US ethanol industry could see US$10 billion in losses due to COVID-19 – RFA
As the coronavirus (COVID-19) pandemic and crude oil glut continue to ravage world fuel markets, ethanol sales in the United States (US) 2020 could fall by more than US$10 billion and the industry’s contribution to gross domestic product (GDP) could drop by nearly one-third, according to a new analysis released by the Renewable Fuels Association (RFA).
According to the Renewable Fuels Association (RFA), the economic losses stem from a “pernicious combination of steep production cuts and sharply lower prices” in response to COVID-19 stay-at-home orders and the resulting collapse in fuel consumption.
RFA warned that these economic damages go far beyond the ethanol sector. America’s farmers will also be negatively impacted, as ethanol typically provides a market for two out of every five rows of corn and more than one-third of the annual sorghum crop.
Meanwhile, the industry normally supports 350 000 jobs across all sectors of the economy and contributes valuable co-products like distillers grains, corn distillers oil, and captured carbon dioxide (CO2) to the food supply chain.
This sobering new analysis underscores the magnitude of the economic devastation being suffered in the ethanol industry. Roughly half of the ethanol industry is shut down today, as fuel demand has collapsed in response to COVID-19, and it is clear we have a long and bumpy road to recovery ahead of us. Corn demand and prices have plummeted as plants have idled, jobs are being lost, and rural communities are being destabilized, said RFA President and CEO Geoff Cooper.
Building on the results from a recent Purdue University study, the RFA analysis estimates that ethanol production could fall by approximately 3 billion (US) gallons (≈ 11.36 billion litres) in 2020, representing a nearly 20 percent cut from levels that would have otherwise been expected.
Mainly due to lower usage and high inventories, ethanol prices could be 56 cents per gallon lower on average from March to December than they otherwise would have been; as a result, ethanol sales fall to US$12.5 billion in 2020, a 46 percent reduction from the US$23 billion that would have been expected absent COVID-19.
Ethanol industry not included in US$19 billion aid package
On April 17, 2020, the US Department of Agriculture (USDA) announced a US$19 billion Coronavirus Food Assistance Program (CFAP). While the package will help the nation’s farmers and ranchers, it does not provide any assistance to the country’s ethanol industry.
While we appreciate that USDA’s new program provides needed assistance to the nation’s farmers and ranchers, it is unfortunate and disappointing that the 350 000 workers supported by America’s ethanol industry were left behind. USDA missed a crucial opportunity to lend a helping hand to an industry that is suffering the worst economic crisis in its history. Roughly half of the ethanol industry is shut down today, as fuel demand has collapsed in response to COVID-19. Corn demand and prices have plummeted as plants across the country are idling. Jobs are being lost, grain markets are being ravaged, rural communities are being destabilized, and the long-term future of homegrown renewable fuels hangs in the balance, remarked Geoff Cooper.
He added that even in the face of tremendous adversity, ethanol producers have stepped forward to help in the battle against coronavirus by ramping up production of high-purity alcohol for hand sanitizer and continuing to supply animal feed and captured carbon dioxide to the food supply chain.
In its annual economic impact analysis for 2019, ABF Economics found that the ethanol industry contributed US$43 billion to the nation’s GDP and supported nearly 350 000 jobs in 2019. But based on today’s RFA analysis, it is expected that the industry’s contribution to GDP could shrink to US$30 billion in 2020, nearly one-third less than last year.
Furthermore, if the scenario in the RFA analysis plays out, the industry would support nearly 280 000 jobs across all sectors in 2020, a reduction of about one-fifth from 2019.
On the heels of last week’s agriculture relief package that excluded any assistance for ethanol, we urge the administration and Congress to take immediate action to help the renewable fuels sector survive. We simply cannot afford to lose an industry that has become part of the fabric of rural America, said Geoff Cooper.
EPA should reject oil state waiver requests
In parallel, Geoff Cooper denounced the oil refining industry’s latest attempt to undermine the Renewable Fuel Standard (RFS). In a letter to the Environmental Protection Agency (EPA) Administrator Andrew Wheeler, which was sent April 17 in response to RFS waiver requests from five oil state governors, the RFA reminds EPA that a waiver may only be granted if petitioners can show that “economic harm” is “severe” in nature and is a direct result of the RFS, not some other factor and the requests should be rejected immediately.
We are skeptical the letters you received even rise to the level of a petition that would necessitate the opening of a docket and solicitation of public comment. They fail miserably to make any defensible demonstration that the RFS itself is the sole source of ‘severe economic harm’ in their states, Copper wrote.
Cooper noted that the same harms cited by the oil-state governors have also been experienced by ethanol producers across rural America in the last six weeks, resulting in a 45 percent reduction in demand, a 47 percent drop in production, lost jobs, and economic instability across the Midwest.
The oil state request to waive the RFS is nothing more than a cynical gambit to capitalize on the public health tragedy of COVID-19. It’s a veiled attempt to achieve the refining sector’s long-standing goal of undermining the success of renewable fuels and protecting their chokehold on the nation’s fuel market. There is simply no reason to abandon the RFS, the nation’s most successful effort to promote clean-burning, homegrown, low-cost renewable fuels. Further destroying renewable fuel demand by vacating RFS requirements would unnecessarily, callously, and illegally exacerbate the economic harm already being inflicted on farmers and ethanol producers, Geoff Cooper concluded.
The letter concluded by stating, “EPA must abide by the statute. It must require any party seeking a general waiver to provide data and concrete evidence demonstrating that; 1) the RFS itself is the cause of economic harm to a state (i.e., not to individual refiners); 2) that the harm is ‘severe’ in nature; and 3) that a waiver would redress the harm. The letters sent to you by these five governors fail to satisfy any of those requirements and should not be considered ‘petitions.’ The Agency should immediately reject this cynical effort by oil refiners to capitalize on our nation’s current public health and economic challenge.”