is outgrowing demand. This is having a negative effect on the price of ethanol for producers and sustainability of the ethanol industry. Due to emissions and durability testing requirements, ethanol producers are having difficulty with assessing the economic and environmental impacts of midlevel anhydrous ethanol blends on current auto engines in order to increase blending rates and the RFS. In contrast to higher percentage anhydrous ethanol blends, HE15 and higher blends can be utilized in legacy vehicles (existing auto engines) as well as FFVs. Once parallel testing has been conducted for midlevel and E85/HE85 anhydrous and hydrous ethanol blends, further fuel efficiency and emissions testing may not be necessary. In addition to raising blending rates and the RFS, the high price of corn and competition between food and fuel is squeezing profit margins of ethanol producers, resulting in global inflation of fertilizers, and reducing food supplies for staple food products including rice, corn, potatoes and wheat. Hydrous ethanol blends could reduce some of this inflationary pressure by increasing efficiencies of production.
A 3-6% increase in ethanol production accompanied by a decrease in energy costs, plus an increase in fuel efficiency, will help to increase ethanol sales and profit margins for ethanol producers. Existing gasoline pipelines will be able to utilize midlevel hydrous ethanol blends as a much more compatible blendstock. This will dramatically reduce transportation costs by allowing petro-refineries and blenders to leverage existing infrastructures for distribution of hydrous ethanol. New turbocharged engines designed for ethanol only, FFV, and ethanol hybrid vehicle technologies allow for utilizing hydrous ethanol in E85 and E100 fuels in conjunction with electric power to provide unprecedented power, fuel efficiency and emissions reductions. Such combinations can substantially reduce and eventually eliminate dependence on fossil fuels.
In summary, a transition from anhydrous to hydrous ethanol for gasoline blending is expected to make a significant contribution to ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
Small-scale Distributed Energy in Wisconsin Benefits Farmers, Local Communities
By Lisa Gibson
Biomass Magazine
April 29, 2009
If Wisconsin would take advantage of “low hanging fruit” and cash in on the state’s biomass potential via small-scale distributed energy systems, advantages would reach both the agricultural sector and rural communities, according to a recently released Program on Agricultural Technologies (PATS) policy perspective. ‘How Could Small Scale Distributed Energy Benefit Wisconsin Agriculture and Rural Communities?’ was published in late April.
Authors Gary Radloff, director of policy and communications with the Wisconsin Department of Agriculture, Trade and Consumer Protection, and Alan Turnquist, outreach specialist at the Program on Agriculture Technology Studies at the University of Wisconsin-Madison, say a distributed energy system in the state might curb logistical challenges that come along with large-scale, industrial production, such as biomass feedstock aggregation, short-term storage and transportation. “In policy discussion, we need to keep in mind policy incentives for smaller-scale operations,” Radloff said.
“For me, the thing that struck home was that all of these logistics behind biomass are so dependent on location,” Turnquist said of his research. The small-scale distributed energy option is obvious, he said, creating a marriage between the idea of hundreds of thousands of producers and smaller-scale uses.
Wisconsin has almost 15 million tons of potential biomass, the paper states, and if smaller local operations use that feedstock, it could increase energy production opportunities and increase returns for rural communities. It’s not just the scale of biomass potential that makes distributed energy a powerful tool in Wisconsin, but also its diversity, Turnquist said. “The single biggest benefit is that we have the capacity to do it right now,” he said.
Small-scale operations are starting to pop up around the state, according to Radloff, mostly at rural schools. Starting small and building out might be a way to build the biomass-to-energy infrastructure in the state, he added. Some larger projects also are in the works such as Governor Jim Doyle’s order for four university campuses in the state to “come off the grid” and switch to biomass, Radloff said. If more energy is produced locally and used locally, it can complement other renewable energy sources such as wind and solar, Radloff said. The two researchers compare local energy production to something most Wisconsinites can relate to, a local farmer’s market; the money locals spend goes to other locals they might know personally.
It is possible to construct a system in which a portion of the renewable energy dividend stays at home and the long-term benefits are shared by the landowner, farmer, forester or local community, Turnquist and Radloff write, as several biomass technology options can be economically efficient when located in rural settings, as indicated by studies and real world examples.
But what if local people don’t want the energy systems in their communities? According to Radloff and Turnquist, local systems would require local participation, including organization and decision making, that could eliminate the Not In My BackYard (NIMBY) opposition wind farms and new ethanol plants have met. If the payoff and decision-making process stay in the community, locals may rally more support toward community renewable energy products, they said. “It’s not just about natural resources and infrastructure,” Turnquist said. “It’s also about people and communities.”
Opportunities also exist for small-scale projects to partner with larger-scale operations, according to the authors. They cite as an example Xcel Energy’s 2008 proposal to add a biomass-to-energy burner to their existing plant in Ashland, which already uses woody biomass.
The amount of biomass that can be produced and harvested in Wisconsin still is an open question, the paper states, along with how much the communities actually will benefit from bioenergy and other renewables. But, it adds, local energy production is an important part of the state’s economic future and policies should be crafted to ensure the economic and energy returns go to rural Wisconsin residents and that groups undertaking distributed energy projects can manage the risk in the bioenergy market.
