The Top 5: Is the U.S. Ethanol Industry Really Doomed?

01.26.17 | Blog | By:

Happy Thursday friends! Here’s my weekly take on the five most interesting developments in future fuels and vehicles trends over the last week.

  1. Ethanol: Is the ethanol industry really doomed in the Trump Administration? I’m not so sure and I show why in just one graphic.
  2. California scoping plan to achieve 40% GHG emissions reductions below 1990 levels by 2030: More LCFS, more passenger car ZEVs, more freight ZEVs, more cap and trade and new restrictions on refineries.
  3. Fuel economy standards: It is looking likely that Trump will strike a deal to keep more car manufacturing in the U.S. for some kind of relaxation or delay in the fuel economy standards.
  4. Car bans in Paris: The city of Paris is banning vehicles manufactured before the year 2000 because of air pollution concerns.
  5. BP Energy Outlook: Today BP released its Energy Outlook 2017 forecasting in its base case an expected 30% growth in consumption with a mix of fuels that becomes progressively lower in carbon while GDP doubles by 2035. The company has lots to say about the future of transport, and EVs in particular.

1. Bloomberg: Ethanol Industry Could Use a Friend in Washington Right Now

A couple of stories have appeared in the media this week, including this one from Bloomberg, suggesting that because there is no Trump Cabinet appointee from the Midwest, and because of the close ties to the oil industry of those advising and serving in the Trump Administration, the Renewable Fuels Standard (RFS) and in particular, the ethanol industry, is doomed. Another op-ed on the Forbes site this week suggested that the ethanol industry should even fear Trump:

“The counterargument to this would be that Trump will support the ethanol industry, because it supports his ‘Buy American’ philosophy. That is of course true, but keep in mind that Trump is surrounded by advisers with ties to the oil and gas industry. They hate the RFS, because they don’t like being forced to sell a competing product. They are going to come down strongly against the RFS as currently written. They will tell Trump that mandated ethanol keeps U.S. oil in the ground, and that ethanol should be forced to compete without the benefit of the mandate.”

The author suggests that EPA will end up lowering the volumes already established for 2017 in exchange for not scrapping the program altogether. I’m not so sure it’s a slam dunk, though I do think it’s likely the point of obligation will be moved as requested by some refiners, lead by billionaire investor and Trump advisor Carl Icahn. Here’s my thinking in one quick graphic I prepared overlaying states with ethanol facilities and those states Trump won in the election:

The ethanol industry may have more leverage than the media and some pundits are giving them credit for. I return to a comment I made in a post shortly after the election: “Trump can’t very well be the jobs candidate and then be responsible for taking thousands of jobs from the very people in the Heartland who helped elect him.”

2. CARB: California Issues Proposed Plan to Achieve Groundbreaking 2030 Climate Goals

On Friday last week, CARB released its proposed scoping plan to reduce GHG emissions by 40% below 1990 levels by 2030 (see post Aug. 30, 2016). Read more about it here.

3. Bloomberg: Trump Revives Auto Efficiency Debate With Pledge to Slash Rules

Bloomberg reported this week that President Trump met with CEOs of Ford, GM and FCA and it seems more and more likely that the Administration will take action to relax or delay the 2022-2025 fuel economy standards hastily finalized by the outgoing Obama Administration earlier this month. What Trump wants in return? More manufacturing and more jobs in the U.S. as promised during the campaign. The story quotes Trump saying, “We’re bringing manufacturing back to the U.S. We’re reducing taxes, very substantially, and we’re reducing unnecessary regulations.” He also noted, “I am, to a large extent, an environmentalist. I believe in it. But, it’s out of control.” The question is going to be the tack the Administration takes.

To change the rules, the Trump administration would need to initiate a new rulemaking which could take more than a year at least. Another route would be to push for changes through They could push for changes through the National Highway Traffic Safety Administration (NHTSA), which must promulgate fresh Corporate Average Fuel Economy standards for the 2022-2025 model years. That rulemaking is expected to begin by the middle of this year.

Meantime, and as I noted last week, California regulators through the Air Resources Board (CARB) are not backing down from its own package of stringent fuel economy measures. In fact, CARB recommended that “California make a major push now to develop new post-2025 standards while working with automakers, federal regulators and partner states to further develop the market for electric cars.”

4. Independent: Paris Bans Cars Registered before Year 2000 in Bid to Combat City Pollution

A law introduced in Paris on Monday requires all cars to have a sticker indicating which of six categories (figure below) it fits into — indicating the year of the vehicle’s registration, its energy efficiency, and its emission quantity. Any diesel-run vehicle showing a “Level 5” sticker on their windscreen, which indicates they were produced from 1997 to 2000, is not allowed on the road.

Source: The Independent citing the Paris City government, January 2017

According to the article, around 6% of France’s 32 million cars fall into this category. Vehicles registered earlier than 1997 and trucks and buses from before 2001 are not assigned to any category, meaning they are completely banned from driving in the city from Monday to Friday between 8am and 8pm.

Concurrently, the Paris city government has urged commuters to take public transport if possible, and have offered a “pollution ticket”, rolled out on Monday, which costs €3.60 (US$3.37) for a whole day of travel anywhere in the city. Authorities had previously taken the measure of making all public transport free, but the system was dropped after it cost a reported €4 million per day.

5. BP: Energy Outlook 2017

Today BP released its Energy Outlook 2017 forecasting in its base case an expected 30% growth in consumption with a mix of fuels that becomes progressively lower in carbon while GDP doubles by 2035. Read more about it here.