Renewable Fuels- the moldable fuel

By: Elizabeth Hilbourn and Wei Li 

We can all remember playing with silly putty.  If you rolled it into a ball, it would bounce.  If you pushed it onto a newspaper cartoon, it would pull off the image, which you could stretch and distort.  You could mold silly putty into any shape you desired and put it into the Easter egg case to take with you.  Perhaps in some ways, U.S. renewable fuels are similar to silly putty.  Regulations are setting the U.S. demand for renewable fuel while worldwide import taxes are defining domestic renewable fuel production levels.  U.S. renewable fuel, like silly putty, is taking the shape of whoever had last pushed or pulled on it the hardest.

U.S. ethanol consumption has topped 10% of gasoline demand and is fairly stagnant while biodiesel is at 4% of diesel demand and growing.  Just as the comment period for the 2018 renewable fuel standard came to a close on August 31, 2017, a few other rulemakings came to the forefront which could affect U.S. biodiesel and ethanol profitability.  Two of the rulemakings, effecting Argentina biodiesel imports into the U.S., could have a direct effect on the ability to meet the final 2017 and proposed 2018 renewable fuel standards.  A preliminary determination on countervailing duty regarding alleged subsidized biodiesel imports from Argentina and Indonesia was published in the Federal Register on August 28, 2017.  If the duty was imposed, it is anticipated to oust the two countries from the U.S. biodiesel market.  Even without the duty, the Argentinean biodiesel could shift back to the EU since on September 7, 2017, the EU voted to lower antidumping duties on Argentine biodiesel. Meanwhile, Brazil’s Chamber of Foreign Trade has approved effective August 25, 2017, a recommendation to impose a 20% tariff on ethanol imports after a 600 million liter tariff rate quota.

Biodiesel Imports

Seventy-three percent of 2016 U.S. biodiesel imports came from Argentina and Indonesia, while Canada provided another 14% of 2016 imports. In 2017, however, we have not yet seen any Indonesian biodiesel.  Biodiesel imports have been highly seasonal with the heavy import season typically coming in the second half of the year.  The graph below shows monthly biodiesel imports for 2016 and the first six months of 2017.

Ethanol Exports

Depending on the month, Brazil, China, and Canada have all been leading export destinations for U.S. ethanol.  India and the Philippines import a significant amount of ethanol also.  Many of the lost ethanol exports to China in 2017 have been made up by increased Brazilian imports.  Through June, 40% of U.S. ethanol exports have gone to Brazil.  The ethanol export graph is shown with the same scale as the biodiesel import graph.  Often, ethanol exports and biodiesel imports are on the same magnitude as one another.

Argentina and Indonesia

The U.S. Commerce Department ruled that biodiesel imported from Argentina and Indonesia will be required to pay cash deposits. The U.S. is planning to set duties of 50.29% to 64.17% for Argentinian producers and between 41.06% to 68.28% for Indonesian producers.  An Argentine biofuel industry source stated that any duty of more than 15% leaves Argentine biodiesel out of the market.  This preliminary determination, that countervailing subsidies were being provided to producers of biodiesel from Indonesia and Argentina in 2016, was published in the Federal Register on August 28, 2017.  The ruling is out for public comment and for requested hearings.

The U.S. has a deliberate and specific government structure to subsidize biodiesel (called RINs); however, it is unacceptable when a foreign government takes some of the cost away from the American consumer. Indonesian and Argentinian biodiesel imports accounted for an estimated 20% of D4 RIN generation in 2016 after retiring for exports. The U.S. could not meet these renewable fuel standards without these imports, and the price of RINs would be expected to dramatically increase if the import duties went into effect.  So far, the RIN price is not reflecting an anticipation of these duties.


In Brazil, the Brazilian Chamber of Foreign Trade, Camex, has approved a recommendation to impose a 20% tariff on U. S. ethanol imports after a 600 million liter tariff rate quota. Brazil will allow 600 million liters of tax fee ethanol imports per year broken down by quarter.  Once imports have surpassed 150 million liters in any given quarter, the 20% tax will begin.  The new rules took effect August 25, 2017.  In 2016, the U.S. exported 1,009 million liters (17.5 MBPD) of ethanol to Brazil.  In 2017, through June, the U.S. has exported 1,041 million liters (36.2 MBPD) of ethanol to Brazil.  600 million liters per year is equal to 10.3 MBPD.  The Trade Ministry is looking into how the tax-free quota will be divided among ethanol importing companies.  Ethanol sales had been rising in Brazil, due to a recent change on local taxation that made it more competitive against gasoline.  Sugar mills in Brazil have favored sugar over ethanol as world sugar prices remained high.