Biomass Magazine
April 29, 2009
If Wisconsin would take advantage of “low hanging fruit” and cash in on the state’s biomass potential via small-scale distributed energy systems, advantages would reach both the agricultural sector and rural communities, according to a recently released Program on Agricultural Technologies (PATS) policy perspective. ‘How Could Small Scale Distributed Energy Benefit Wisconsin Agriculture and Rural Communities?’ was published in late April.
Authors Gary Radloff, director of policy and communications with the Wisconsin Department of Agriculture, Trade and Consumer Protection, and Alan Turnquist, outreach specialist at the Program on Agriculture Technology Studies at the University of Wisconsin-Madison, say a distributed energy system in the state might curb logistical challenges that come along with large-scale, industrial production, such as biomass feedstock aggregation, short-term storage and transportation. “In policy discussion, we need to keep in mind policy incentives for smaller-scale operations,” Radloff said.
“For me, the thing that struck home was that all of these logistics behind biomass are so dependent on location,” Turnquist said of his research. The small-scale distributed energy option is obvious, he said, creating a marriage between the idea of hundreds of thousands of producers and smaller-scale uses.
Wisconsin has almost 15 million tons of potential biomass, the paper states, and if smaller local operations use that feedstock, it could increase energy production opportunities and increase returns for rural communities. It’s not just the scale of biomass potential that makes distributed energy a powerful tool in Wisconsin, but also its diversity, Turnquist said. “The single biggest benefit is that we have the capacity to do it right now,” he said.
Small-scale operations are starting to pop up around the state, according to Radloff, mostly at rural schools. Starting small and building out might be a way to build the biomass-to-energy infrastructure in the state, he added. Some larger projects also are in the works such as Governor Jim Doyle’s order for four university campuses in the state to “come off the grid” and switch to biomass, Radloff said. If more energy is produced locally and used locally, it can complement other renewable energy sources such as wind and solar, Radloff said. The two researchers compare local energy production to something most Wisconsinites can relate to, a local farmer’s market; the money locals spend goes to other locals they might know personally.
It is possible to construct a system in which a portion of the renewable energy dividend stays at home and the long-term benefits are shared by the landowner, farmer, forester or local community, Turnquist and Radloff write, as several biomass technology options can be economically efficient when located in rural settings, as indicated by studies and real world examples.
But what if local people don’t want the energy systems in their communities? According to Radloff and Turnquist, local systems would require local participation, including organization and decision making, that could eliminate the Not In My BackYard (NIMBY) opposition wind farms and new ethanol plants have met. If the payoff and decision-making process stay in the community, locals may rally more support toward community renewable energy products, they said. “It’s not just about natural resources and infrastructure,” Turnquist said. “It’s also about people and communities.”
Opportunities also exist for small-scale projects to partner with larger-scale operations, according to the authors. They cite as an example Xcel Energy’s 2008 proposal to add a biomass-to-energy burner to their existing plant in Ashland, which already uses woody biomass.
The amount of biomass that can be produced and harvested in Wisconsin still is an open question, the paper states, along with how much the communities actually will benefit from bioenergy and other renewables. But, it adds, local energy production is an important part of the state’s economic future and policies should be crafted to ensure the economic and energy returns go to rural Wisconsin residents and that groups undertaking distributed energy projects can manage the risk in the bioenergy market.
Tuesday, July 14, 2009
The Renergie "Field-to-Pump" Strategy
“Field-to-Pump” is a unique strategy created by Renergie, Inc. (“Renergie”) to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities ("SABMFs"). The purpose of “Field-to-Pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.
On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative(“Act 382”), the most comprehensive and far-reaching state legislation in the United States enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy. Louisiana is the first state to enact alternative transportation fuel legislation that moves fuel ethanol beyond being just a blending component in gasoline by including a mandatory variable blending pump pilot program and hydrous ethanol pilot program.
TABLE OF CONTENTS
1. History
2. Recent “Field-to-Pump” Developments
3. “Field-to-Pump” Strategy
3.1 Cost of Feedstock
3.2 Feedstock Selection
3.3 Harvesting
3.4 Processing
3.5 Marketing
3.5.1 Blender’s Tax Credit
3.5.2 Blending Pumps
3.5.3 Hydrous Ethanol
3.5.3.1 Use of Hydrous Ethanol in the U.S.
3.5.3.2 Use of Hydrous Ethanol in Brazil
4. “Field-to-Pump” Challenges
4.1 Access to Wholesale Unblended Gasoline
4.2 Importation of Duty-free Foreign Fuel Ethanol
4.2.1 Ethanol Import Tariff
4.2.2 Caribbean Basin Initiative
5. Act 382
5.1 Economic Benefits
5.2 State Vehicle Fleets
1. History
Renergie, a corporation organized under the laws of the State of Florida, created the “Field-to-Pump” strategy. Renergie was formed on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten small advanced biofuel manufacturing facilities in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Renergie produces fuel ethanol solely from sweet sorghum juice. Each small advanced biofuel manufacturing facility has a production capacity of five million gallons per year (“5 MGY”).
