The top 5 ethanol stories of 2011

By Kim Clark, Ag Program Manager for the Nebraska Corn Board

As 2011 came to a close and 2012 began, so did the stories about ethanol that made headlines. The Renewable Fuels Association published The Top 5 Ethanol Stories of 2011. I must say, I have to agree with their Top-5 list, and this is the order I would rate them.

1) EPA approves E15 for MY 2001 and newer vehicles. In January the EPA announced that anyone with a 2001 and newer vehicle will be able to choose the fuel they use in their vehicle. They can use unleaded, E10, or E15. E15 is better for the environment and since the US has hit the RFS blend wall, E15 will help to overcome this.

2) Emergence of the biorefinery model. Approximately 40 percent of ethanol plants have begun to extract the corn oil when producing ethanol, and this number is only increasing. Food, feed, fuel, fiber, and now corn oil are produced in the ethanol process.

3) Advanced ethanol production begins, again. Major strides in cellulosic and advanced ethanol production began in 2011. Several companies have begun building commercial cellulosic ethanol plants in the Midwest and plan to use corn stover as the feedstock. This is a big hurdle to overcome since advanced and cellulosic ethanol have been emerging in pilot plants for the last few years.

4) US exports set all-time highs. An estimated 1 billion gallons of denatured and undenatured ethanol were exported in 2011. Canada and Brazil were the #1 and #2 importers, respectively, of ethanol fuel. Additionally, distillers grains exports were at an all time high. It was estimated the 8-9 million metric tons were exported last year.

5) End of VEETC and the secondary tax credit. The $0.45 blender’s credit expired at the end of 2011. Initially, the incentives was put into place as an incentive for ethanol blending to expand the industry and was not meant as a permanent tax credit. The ethanol industry has grown over the last 10 years, and it is now time to move forward without the tax credit.

2011 was an exciting year for ethanol with many accomplishments and stories. This next year should be good as well. Only time will tell!

The economics of higher ethanol blends

By Kim Clark, Ag Program Manager for the Nebraska Corn Board

In my last blog, I talked about flex fuel vehicles (FFVs), how to determine if you own a FFV and the benefits of using ethanol blended fuel, but there are pros and cons to everything, including the use of ethanol.

Although you have increased horsepower when using ethanol blended fuel, fuel mileage may decrease as the amount of ethanol in your fuel increases. However, studies have shown the optimal ethanol blend to use before you begin losing fuel mileage is E30, a mixture of 30 percent ethanol and 70 percent gasoline. At this ratio, you maintain your fuel mileage but pay less at the pump. A win-win situation!

As the ethanol ratio increases above 30 percent, fuel mileage may decrease. The largest decrease in mileage is typically seen when using E85. Studies show about a 25-30 percent reduction in mileage with E85 compared to E0.

This is important to know when fueling your FFV. Traditionally, E85 has been priced well below E0 to take into account the difference in fuel mileage, and you are saving money at the pump when using E85. However, not all gas stations offer E85 or other mid-level ethanol blends. Our website has a list of stations that do offer ethanol blended fuels up to E85.

Ethanol fuel pricing we have seen at the pump in the last few years has included a fuel blenders tax credit of 45-cents per gallon of ethanol blended. The credit – VEETC, the Volumetric Ethanol Excise Tax Credit, is set to expire at the end of this year.

In the future, we may see the price of E85 and other mid-level ethanol fuels (like E20 or E30) priced similar to E0. Will it be beneficial to use ethanol blended fuel when prices are similar given the reduction in fuel mileage? The answer is, yes!

As mentioned previously, a reduction in fuel mileage isn’t noticed when using a mixture of 30 percent ethanol or less. You may see a reduction in mileage when using ethanol blended fuel greater than E30 and the price at the pump may not make it economical to use, but we need to make a conscious choice to utilize ethanol both to reduce our reliance on foreign petroleum and realize the benefits to the environment.

