Thursday, November 3, 2011

Just as Predicted: EU Announces Anti-Subsidy Investigation of US Ethanol Exports

Things just got a little more interesting on the ethanol - and "green" subsidies - front:
The association which represents European ethanol producers is requesting that the European Commission take action “against unfair imports of fuel ethanol from the United States.”

ePure claims that U.S. ethanol policy has encouraged production to the point that it can be sold at much lower prices on the world market. “Massive and sudden imports of US ethanol, combined with unfairly low prices over the last few years, have seriously damaged the economic situation of European producers” said ePure Secretary-General Rob Vierhout. “The unfair competition of US imports is simply depriving the EU industry from the benefit of this positive evolution on its own domestic market.”

According to the Renewable Fuels Association, ePure is specifically alleging that international ethanol traders were exporting E90 (90 percent ethanol blends) to Europe to take advantage of the European Union’s (EU) lower tariff on such blends as well as the $0.45 per gallon tax credit (VEETC) for ethanol blending in the U.S...

RFA says U.S. ethanol “remains the lowest cost, most cost effective ethanol in the market today. This fact has led to a surge in U.S. ethanol exports to Brazil, Europe, Asia, and the Middle East.”

The U.S. has become a net exporter of ethanol since the beginning of 2009 and exports continue to increase at a rapid pace. The latest reported figures for August from the Energy Information Administration showed 456,000 gallons of imports versus export demand of 52.3 million gallons. Through August, net exports are running at about 15.2 million barrels and are on pace to be double last year.
The whole ePure press release is available here, and the EU today acknowledged that it had received and will investigate ePure's allegations.  And for those of you who are surprised by this development, here's what your humble correspondent predicted almost a year ago when Congress announced a one-year extension of a whole host of "green" subsidies:
Although I'm certainly not a fan of any of these measures, not all of them raise red flags on the trade front. However, several of them do. First, there's the biodiesel "blenders" tax credit, which had expired in 2009 and will be extended through 2011 (with retroactive application through all of 2010). As you'll recall, this bit of green pork has already resulted in the EU's imposition of countervailing duties (CVDs) on US biodiesel exports and a pending copycat investigation in Australia. And according to the WSJ, the EU is investigating allegations by its domestic biodiesel industry that US exporters are trying to circumvent the CVD order by trans-shipping their products through third countries. When the tax credit expired, the CVD order was thought to also be on the outs, but now, well, we get more tariffs and trade frictions with the EU, the likely imposition of Australian tariffs, and the potential for other countries to copy the European case, as all that subsidized US biodiesel is inevitably overproduced and diverted to other foreign markets. Nice.

Speaking of overproduction and foreign market saturation, next up is probably the rottenest piece of green pork in the tax deal: ethanol subsidies and tariffs. Over the last few weeks, many folks - including Al Gore himself! - have explained just how awful America's ethanol policies are. They cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment. (Great video on all of these unintended consequences here.) Unmentioned in those analyses, however, is the serious risk that the United States' ethanol measures will result in new trade disputes. First, the ethanol "blender" tax credit is pretty much identical to the biodiesel subsidies that have attracted EU and Australian tariffs, so they're almost certainly eligible for similar CVDs. According to recent stats, the EU is experiencing record imports of US ethanol, and, as the FT helpfully points out, European producers are getting angry...

Ok, let's see. Subsidized product with a history of trade friction: check! Glut in the domestic market and surging exports: check check! Aggrieved domestic industry with experience using domestic trade laws: check! For those of you keeping score at home, that's the ol' trade dispute superfecta.
So you can't say that you weren't warned.  Indeed, a few weeks after I made this kinda-obvious prediction,  China announced its own investigation into a by-product of (allegedly) subsidized US ethanol.  (Have I mentioned how trade remedies cases tend to reproduce in other jurisdictions?)

So now we have further proof of just how rotten our federal ethanol policies are: not only do they "cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment," but they also cause serious trade frictions in major overseas markets.

But other than that....

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