2. Recent ”Field-to-Pump” Developments
Renergie drafted the legislation (“HB 1270”) for the creation of an advanced biofuel industry development initiative in Louisiana. On June 9, 2008, the Louisiana Senate passed HB 1270 by a vote of 38-0. On June 21, 2008, Governor Bobby Jindal signed HB 1270 into law. On December 20, 2008, Renergie submitted a testing exemption application to the U.S. Environmental Protection Agency (“EPA”) for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. On-site blending pumps, in lieu of splash blending, are used for this test. On February 4, 2009, the U.S. EPA granted Renergie a tampering waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles in Louisiana. On February 24, 2009, the U.S. EPA granted Renergie a RVP waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana.
On October 18, 2007, Renergie submitted a grant application to the Florida Department of Environmental Protection (“DEP”), pursuant to the Renewable Energy Technologies Grant Program, for the purpose of partially funding the comprehensive development of a sweet sorghum-to-ethanol industry in Florida. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida DEP’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, the Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000.
3. “Field-to-Pump” Strategy
Renergie’s unique “Field-to-Pump” strategy is best explained by studying the five risk areas in the production of fuel ethanol: cost of feedstock, feedstock selection, harvesting, processing, and marketing.
3.1 Cost of Feedstock
It is the cost of producing the feedstock which ultimately determines the relative economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an ethanol producer to fall victim to rising feedstock costs. There is a link between the compensation paid to “Field-to-Pump” farmers/landowners and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of fuel ethanol. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.
3.2 Feedstock Selection
In Louisiana, “Field-to-Pump” produces ethanol solely from sweet sorghum juice. The controversial “food vs. fuel” debate which is ongoing in agricultural, energy and academic circles in regard to Midwest corn-to-ethanol production does not apply to “Field-to-Pump.”
Advantages of Producing Ethanol Directly from Sweet Sorghum Juice:
(1) High Yield – Renergie’s sweet sorghum juice yields between 800 to 1,000 gallons of ethanol per acre;
(2) Water Efficient Crop – Sweet sorghum, a seed-propagated crop with more than 4,600 known varieties, has very low irrigation needs compared to corn and sugarcane. It requires one-half of the water required to grow corn and one third of the water required to grow sugarcane;
(3) Ability to Grow in “Marginal Soil” – Sweet sorghum can grow in marginal soils, ranging from heavy clay to light sand. Sweet sorghum has been called a “camel among crops,” owing to its wide adaptability, its marked resistance to drought and saline-alkaline soils, and tolerance to high temperature and waterlogging;
(4) Not Harmful to the Environment – Sweet sorghum requires the use of only 40 to 60 pounds of nitrogen per acre whereas corn growers use more than 150 pounds per acre, according to the U.S. Environmental Protection Agency. Less fertilizer reduces the risk of water contamination;
(5) Rapid Growth – Sweet sorghum takes only 4 months to reach maturity, which is short enough to allow harvesting twice a year. Sugarcane requires 14 months to reach maturity. Sweet sorghum hybrids, which are not photoperiod sensitive, will flower when daylight is less than 13 hours a day;
(6) Energy Efficient – The energy requirement for converting sweet sorghum juice into ethanol is less than half of that required to convert corn into ethanol. This is due to the fact that the sugars in sweet sorghum juice are fermented directly. There is no need to excessively heat the juice to breakdown starch into sugars as required for corn; and
(7) Benefits Marine Life in Gulf of Mexico – Corn requires a large amount of fertilizers. Fertilizers from cornfields wash into streams and rivers that lead to the Mississippi River, funneling large amounts of nitrogen and phosphorus into the Gulf of Mexico. As temperatures rise in late spring, those nutrients combine with sunlight to fuel explosive algae blooms that cloud waters and suck up the oxygen available for marine life. For the commercial and recreational fishing industries, a huge swath of the Gulf of Mexico is off limits. This dead zone measured 7,915 square miles in 2007. Scientists at Louisiana State University and the Louisiana Universities Marine Consortium predict the “dead zone” of oxygen-depleted waters off the Louisiana and Texas coasts could grow this summer to 10,084 square miles. If this prediction is correct, the “dead zone” in 2008 would be 17-21 percent larger than at anytime since the mapping began in 1985 — and about as large as the state of Massachusetts. A recent report by the National Research Council finds that producing biofuels in an environmentally friendly way is imperative if Louisiana is to continue reaping the benefits of a strong fishing industry. Sweet sorghum requires one-third of the nitrogen required to grow corn. Producing ethanol from sweet sorghum, rather than increasing corn-to-ethanol production, will reduce the risk of the formation of dead zones.
3.3 Harvesting
One challenge of producing ethanol from sweet sorghum is that, unless fermentation of the juice is started within a few hours after harvesting, a 50% sugar loss may occur in only 24 hours. Renergie’s “Field-to-Pump” is the only strategy with a proven mechanical harvesting system capable of: (a) harvesting and transporting whole stalks of sweet sorghum to small advanced biofuel manufacturing facilities; and (b) ensuring that juice extraction and fermentation are started within a few hours after harvesting.
3.4 Processing
Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities in the United States capable of operating 210 days out of the year. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. “Field-to-Pump” employs a decentralized network of small advanced biofuel manufacturing facilities in Louisiana, each small advanced biofuel manufacturing facility utilizing feedstock from a reasonable transportation distance. The distributed nature of a smaller advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development.