In 2013, the EU set duties for five years of 20.5% for biodiesel from Indonesia and between 22% and 25.7% for Argentine biodiesel. The complaint filed with the World Trade Organization (WTO) was upheld in 2016 with Argentina saying the EU duties were protectionist and cost Argentina $1.6 billion each year it was in place.  The EU voted on September 7, 2017, to lower antidumping duties on Argentine biodiesel.  The commission has until September 28 to bring its duties into conformity with the WTO appellate body report.  The new, lower duties have been reduced from 22% to 25.7% down to 4.5% to 8.1%, depending on the company. Copa-Cogeca, a European trade group representing European farmers and agri-cooperatives, plans to pursue antisubsidy measures against Argentina. The organization will request that the commission register the imports with the possibility of retroactive collection of duties.  The lowered antidumping duties should shift Argentinian biodiesel from the U.S. back to the EU, even without the U.S. countervailing duty.


The new goods and services tax plan in place as of July 1, 2017, known as a GST plan, creates five tax structures ranging from 0% to 28%. The GST Council applied the second highest bracket – 18% – to ethanol and biodiesel. The previous structure assessed ethyl alcohol with a complex set of taxes – 12.5% central excise, 2.5% import tariff, plus a variable state-by-state, value-added tax of typically 5% and minus offsets from refunds or credits. Overall, Indian ethanol importers view the new GST structure as fairly tax neutral since it is applied to both ethanol imports and ethanol production.. Pre-GST, bio-diesel attracted zero excise duty. The Biodiesel Association of India (BDAI) has represented that the high incidence of tax on the clean fuel will make it costlier than diesel and will ultimately make it uncompetitive; however, it will not affect U.S. biodiesel production since the U.S. currently neither imports biodiesel from India nor exports biodiesel to India.


China has increased ethanol import tax from 5% to around 30% after the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) early this year. There have been no exports of ethanol in 2017.  In 2016, ethanol exports to China averaged 11.6 MBPD.

In September 2016, after a nine-month investigation, China imposed a preliminary antidumping duty of 33.8% against U.S. Distillers Dried Grains with Solubles (DDGS) and a countervailing duty of 10% – 10.7%. In a final ruling in January 2017, China increased its DDGS antidumping duty to 42.2% – 53.7% and its DDGS countervailing duty to 11.2% – 12%. Prior to China’s latest actions, the country had been a top export market for U.S. DDGS. DDGS is the main coproduct of corn ethanol produced in dry-mill plants.  DDGS typically comprised between 15% and 25% of the revenue from a typical corn dry-mill ethanol plant.    Just over 25% of DDGS is exported each year with the majority of exports going to China.  In fact, in 2015, over half of the exports went to China.  In the first half of 2017, less than 4% of DDGS went to China.

On September 13, 2017, the Chinese National Development and Reform Commission and National Energy Administration (NEA) published a plan to use ethanol gasoline nationwide by 2020. Gasoline blended with ethanol accounts currently accounts for only one-fifth of its annual gasoline consumption. China wants to cut emissions, but at the same time, ensure an adequate food supply.  China banned the use of grain for ethanol production in 2007 to ensure sufficient food supply, and biofuel manufacturers have since turned to sweet potatoes, sorghum and straw stalks instead. Eleven provinces have since lifted the ban.  The U.S. Renewable Fuel Association (RFA) hopes that the plan to use higher ethanol blends would result in eventually removing or reducing the ethanol import tax.

Turner, Mason & Company continually monitors developments in the global petroleum markets and assesses how they will impact the industry.  Last month, we released our latest Crude and Refined Products Outlook, which forecasts supply, demand and prices for petroleum on both a regional and global basis.  While political events can’t always be forecasted, we do consider and discuss how such developments can affect the markets. For more information about this publication or studies and other consulting services TM&C can provide, please visit our website or give us a call.