JAMESTOWN — Federal policy is reducing demand for ethanol which will ultimately hurt farmers, said Jeff Zueger, CEO of Midwest AgEnergy, which owns and operates Dakota Spirit AgEnergy.
“It is an industry-wide problem that can affect the local farmer,” Zueger said. “It is becoming more and more of a problem.”
Dakota Spirit AgEnergy is an ethanol plant producing 70 million gallons per year utilizing locally grown corn as its raw material. The plant has operated since 2015. At the heart of the problem are exemptions being granted for some refineries, eliminating their need to meet the Renewable Fuel Act, according to Scott Richman, chief economist for the Renewable Fuel Association, the national trade group of the biofuels industry.
“Right now, there is a big hurt on the ethanol industry,” he said.
Richman said the Renewable Fuel Act requires refineries to include ethanol or other renewable fuels in the vehicle fuels it produces unless they apply for and receive an exemption. Exemptions can be granted if meeting the standards would create a financial hardship for the refinery.
“During the Obama administration a handful of exemptions were granted any given year,” Richman said. “It wasn’t until the Trump administration, with Scott Pruitt administrator of the EPA (Environmental Protection Agency) that it became a problem. Between 2016 and 2018, they retroactively granted exemptions to 85 facilities, eliminating demand for 4 billion gallons of ethanol.”
In 2018, American ethanol plants produced 16 billion gallons of the world’s 28 billion gallon output.
Zueger said the latest round of exemptions included 31 oil refineries and reduced demand for ethanol by 1.4 billion gallons.
“These small refiner exemptions directly impact corn prices by reducing demand for corn that would have been processed into ethanol and feed products,” he said. “The latest 1.4 billion gallon waiver eliminates the demand for 500 million bushels of corn. This is very impactful for farmers at a time when we have sustained low prices for their product.”
In an Aug. 9 press release announcing it had granted the 31 exemptions, the EPA touted the move as part of its reduction in “regulatory burden.”
“EPA is proud to announce its intention to further explore opportunities to remove regulatory burdens that prevent marketplace entrance and growth to natural gas, flexible fuel vehicles, and E85 fuels,” the press release said. “EPA welcomes the opportunity to engage with stakeholders to explore deregulatory options in the coming months to ensure that it plays its part in supporting American farmers and consumers. “
The United States has also lost export markets, Richman said.
“China had been a 200 million gallon per year market,” he said. “Now there is a 70% or higher tariff on ethanol shipped to China.”
Richman said the United States and Brazil had freely traded ethanol in both directions but now American exports to Brazil are on a quota system.
“Trade issues regarding exports are quite unhealthy right now,” he said.
Zueger said the loss of domestic and foreign markets is hitting the industry hard.
“it is problematic to see a shift in policy undermining the effort to get renewable fuels in the marketplace,” he said. “Plants in the United States may be throttling production.”
Richman said 17 ethanol plants had closed down or idled operation in the United States in the last 12 months. Those plants would have bought and processed an estimated 350 million bushels of corn per year if they had been in operation.
Zueger said the plants operated by Midwest AgEnergy, Blue Flint at Underwood, North Dakota, and Dakota Spirit at Spiritwood continue to operate at full capacity although on very slim profit margins.
“It is estimated that today over 75% of the ethanol industry is losing money,” he said in an email. “These small refiner exemptions combined with trade restrictions limiting export opportunities for our product is forcing plants to slow down or shutdown. We will continue to see plants slow down or shut down if the EPA continues to remove demand for our product through misapplication of the law.”
Zueger said he was not aware of any plans within the industry for expansion although some plants may be considering investments in improved efficiency or diversification to other products.
“I don’t see how you would invest dollars into conventional production of ethanol in this environment,” he said.