The U.S. EPA is encouraging the development of renewable energy by identifying currently and formerly contaminated lands and mining sites that present opportunities for renewable energy development. “Field-to-Pump” agrees with the U.S. EPA’s position that, “By using these sites, we can help meet the growing national demand for renewable energy while lessening pressure on greenspace and providing economically viable and socially beneficial futures for sites that are currently under used or vacant.” The map of EPA sites in Louisiana with biorefinery facility siting potential indicates that a few sites may be suitable for one or more Renergie “Field-to-Pump” small advanced biofuel manufacturing facilities.
3.5 Marketing
“Field-to-Pump” focuses on growing ethanol demand beyond the 10% blend market. Each Renergie “Field-to-Pump” SABMF produces fuel ethanol, transports the fuel ethanol by tanker trucks to its storage tanks at its local gas stations and, via Renergie blending pumps, blends the fuel ethanol with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each “Field-to-Pump” SABMF captures the blender’s tax credit of 45-cents-per-gallon. “Field-to-Pump” captures the blender’s tax credit in order to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive.
3.5.1 Blender’s Tax Credit
The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The Blender’s Tax Credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.
The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.
Fair and healthy competition in the marketing of fuel ethanol is essential. It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
3.5.2 Variable Blending Pumps
“Field-to-Pump” uses variable blending pumps to blend fuel ethanol with unblended gasoline at the gas station pump. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. “Field-to-Pump” eliminates the inaccuracy and manipulation of splash blending by precisely blending the fuel ethanol and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.
3.5.3 Hydrous Ethanol
Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. The U.S. Environmental Protection Agency has granted a testing exemption to Renergie. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.
3.5.3.1 Use of Hydrous Ethanol in the U.S.
Hydrous ethanol has been used in the United States as a transportation fuel for at least one-hundred years. The Model T Ford, which debuted in 1908, was originally designed to operate on alcohol. The Model T and Model A Fords were later designed to operate on either alcohol or gasoline or a blend of alcohol and gasoline. These were arguably the first “flex-fuel vehicles.” During the early 1900s, a distillery was a standard piece of farm equipment. These distilleries made 192-proof alcohol for human consumption, lantern fuel and transportation fuel. The distilleries were referred to as “stills” and the alcohol became known during the Prohibition period as “moonshine.” This moonshine was hydrous ethanol. Rural America, especially southern rural America, has always used small farm distilleries to process hydrous ethanol for transportation fuel during times of severe oil shortages or high gasoline prices.
3.5.3.2 Use of Hydrous Ethanol in Brazil
Brazil introduced its current generation of ethanol-powered cars in 2003, the same year in which anhydrous ethanol consumption peaked. Named flex-fuel vehicles (“FFVs”), these automobiles run on gasoline, ethanol, or any blend of the two. When the car is filled at the pump, an internal system analyses the mix of the two fuel types and adjusts accordingly. The first such vehicles were introduced by Volkswagen in 2003, and by 2004, they accounted for more than 17% of the Brazilian auto market. In 2005, their sales increased even further, accounting for approximately 54% of all new car sales.
Before the introduction of the flex-fuel car in Brazil in 2003, cars running on ethanol fuel were primarily using pure ethanol or hydrous ethanol blends.
In Brazil, there are currently two fuel types available at the fuel station for passenger vehicles: E100 (“AEHC”) that is the derived from a simple distillation process and has about 4.9% water content in it and Gasoline C, or E25, which is a mixture of 75% Gasoline A and 25% in volume of anhydrous ethanol (“AEAC”) with a maximum of 0.4% of water. It is possible to use gasoline C made with hydrated ethanol (“AEHC”) with minimum risk of phase separation due to Brazilian climate conditions.
The State of Louisiana believes the “Field-to-Pump” transition from anhydrous to hydrous ethanol for gasoline blending will make a significant contribution to fuel ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
4. “Field-to-Pump” Challenges
“Field-to-Pump” small advanced biofuel manufacturing facilities have two basic challenges: (a) access to wholesale unblended gasoline; and (b) importation of duty-free foreign fuel ethanol by U.S. oil companies and their blending affiliates.
4.1 Access to Wholesale Unblended Gasoline
In Louisiana, “field-to-pump” SABMFs have easy access to wholesale unblended gasoline in order to blend. However, this is not the case in other states, e.g., Florida, where oil companies have a monopoly on blending fuel ethanol with unblended gasoline and thereby capturing the blender’s tax credit of 45-cents-per-gallon.
4.2 Importation of Duty-free Foreign Fuel Ethanol
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the Caribbean Basin Initiative and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of fuel ethanol. “Field-to-Pump” SABMFs have the right to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
4.2.1 Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
4.2.2 Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
5. Act 382
Act No. 382, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie. Representative Jonathan W. Perry (R – District 47), with the support of Senator Nick Gautreaux (D – District 26), was the primary author of the bill.
5.1 Economic Benefits
§3761 of The Advanced Biofuel Industry Development Initiative states, “The legislature hereby finds and declares that the development of an advanced biofuel industry in Louisiana is a matter of grave public necessity and is vital to the economy of Louisiana. The use of advanced biofuel will expand United States and Louisiana fuel supplies without increasing dependency on foreign oil. The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing: (1) increased value added to the feed stock crops which will benefit the producers and provide more revenue to the local community; (2) increased investments in plants and equipment which would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed; (3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and (4) increased local and state revenues collected from plant operations would stimulate local and state tax revenues and provide funds for improvements to the community and to the region……. Therefore, an advanced biofuel industry development initiative in Louisiana is vital to ensuring the broad-based rural economic development of Louisiana and is a matter of public policy.”