To determine if it is economical to use E85 or other midlevel ethanol blends, calculate your cost per mile. This is calculated as:

Cost per gallon of fuel x (the number of gallons used to fill your vehicle / number of miles drives)

While there may be times when using a higher ethanol blended fuel is not economical, we need to remember all the benefits of using ethanol blended fuel:

1. You are using a Nebraska grown, renewable fuel.
2. You are helping to reduce our dependence on imported oil.
3. Ethanol promotes energy security and independence.
4. Ethanol creates jobs right here in Nebraska.
5. It produces energy from a natural resource.
6. It reduces greenhouse gas emissions.
7. Ethanol provides flexibility and consumer choice.

Blender’s credit set to expire

By Kim Clark, Ag Program Manager for the Nebraska Corn Board

The end of the year is quickly approaching along with Christmas and the end of VEETC (Volumetric Ethanol Excise Tax Credit), or the blender’s credit. This time last year, we didn’t know if VEETC was going to be extended another year, but it came down to the December 31 deadline and Congress extended VEETC for one more year, and now it will be expiring at the end of the year on December 31.

The blender’s credit or VEETC, is a $0.45 per gallon of ethanol credit for blending with gasoline. The credit began to give big oil companies an incentive to blend ethanol with gasoline. It is commonly misunderstood who receives the blender’s credit. It is NOT ethanol plants, but the companies that blend the ethanol with gasoline to be sold at gas stations where you fill up your vehicle.

In order to keep the prices down at the pump, this savings is reflected in the price when you fill up your vehicle. Hence, passed onto you – the consumer.

With VEETC expiring at the end of the year, what does this mean for the price of ethanol blended fuel at gas stations beginning in 2012?

Below are some charts that show the average prices at the pump in October this year in Nebraska. The first chart shows the average prices at gas stations with VEETC available while the second chart shows the average prices to be paid at the gas station without VEETC. These are the prices will more than likely be seen the beginning of 2012.

Chart 1: Average October prices at gas stations with VEETC


Chart 2: Average October prices at gas stations without VEETC

Now, if we really did see prices at the pump similar to the prices in Chart 2, ethanol blended fuels are still cheaper, but with the mileage loss when using E85, it isn’t economical to use E85 based on this price.

Fortunately, there are a few more factors that play into the prices consumers pay at the pump. One main factor is the price of oil and the price of gasoline. Based on these two factors and their future’s price for January 2012, the chart below (Chart 3) is an estimate of prices at gas stations based on the current futures market. These prices fluctuate daily so this is only an estimate.

Chart 3: An estimate of January gas station prices based on the price of oil and ethanol in the third week of November.


The prices in Chart 3 are based on the futures prices. These prices are comparable to the prices we saw in October because the ethanol futures are $0.46 per gallon lower than gasoline. Remember, this is only an estimate based on the current futures market.

Why was there such a sharp decrease in ethanol price compared to a couple months ago? The answer to the question is somewhat complicated, but in short, companies are blending ethanol with gasoline this year to take advantage of the blender’s credit and storing it to be used in 2012 leading to an additional supply of ethanol blended fuel with a low demand.

There is nothing wrong with taking advantage of cost savings, especially since the price is being reflected at gas stations. As I am writing this blog, the futures market for oil and ethanol are the main contributing factors to the price of ethanol blended fuel at gas stations, but other factors also play a role.

In the next blog, I will discuss how the price at the gas station affects consumer, specifically flex fuel vehicle owners.

Read other blogs about VEETC and the importance of ethanol in Nebraska:

• Not extending ethanol tax credit would cost Nebraska nearly 14,000 jobs
• Podcast: VEETC important to support jobs in rural communities
• Strong ag economy brings jobs, opportunity to rural Nebraska 
• Ethanol worth billions to Nebraska economy
• Why limited options for flex fuel?
  

Podcast: VEETC important to support jobs in rural communities

In this podcast, Tim Scheer, a farmer from St. Paul and a member of the Nebraska Corn Board, talks about the importance of the Volumetric Ethanol Excise Tax Credit, or VEETC, to the ethanol industry and rural communities.

VEETC, which is up for renewal this year, provides oil refiners and fuel blenders a 45-cent per gallon tax credit on each gallon of ethanol they blend with gasoline. This credit provides an important economic incentive to invest in equipment to blend and use ethanol, which in turn supports growth and advancements in the sector.

