Ethanol Poised for Success if Exports Sustain

Jacqui Fatka

February 13, 2025

Key points

• Policies in Canada, the European Union and Colombia will determine whether these ethanol super buyers will continue to drive record export figures.
• Nationwide E15 approval may not meet the desired demand increase without oil industry support for regulatory changes to use existing infrastructure.
• Increased electric vehicle sales and lower Corporate Average Fuel Economy (CAFE) standards will have opposing impacts on the overall gasoline demand that drives ethanol inclusion.

With growing world ethanol demand and higher domestic blend rates, the ethanol industry is positioned for continued growth. However, political uncertainty clouds the outlook for international and domestic inclusion levels of biofuel blends. At home, the new administration’s Environmental Protection Agency will decide on pending Small Refinery Exemptions, establish the Renewable Volume Obligations under the Renewable Fuel Standard, and implement low carbon fuel tax incentives such as the Clean Fuel Production Credit, known as 45Z.

Despite overall declines in agricultural trade, last year's U.S. ethanol exports reached 1.91 billion gallons, surpassing the 2018 peak of 1.7 billion gallons. The anticipated increase of ethanol exports of more than 510 million gallons in 2024 over 2023 had a greater impact than the incremental increases in domestic use of higher-level ethanol blends. Annual ethanol exports could reach 2 billion gallons in 2025 and 2026.

Canada has a national blending mandate of 5% ethanol in gasoline, but several provinces require higher rates, including Ontario, whose provincial mandate will rise to 11% in 2025, as it continues toward its goal of reaching E15 by 2030. For the last four years, Canada has been the top destination for U.S. ethanol in both volume and value. During 2024, volumes reached 675 million gallons, up 8% YoY. Any potential tariffs, tit-for-tat trade disputes with Canada or change in the Canadian government’s leadership could disrupt the trade flow of U.S. ethanol into Canada.

The EU saw substantial growth in US ethanol imports, due to the growth of the gasoline pool and expansion of E10 and E85 in some EU member states. Exports were up 280% September - November 2024 compared to the same period the year prior. India has also increased its nonfuel ethanol imports, up 84% for September – November versus the same time a year earlier, according to the U.S. Grains Council. The U.S. Department of Agriculture anticipates India to have a feedstock shortage and its ethanol blending rate for 2024 to drop to 11.5%. In April 2023, India initially reached its current ethanol blending target of E12 but will be hard pressed to reach E20 by 2025.

The U.S. and Brazil continue to produce around 75% of global ethanol supply. Brazil has dramatically increased its own domestic production of corn-based ethanol in addition to sugarcane-based ethanol. Brazil utilizes most of its own ethanol domestically.

E15 demand builds slightly

Although ethanol used for higher-level blends is projected to increase annually, it constitutes only a small portion of overall ethanol demand due to the market's size. Domestic ethanol consumption surpassed the 10% blend wall in recent years, but last year’s levels reached only 10.35% of total fuel gasoline use and is estimated to reach 10.39% in 2025 and 10.42% in 2026. Last year, higher ethanol blends, mainly E15 and E85, accounted for approximately 670 million to 740 million gallons of additional ethanol demand above the blend wall. Private sources expect some growth in 2025 and continued steady growth in future years. Drivers typically save between 10 to 30 cents per gallon when filling up with E15 and can save over $1/gallon for E85 in California.

The last four years the Biden administration approved emergency waivers to allow the sale of E15 during the peak summer driving months. In one of President Trump’s first acts in office, he declared a National Energy Emergency, which stated that the EPA administrator in consultation with the secretary of energy should consider emergency fuel waivers to allow the year-round sale of E15 gasoline to “meet any projected temporary shortfalls in the supply of gasoline across the Nation.” President Trump previously supported E15 and tried to enact regulations to implement the change before courts overturned it.

In February 2024, EPA granted a petition from eight Midwestern governors to allow year-round sales of E15 in their states which goes into effect in 2025. The patchwork waivers led the American Petroleum Institute to join ethanol interests in seeking a permanent fix to provide certainty. Language permitting national year-round E15 sales, supported by several farm groups, was removed from the end-of-year federal funding package this past December at the eleventh hour. This effort remains a top priority for the ethanol industry; however, significant investment and infrastructure updates will be necessary for higher blending inclusions to push substantial new demand.

To date, Growth Energy reports over 3,700 retail locations offer UNL88 – E15 – in a total of 33 states. This compares to a total of over 198,000 retail gasoline stations nationwide. The Higher Blends Infrastructure Incentive Program (HBIIP) has been a popular private-public partnership to help fuel retailers invest in biofuel-related infrastructure projects. Since its inception in 2020, USDA invested $77.8 million through HBIIP that led to an estimated $1.2 billion increase in annual biofuel sales. In the past, the secretary of agriculture authorized Commodity Credit Corporation funds to support HBIIP. The Inflation Reduction Act also targeted dollars for HBIIP investments. Growth Energy has driven more than $1 billion in investments in new biofuels infrastructure since 2011 through grant writing, per-gallon incentives and direct financial support.