5.2 State Vehicle Fleets
Act 382 further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.
Louisiana realizes that merely building ethanol plants without simultaneously developing the necessary fueling infrastructure, ensuring an open and competitive market for the ethanol producers, and working as a unified team with the state’s Department of Agriculture, the state’s DEQ and the U.S. EPA in regard to the testing and approval of blending pumps, mid-level ethanol blends and hydrous ethanol, is not in the best interest of the state, the ethanol producer, the agricultural community or the consumer. The Louisiana Legislature finds and declares that the proper development of an advanced biofuel industry in Louisiana requires the comprehensive “Field-to-Pump” strategy.
On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative(“Act 382”), the most comprehensive and far-reaching state legislation in the United States enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy. Louisiana is the first state to enact alternative transportation fuel legislation that moves fuel ethanol beyond being just a blending component in gasoline by including a mandatory variable blending pump pilot program and hydrous ethanol pilot program.
TABLE OF CONTENTS
1. History
2. Recent “Field-to-Pump” Developments
3. “Field-to-Pump” Strategy
3.1 Cost of Feedstock
3.2 Feedstock Selection
3.3 Harvesting
3.4 Processing
3.5 Marketing
3.5.1 Blender’s Tax Credit
3.5.2 Blending Pumps
3.5.3 Hydrous Ethanol
3.5.3.1 Use of Hydrous Ethanol in the U.S.
3.5.3.2 Use of Hydrous Ethanol in Brazil
4. “Field-to-Pump” Challenges
4.1 Access to Wholesale Unblended Gasoline
4.2 Importation of Duty-free Foreign Fuel Ethanol
4.2.1 Ethanol Import Tariff
4.2.2 Caribbean Basin Initiative
5. Act 382
5.1 Economic Benefits
5.2 State Vehicle Fleets
1. History
Renergie, a corporation organized under the laws of the State of Florida, created the “Field-to-Pump” strategy. Renergie was formed on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten small advanced biofuel manufacturing facilities in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Renergie produces fuel ethanol solely from sweet sorghum juice. Each small advanced biofuel manufacturing facility has a production capacity of five million gallons per year (“5 MGY”).
2. Recent ”Field-to-Pump” Developments
Renergie drafted the legislation (“HB 1270”) for the creation of an advanced biofuel industry development initiative in Louisiana. On June 9, 2008, the Louisiana Senate passed HB 1270 by a vote of 38-0. On June 21, 2008, Governor Bobby Jindal signed HB 1270 into law. On December 20, 2008, Renergie submitted a testing exemption application to the U.S. Environmental Protection Agency (“EPA”) for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. On-site blending pumps, in lieu of splash blending, are used for this test. On February 4, 2009, the U.S. EPA granted Renergie a tampering waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles in Louisiana. On February 24, 2009, the U.S. EPA granted Renergie a RVP waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana.
On October 18, 2007, Renergie submitted a grant application to the Florida Department of Environmental Protection (“DEP”), pursuant to the Renewable Energy Technologies Grant Program, for the purpose of partially funding the comprehensive development of a sweet sorghum-to-ethanol industry in Florida. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida DEP’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, the Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000.
3. “Field-to-Pump” Strategy
Renergie’s unique “Field-to-Pump” strategy is best explained by studying the five risk areas in the production of fuel ethanol: cost of feedstock, feedstock selection, harvesting, processing, and marketing.
3.1 Cost of Feedstock
It is the cost of producing the feedstock which ultimately determines the relative economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an ethanol producer to fall victim to rising feedstock costs. There is a link between the compensation paid to “Field-to-Pump” farmers/landowners and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of fuel ethanol. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.
3.2 Feedstock Selection
In Louisiana, “Field-to-Pump” produces ethanol solely from sweet sorghum juice. The controversial “food vs. fuel” debate which is ongoing in agricultural, energy and academic circles in regard to Midwest corn-to-ethanol production does not apply to “Field-to-Pump.”