Extending VEETC for five years was included in HR 4940, the Renewable Fuels Reinvestment Act. The legislation would also extend the Small Producers Tax Credit, which is a special credit for smaller ethanol companies, many of which are farmer-owned. The act was introduced recently in the US House of Representatives and needs the backing of ethanol supporters to ensure it passes.

If VEETC is allowed to expire, Nebraska would loose more than 13,700 jobs, according to a study released by the Renewable Fuels Association. Most of those jobs would be lost in and around rural Nebraska communities that support an ethanol facility.


Nebraska Corn Kernel podcasts are also available iTunes! Click here to subscribe.

President Obama talks ethanol, rural development

"There shouldn’t be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean-energy future -- a future of new industries, new jobs in towns like Macon, and new independence," President Obama said yesterday at a corn ethanol plant in Macon, Missouri.

There shouldn't be any doubt about the importance of corn in the ethanol picture, either. After all, that was a front loader full of corn to the side of the President as he spoke in a room that normally holds the corn ethanol co-product distillers grains, a great livestock feed. (Photo from AgWired's Flickr page.)

Talk about making a point!

Hopefully folks were paying attention, especially those who are considering supporting the Volumetric Ethanol Excise Tax Credit (VEETC). VEETC is important to continue to grow ethanol demand and prepare for even more biofuels in the future. It's also helps to support jobs.

Following the stop at the ethanol plant, Obama visited a local farmer who delivers corn to the plant and raises beef cattle. Another strong point!

Obama could have visited a hundred other places to talk about biofuels. But he didn't.

Instead, he signaled that ethanol - including corn ethanol - is a critical component of this country's renewable fuel future. Without it, we wouldn't even be talking about renewable fuels today on such a grand scale.

A video of the President's speech is below, courtesy of ZimmComm's YouTube channel and Corn Commentary.

Not extending ethanol tax credit would cost Nebraska nearly 14,000 jobs

Nebraska would lose more than 13,700 jobs should the Volumetric Ethanol Excise Tax Credit (VEETC) not be renewed before it expires in December, the Nebraska Corn Board said in a news release yesterday. The release was response to a study released by the Renewable Fuels Association (RFA).

VEETC provides oil refiners and fuel blenders a 45-cent per gallon tax credit on each gallon of ethanol they blend with gasoline. The credit provides an important economic incentive to invest in equipment to blend and use ethanol, which in turn supports growth and advancements in the sector, the Nebraska Corn Board said.

“VEETC is an important component of our renewable fuels program, and now is certainly not the time to stunt the growth of biofuels or shock rural communities with significant job losses,” said Jon Holzfaster, a director of the Nebraska Corn Board and chair of the National Corn Growers Association ethanol committee. Holzfaster is a corn and cattle producer from Paxton.

The study, conducted for RFA by ENTRIX, an economic consulting firm, concluded that not renewing VEETC would cost the United States more than 112,000 jobs because as much as 37 percent of the ethanol industry would shut down. Since Nebraska is the second largest ethanol producing state, more than 12 percent of those jobs would be lost in and around mostly rural Nebraska communities that support an ethanol facility.

Some job losses would come from those directly involved in ethanol production, while other job losses would be caused by a reduction of dollars spent by ethanol producers – dollars that would normally flow throughout all sectors of the economy.

“There is legislation in front of Congress right now that will extend VEETC beyond December 31, when it is set to expire. It is important that Congress act on this legislation to keep renewable fuels on track,” he said.

In Nebraska, 20 ethanol plants are located in the third Congressional district, more than any other district in the U.S., and another four are located in the first district. “Those who support ethanol and rural economic development need to make sure their representatives understand the importance of VEETC,” Holzfaster said. “We’ll need their support to ensure it is renewed as quickly as possible.”

On a national scale, the research shows that not renewing VEETC would eliminate some $2.7 billion in state and local tax revenues and another $2.4 billion in federal tax revenue, reduce household income by $4.2 billion and reduce the gross domestic product by $16.9 billion, further eroding the economic output of the U.S. manufacturing sector.