After being a significant importer of ethanol in the 2006 through 2008 period, the United States became a significant exporter of ethanol in 2010 and the early part of 2011. As discussed below, the changing direction of ethanol trade flows in recent years has reflected both policy and market factors. Looking forward, Federal and State policies could drive a future in which the United States imports significant volumes of sugarcane ethanol from Brazil at the same time it continues to export corn-based ethanol to Brazil and other countries.
Significant ethanol imports in the 2006 to 2008 period reflected a decision taken by refiners, spurred by provisions of the Energy Policy Act of 2005, to eliminate the use of methyl tertiary butyl ether (MTBE) as a component of reformulated gasoline in the spring of 2006. The rapidly rising price of oil from the 2006 to mid-2008 period also provided an increasingly strong economic incentive to blend ethanol into conventional gasoline sold in areas not subject to reformulated gasoline requirements. The Volumetric Ethanol Excise Tax Credit (VEETC), which currently provides blenders with a tax credit of $0.45 per gallon of ethanol blended into gasoline, and provided a somewhat larger tax credit over the same period, was a significant driver of economically-motivated ethanol blending.
The Renewable Fuel Standard (RFS), enacted as part of the Energy Policy Act of 2005 and subsequently strengthened by the Energy Independence and Security Act of 2007, established mandates for renewable fuel use in the transportation sector. The RFS mandates, which were not binding in the early years of the RFS program, rise rapidly over time. The implicit mandate for conventional ethanol produced from corn and other starch crops is about 12.6 billion gallons in 2011 and 13.2 billion gallons in 2012. U.S. fuel ethanol production capacity and production has risen rapidly in recent years, with production surpassing 13 billion gallons in 2010.
Nearly all fuel ethanol currently used in the United States is consumed as a blend with gasoline in volumes containing up to 10 percent ethanol (E10), which until late 2010 was the legal limit for ethanol blends sold for use in vehicles designed to run on gasoline. As ethanol use has grown, the market for E10 blending has neared the saturation point, also known as the ethanol blend wall . In October 2010 and January 2011, the EPA issued waivers allowing for the use of ethanol blends up to 15 percent (E15) in vehicles manufactured after 2000, but concerns over potential mis-fueling, associated liabilities, and other issues continue to pose significant near-term barriers to the marketing of E15. Similarly, growth in sales of ethanol as E85 (85% ethanol, 15% gasoline), is restricted in the near term by the number of flex-fueled vehicles that can burn this fuel and the limited availability of E85 refueling stations. With ethanol production rising and domestic markets beyond E10 still facing significant short-term limits, U.S. producers have found relief through opportunities for exports (Figure 1).