Advantages of Producing Ethanol Directly from Sweet Sorghum Juice:
(1) High Yield – Renergie’s sweet sorghum juice yields between 800 to 1,000 gallons of ethanol per acre;
(2) Water Efficient Crop – Sweet sorghum, a seed-propagated crop with more than 4,600 known varieties, has very low irrigation needs compared to corn and sugarcane. It requires one-half of the water required to grow corn and one third of the water required to grow sugarcane;
(3) Ability to Grow in “Marginal Soil” – Sweet sorghum can grow in marginal soils, ranging from heavy clay to light sand. Sweet sorghum has been called a “camel among crops,” owing to its wide adaptability, its marked resistance to drought and saline-alkaline soils, and tolerance to high temperature and waterlogging;
(4) Not Harmful to the Environment – Sweet sorghum requires the use of only 40 to 60 pounds of nitrogen per acre whereas corn growers use more than 150 pounds per acre, according to the U.S. Environmental Protection Agency. Less fertilizer reduces the risk of water contamination;
(5) Rapid Growth – Sweet sorghum takes only 4 months to reach maturity, which is short enough to allow harvesting twice a year. Sugarcane requires 14 months to reach maturity. Sweet sorghum hybrids, which are not photoperiod sensitive, will flower when daylight is less than 13 hours a day;
(6) Energy Efficient – The energy requirement for converting sweet sorghum juice into ethanol is less than half of that required to convert corn into ethanol. This is due to the fact that the sugars in sweet sorghum juice are fermented directly. There is no need to excessively heat the juice to breakdown starch into sugars as required for corn; and
(7) Benefits Marine Life in Gulf of Mexico – Corn requires a large amount of fertilizers. Fertilizers from cornfields wash into streams and rivers that lead to the Mississippi River, funneling large amounts of nitrogen and phosphorus into the Gulf of Mexico. As temperatures rise in late spring, those nutrients combine with sunlight to fuel explosive algae blooms that cloud waters and suck up the oxygen available for marine life. For the commercial and recreational fishing industries, a huge swath of the Gulf of Mexico is off limits. This dead zone measured 7,915 square miles in 2007. Scientists at Louisiana State University and the Louisiana Universities Marine Consortium predict the “dead zone” of oxygen-depleted waters off the Louisiana and Texas coasts could grow this summer to 10,084 square miles. If this prediction is correct, the “dead zone” in 2008 would be 17-21 percent larger than at anytime since the mapping began in 1985 — and about as large as the state of Massachusetts. A recent report by the National Research Council finds that producing biofuels in an environmentally friendly way is imperative if Louisiana is to continue reaping the benefits of a strong fishing industry. Sweet sorghum requires one-third of the nitrogen required to grow corn. Producing ethanol from sweet sorghum, rather than increasing corn-to-ethanol production, will reduce the risk of the formation of dead zones.
3.3 Harvesting
One challenge of producing ethanol from sweet sorghum is that, unless fermentation of the juice is started within a few hours after harvesting, a 50% sugar loss may occur in only 24 hours. Renergie’s “Field-to-Pump” is the only strategy with a proven mechanical harvesting system capable of: (a) harvesting and transporting whole stalks of sweet sorghum to small advanced biofuel manufacturing facilities; and (b) ensuring that juice extraction and fermentation are started within a few hours after harvesting.
3.4 Processing
Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities in the United States capable of operating 210 days out of the year. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. “Field-to-Pump” employs a decentralized network of small advanced biofuel manufacturing facilities in Louisiana, each small advanced biofuel manufacturing facility utilizing feedstock from a reasonable transportation distance. The distributed nature of a smaller advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development.
The U.S. EPA is encouraging the development of renewable energy by identifying currently and formerly contaminated lands and mining sites that present opportunities for renewable energy development. “Field-to-Pump” agrees with the U.S. EPA’s position that, “By using these sites, we can help meet the growing national demand for renewable energy while lessening pressure on greenspace and providing economically viable and socially beneficial futures for sites that are currently under used or vacant.” The map of EPA sites in Louisiana with biorefinery facility siting potential indicates that a few sites may be suitable for one or more Renergie “Field-to-Pump” small advanced biofuel manufacturing facilities.
3.5 Marketing
“Field-to-Pump” focuses on growing ethanol demand beyond the 10% blend market. Each Renergie “Field-to-Pump” SABMF produces fuel ethanol, transports the fuel ethanol by tanker trucks to its storage tanks at its local gas stations and, via Renergie blending pumps, blends the fuel ethanol with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each “Field-to-Pump” SABMF captures the blender’s tax credit of 45-cents-per-gallon. “Field-to-Pump” captures the blender’s tax credit in order to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive.
3.5.1 Blender’s Tax Credit
The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The Blender’s Tax Credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.
The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.
Fair and healthy competition in the marketing of fuel ethanol is essential. It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.
3.5.2 Variable Blending Pumps
“Field-to-Pump” uses variable blending pumps to blend fuel ethanol with unblended gasoline at the gas station pump. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. “Field-to-Pump” eliminates the inaccuracy and manipulation of splash blending by precisely blending the fuel ethanol and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.
3.5.3 Hydrous Ethanol
Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. The U.S. Environmental Protection Agency has granted a testing exemption to Renergie. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.
3.5.3.1 Use of Hydrous Ethanol in the U.S.
Hydrous ethanol has been used in the United States as a transportation fuel for at least one-hundred years. The Model T Ford, which debuted in 1908, was originally designed to operate on alcohol. The Model T and Model A Fords were later designed to operate on either alcohol or gasoline or a blend of alcohol and gasoline. These were arguably the first “flex-fuel vehicles.” During the early 1900s, a distillery was a standard piece of farm equipment. These distilleries made 192-proof alcohol for human consumption, lantern fuel and transportation fuel. The distilleries were referred to as “stills” and the alcohol became known during the Prohibition period as “moonshine.” This moonshine was hydrous ethanol. Rural America, especially southern rural America, has always used small farm distilleries to process hydrous ethanol for transportation fuel during times of severe oil shortages or high gasoline prices.
