Bridges Trade BioRes • Volume 9 • Number 2 • 6th February 2009
US Stimulus Package to Shore up Biofuels Sector
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The Obama administration is reaching out to the struggling US ethanol industry with its new American Recovery and Reinvestment Act. The stimulus package, which is designed to shock the US economy back into the black, includes several provisions for renewable energy and biofuels industries.
Ethanol producers have been struggling with unpredictable corn prices, resulting from market volatility since the onset of the financial crisis in September. The economic turmoil has also forced cash-squeezed consumers to look for cheaper options when it comes to purchasing fuel. As a result, US ethanol producers have had to reduce capacity, which has caused profits to plummet.
This contraction in the market has caused trouble for several American biofuels producers including Cascade Grain Products, Northeast Biofuels, and Panda Ethanol. After filing for bankruptcy protection in October, VeraSun Energy Corp - the country’s second-largest ethanol producer - has closed 12 of its 16 plants. In fact, a recent report by US ethanol producer and grain processor Archer Daniels Midland Co estimates that weak demand and poor margins have caused a 21 percent contraction in US ethanol production capacity.
In addition to the provisions in the stimulus package, the US Agriculture Department has said it will help bolster the industry by seeking out more efficient means of production. Agriculture Secretary Tom Vilsack says that his department should research, develop, and promote ‘best practices’ to improve efficiency at corn-based ethanol plants. “We need to make sure that the biofuels industry has the necessary support to survive the recent downturn,” Vilsack said recently.
Domestic contraction could boost imports
But consumer demand may not dwindle much longer, as lawmakers are looking for new ways to jump-start domestic biofuels production.
The Energy Independence and Security Act of 2007 - a measure designed to ensure that gasoline sold in the US contains a minimum volume of renewable fuel - mandates the country to use 15 billion gallons of corn ethanol and 1 billion gallons of biodiesel per year by 2015.
The government plans to increase initiatives that will help increase production of cellulosic ethanol derived from non-food crops such as switchgrass and woodchips. The Act requires the US to use 16 billion gallons of such non-food derived ethanol annually by 2022.
These ambitious targets stand in contrast to the widespread closures of American biofuels producers. And if the capacity of US industry is unable to keep pace with the mandated demands of the 2007 act, the country would be forced to look for ethanol elsewhere - possibly Brazil.
No Word from Brazil
Brazil already exports approximately 50 percent of its ethanol to the US, although Brasilia has long been at odds with Washington over subsidies it provides domestic producers and the tariffs it slaps on competing imports. Brazil and the US together account for 75 percent of world ethanol production and over 50 percent of biodiesel output.
After the breakdown of world trade talks at the WTO in July, a Brazilian trade official indicated that Brasilia was likely to initiate dispute proceedings at the WTO with the US over its ethanol import tariffs. However, a biofuels collaboration project between the two countries announced in October suggested that the tension was cooling off (see Bridges Trade BioRes, 3 October 2008, http://ictsd.net/i/news/biores/30311/).
More recently, though, the highly anticipated US economic stimulus package has triggered outrage among some US trading partners - particularly the ‘Buy American’ provision included in draft versions of the bill, which some say could trigger a trade war (see Bridges Weekly, 4 February 2009, http://ictsd.net/news/bridgesweekly/). Brazil has not yet responded to the new initiatives meant to buoy struggling ethanol producers.
US$ 18.5 billion available for renewables, energy efficiency
The legislation under the new stimulus package includes several provisions relating to the renewable energy and biofuels industries. Initiatives include extending the production tax credit for biomass energy to 2013 and the provision of as much as US$ 18.5 billion for energy efficiency and renewable energy projects.
Biofuel projects using technologies that are in the ‘pilot’ or ‘demonstration’ stage would be eligible for the new initiative if these technologies are determined to be bound for commercial success. Lawmakers hope that the projects might ultimately lead to substantial reductions in non-industry related greenhouse gas emissions.
“U.S. House stimulus package includes biomass, biofuels provisions,” BIOMASS MAGAZINE, 3 February 2009; “More US ethanol producers file for bankruptcy,” BIOFUELS INTERNATIONAL, 4 February 2009; “USDA To Help Ethanol Plants Look For Efficiencies,” REUTERS, 27 January 2009; “ADM says 21 percent of U.S. ethanol capacity idle,” REUTERS, 3 February, 2009.
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http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/18/BAOK1087DP.DTL