California is the last state across the country that doesn’t currently allow the sale of E15. In an effort to lower gasoline prices, California Gov. Gavin Newsome has urged for the approval of the ethanol blend in the state. Bipartisan bill AB 30 was recently introduced in the California state legislature to require the California Air Resources Board to complete a rulemaking to approve E15 by July 1, 2025, or deem the fuel to be approved by the board and authorize it to be sold in California.

E85 sales in California continue to grow to help consumers offset the additional taxes imposed on gasoline sold in the state. However, E85 sales nationwide have likely moderated somewhat from 2023 as Renewable Identification Numbers (RINs) have come off their highs.

Gasoline demand underpins blend rates

Until widespread investments or regulatory changes are made at the pump level to significantly push blending rates higher, ethanol blend volumes in the U.S. follow gasoline demand trends. Private estimates peg overall ethanol demand at 14.2 billion gallons in 2025 and 2026. Gas demand is expected to rise by 0.1% in 2025 and stabilize at 137.4 billion gallons per year through 2026.

Ethanol demand has benefited from the return of workers to the office and overall employment strength as well as moderate retail gas prices. However, ethanol demand feels the impact of the increase in electric vehicle sales. While the EV growth rate has slowed, EVs accounted for 8.7% of total new-vehicle sales in the second half of 2024 and anticipated to hit 10% of sales by 2025. One in every four vehicles sold will be electrified in some way – a hybrid, plug-in hybrid or EV, according to Cox Automotive Forecast.

The CAFE standards set the average fuel efficiency of vehicles sold in the United States and can have a greater impact on gasoline demand than EV sales. In 2011, President Barack Obama pledged to double the average fuel economy of vehicles by 2025, to almost 55 miles per gallon. In his last term, President Trump vowed to roll those back and is already taking aim at regulations the Biden administration implemented to bring average fuel economy to 50.4 miles per gallon in model year 2031.

The EPA traditionally sets the RFS annual standards at levels that can be met with current ethanol blend levels. The 2023-2025 RVO mandates established under the RFS with a “soft cap” of corn-based ethanol at 15 billion gallons. Prior to 2023, EPA established the RFS on a yearly basis but transitioned to a three-year “set rule” in its most recent rulemaking. Statutorily, EPA was to propose its future RVOs by November 2024. The Biden administration punted the RVO proposal to the Trump administration. It is unknown whether it will be a one-, two- or three-year proposal.

The RFS allows for small refiners to request exemptions for their volume obligations if they can demonstrate disproportionate economic hardship. During President Trump’s first term, the EPA approved 88 waivers to small refiners from their blending obligations under the RFS, which removed 3.11 billion gallons of biofuel demand. EPA denied all pending SRE requests under the Biden administration, but a total of 139 SRE petitions are now currently pending with the EPA. If a considerable number of SREs are granted, the new RVO levels will need to incorporate an overall higher mandate to accommodate the excess RINs created for any possible future SREs that may be granted.

SREs will lower RIN prices further and discourage some additional higher-level blend sales above E10. The impact of SREs is projected to be more significant on ethanol prices than on ethanol demand, as it represents a shift in profitability from ethanol producers to small refiners. The last gallon of ethanol usually determines the overall market price, and lower RIN prices typically translate to lower prices for E10 at the pump. University of Illinois research shows SREs granted during the first Trump administration did not destroy domestic ethanol demand.

Low carbon tax incentives still unknown

Although the blender’s tax credit disappeared years ago for the ethanol industry, the creation of the Clean Fuel Production Credit, 45Z, offers a new way for ethanol producers to possibly capture tax credits if the carbon intensity of the ethanol produced is low enough. The Biden administration released initial guidance before leaving office, but the future fate of the program rests in the hands of the Trump administration and Congress.

Since 2005, the overall carbon intensity of ethanol has decreased by 23%. Ethanol’s CI score today is 53.6 grams of carbon dioxide equivalent per megajoule of ethanol produced (gCO₂e/MJ), 42% lower than unblended gasoline. Corn ethanol does not qualify for the 45Z credit using a newly proposed defaults of 45ZCF-GREET (Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation), as its score is just over 50kg CO₂e per mmBTU.

Carbon capture, utilization and storage provides a reduction in CI for ethanol to obtain credits under 45Z as well as 45Q, but not both. Ethanol facilities with access to the geology to directly pipe carbon dioxide underground or send via a pipeline — including the Tall Grass Pipeline in Nebraska and Wyoming as well as the proposed Summit Pipeline in Iowa, Minnesota, Nebraska, South Dakota, and North Dakota — can decrease their CI scores by 20-30 points under the recent 45Z guidance.

Climate-smart agriculture has the potential to push corn ethanol under the threshold based on USDA’s proposed technical guidance for practices such as no-till and cover crops. The American Soybean Association estimates this change is worth $0.36 per gallon of ethanol. Using national average yields, these practices would result in about $15 per acre for soybeans and $186 per acre for corn if all the benefits accrued to the farmer, which might have implications for crop rotations. It is unlikely that the tax credit would create additional demand for ethanol, but it can incentivize ethanol producers to increase their own efficiencies. 45Z is currently set to expire at the end of 2027 and new demand for alcohol-to-jet sustainable aviation fuel is unlikely to be realized in this period.