3.5.3.2 Use of Hydrous Ethanol in Brazil
Brazil introduced its current generation of ethanol-powered cars in 2003, the same year in which anhydrous ethanol consumption peaked. Named flex-fuel vehicles (“FFVs”), these automobiles run on gasoline, ethanol, or any blend of the two. When the car is filled at the pump, an internal system analyses the mix of the two fuel types and adjusts accordingly. The first such vehicles were introduced by Volkswagen in 2003, and by 2004, they accounted for more than 17% of the Brazilian auto market. In 2005, their sales increased even further, accounting for approximately 54% of all new car sales.
Before the introduction of the flex-fuel car in Brazil in 2003, cars running on ethanol fuel were primarily using pure ethanol or hydrous ethanol blends.
In Brazil, there are currently two fuel types available at the fuel station for passenger vehicles: E100 (“AEHC”) that is the derived from a simple distillation process and has about 4.9% water content in it and Gasoline C, or E25, which is a mixture of 75% Gasoline A and 25% in volume of anhydrous ethanol (“AEAC”) with a maximum of 0.4% of water. It is possible to use gasoline C made with hydrated ethanol (“AEHC”) with minimum risk of phase separation due to Brazilian climate conditions.
The State of Louisiana believes the “Field-to-Pump” transition from anhydrous to hydrous ethanol for gasoline blending will make a significant contribution to fuel ethanol’s cost-competitiveness, fuel cycle net energy balance, and greenhouse gas emissions profile.
4. “Field-to-Pump” Challenges
“Field-to-Pump” small advanced biofuel manufacturing facilities have two basic challenges: (a) access to wholesale unblended gasoline; and (b) importation of duty-free foreign fuel ethanol by U.S. oil companies and their blending affiliates.
4.1 Access to Wholesale Unblended Gasoline
In Louisiana, “field-to-pump” SABMFs have easy access to wholesale unblended gasoline in order to blend. However, this is not the case in other states, e.g., Florida, where oil companies have a monopoly on blending fuel ethanol with unblended gasoline and thereby capturing the blender’s tax credit of 45-cents-per-gallon.
4.2 Importation of Duty-free Foreign Fuel Ethanol
Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the Caribbean Basin Initiative and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of fuel ethanol. “Field-to-Pump” SABMFs have the right to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.
4.2.1 Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
4.2.2 Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.
5. Act 382
Act No. 382, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie. Representative Jonathan W. Perry (R – District 47), with the support of Senator Nick Gautreaux (D – District 26), was the primary author of the bill.
5.1 Economic Benefits
§3761 of The Advanced Biofuel Industry Development Initiative states, “The legislature hereby finds and declares that the development of an advanced biofuel industry in Louisiana is a matter of grave public necessity and is vital to the economy of Louisiana. The use of advanced biofuel will expand United States and Louisiana fuel supplies without increasing dependency on foreign oil. The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing: (1) increased value added to the feed stock crops which will benefit the producers and provide more revenue to the local community; (2) increased investments in plants and equipment which would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed; (3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and (4) increased local and state revenues collected from plant operations would stimulate local and state tax revenues and provide funds for improvements to the community and to the region……. Therefore, an advanced biofuel industry development initiative in Louisiana is vital to ensuring the broad-based rural economic development of Louisiana and is a matter of public policy.”
5.2 State Vehicle Fleets
Act 382 further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.
Louisiana realizes that merely building ethanol plants without simultaneously developing the necessary fueling infrastructure, ensuring an open and competitive market for the ethanol producers, and working as a unified team with the state’s Department of Agriculture, the state’s DEQ and the U.S. EPA in regard to the testing and approval of blending pumps, mid-level ethanol blends and hydrous ethanol, is not in the best interest of the state, the ethanol producer, the agricultural community or the consumer. The Louisiana Legislature finds and declares that the proper development of an advanced biofuel industry in Louisiana requires the comprehensive “Field-to-Pump” strategy.
Thursday, July 9, 2009
Petroleum Marketers, Refiners Battle Over Ethanol in Southeast
By Ryan C. Christiansen
Ethanol Producer Magazine
July, 2009
Petroleum marketers in the southeastern U.S. are supporting efforts to force oil refiners to supply them with unblended gasoline so that the marketers can choose to blend ethanol into the gasoline themselves.
According to petroleum marketing groups, their inability to obtain unblended gasoline from refiners is a growing problem. “It’s being clamped down,” said Sherri Cabrera, vice president of the Petroleum Marketers Association of America, a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide. “We’re seeing just more and more refiners offering [unblended gasoline] less and less.”
The issue so far appears to be most prevalent in the southeastern U.S., where North Carolina, South Carolina, Tennessee and Georgia have all either pursued legislation or passed laws to address the issue.
In South Carolina, legislators passed a law in June 2008 which required oil refiners to supply marketers with unblended gasoline. The law was bundled with provisions for sales tax exemptions for energy efficient products and for a sales tax holiday for firearms. The American Petroleum Institute and BP Products North America Inc. sued, claiming the law violated the “one subject” provision in the state constitution which states that “every act or resolution having the force of law shall relate to but one subject, and that shall be expressed in the title.” The state’s Supreme Court agreed. In May 2009, the court repealed the law.
Meanwhile, legislators in Tennessee pursued similar legislation this spring. Petroleum refiner and marketer Valero Energy Corp. reacted by threatening to shut down its Memphis, Tenn., refinery, claiming the company would need to spend up to $150 million over two years for new equipment to comply with the proposed law.
In North Carolina, the National Petrochemical & Refiners Association, a lobbying group of which Valero is a also a member, sued the state for passing a law that requires refiners to sell unblended gasoline to marketers, allowing marketers to be “blenders of record” and obtain federal tax credits for blending ethanol into gasoline. The NPRA said North Carolina’s law “conflicts with federal law by preventing entities with a federal obligation to blend renewable fuels from doing so, and by requiring them to sell unblended fuel to entities that are not obliged by federal or state law to use renewable fuels.”
Cabrera said petroleum marketers have a lot invested in tanks and infrastructure for blending ethanol with gasoline. “Refiners have tried to lock their business partners—petroleum marketers—out of the option to do that,” she said. “So some states have come in to say to refiners, ‘we’re going to make you do the right thing and work with your marketer business partners.’”
The ethanol industry is supportive of petroleum marketers and their efforts to secure ethanol blending opportunities. “In the history of ethanol, there have always been a number of petroleum marketers that want to do their own splash blending,” said Greg Krissek, board member of industry group Growth Energy. “Where this is an issue for petroleum marketers, we would be supportive of them wanting to have the clear, unblended streams.”
Krissek said the ethanol industry can be a partner in the effort to ensure marketers continue to have ethanol blending opportunities. “In a number of states, you have plants that have good relationships with the petroleum marketing organizations,” he said, “and this is an area where we can probably work together.”
Ethanol Producer Magazine
July, 2009
Petroleum marketers in the southeastern U.S. are supporting efforts to force oil refiners to supply them with unblended gasoline so that the marketers can choose to blend ethanol into the gasoline themselves.
According to petroleum marketing groups, their inability to obtain unblended gasoline from refiners is a growing problem. “It’s being clamped down,” said Sherri Cabrera, vice president of the Petroleum Marketers Association of America, a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide. “We’re seeing just more and more refiners offering [unblended gasoline] less and less.”
The issue so far appears to be most prevalent in the southeastern U.S., where North Carolina, South Carolina, Tennessee and Georgia have all either pursued legislation or passed laws to address the issue.
In South Carolina, legislators passed a law in June 2008 which required oil refiners to supply marketers with unblended gasoline. The law was bundled with provisions for sales tax exemptions for energy efficient products and for a sales tax holiday for firearms. The American Petroleum Institute and BP Products North America Inc. sued, claiming the law violated the “one subject” provision in the state constitution which states that “every act or resolution having the force of law shall relate to but one subject, and that shall be expressed in the title.” The state’s Supreme Court agreed. In May 2009, the court repealed the law.
Meanwhile, legislators in Tennessee pursued similar legislation this spring. Petroleum refiner and marketer Valero Energy Corp. reacted by threatening to shut down its Memphis, Tenn., refinery, claiming the company would need to spend up to $150 million over two years for new equipment to comply with the proposed law.
In North Carolina, the National Petrochemical & Refiners Association, a lobbying group of which Valero is a also a member, sued the state for passing a law that requires refiners to sell unblended gasoline to marketers, allowing marketers to be “blenders of record” and obtain federal tax credits for blending ethanol into gasoline. The NPRA said North Carolina’s law “conflicts with federal law by preventing entities with a federal obligation to blend renewable fuels from doing so, and by requiring them to sell unblended fuel to entities that are not obliged by federal or state law to use renewable fuels.”
Cabrera said petroleum marketers have a lot invested in tanks and infrastructure for blending ethanol with gasoline. “Refiners have tried to lock their business partners—petroleum marketers—out of the option to do that,” she said. “So some states have come in to say to refiners, ‘we’re going to make you do the right thing and work with your marketer business partners.’”
The ethanol industry is supportive of petroleum marketers and their efforts to secure ethanol blending opportunities. “In the history of ethanol, there have always been a number of petroleum marketers that want to do their own splash blending,” said Greg Krissek, board member of industry group Growth Energy. “Where this is an issue for petroleum marketers, we would be supportive of them wanting to have the clear, unblended streams.”
Krissek said the ethanol industry can be a partner in the effort to ensure marketers continue to have ethanol blending opportunities. “In a number of states, you have plants that have good relationships with the petroleum marketing organizations,” he said, “and this is an area where we can probably work together.”
Subscribe to:
Posts (Atom)
About Me
- Renergie
- Renergie, Inc. ("Renergie") was formed on March 22, 2006 for the purpose of raising capital to research, develop, construct, own and operate a network of small advanced biofuel manufacturing facilities ("SABMFs") in the parishes of Louisiana which were devastated by hurricanes Katrina and Rita. "Field-to-Pump," a unique strategy created by Renergie, enables an advanced biofuel producer to produce non-food feedstock, process hydrous advanced biofuel, and directly market hydrous E10, E20, E30 and E85 via on-site variable blending pumps. On June 21, 2008, Louisiana Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative ("Act 382"). Act 382, the most comprehensive and far-reaching state legislation in the U.S. enacted to develop a statewide advanced biofuel industry, is based upon the “Field-to-Pump” strategy. In February, 2009, the U.S. EPA granted Renergie a first-of-its-kind waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. On-site blending pumps, in lieu of splash blending, are used for this test.
Blog Archive