GLOBAL SCENE Transatlantic Tradeoffs

Transatlantic Trade-Offs

Emmanuel Desplechin Secretary General ePURE, the European Renewable Ethanol Association

desplechin@epure.co

The recent U.S. presidential election has spurred a lot of talk about what the new administration will mean for the transatlantic trade relationship after four years of on again, off again tariff wars.

Hopes are high that the European Union and the U.S. will reaffirm their commitment to doing business with each other in the spirit of free and fair trade. Often overlooked in these discussions is the ethanol sector, which has had a rather bumpy transatlantic history, regardless of who has been in the White House.

Now, the COVID-19 pandemic has created a situation in which the stakes are even higher for the EU. Europe faces a potential flood of imports from countries that have amassed stocks of ethanol during the first wave of the pandemic, posing an existential threat to the EU industry.

Among its many other impacts, the pandemic has upended the renewable ethanol industry around the globe. The drop in petrol demand due to lockdowns has constricted the fuel ethanol market. While many producers have shifted some output to ethanol for hand sanitizers, even during COVID-19 this represents only a fraction of the overall ethanol market.

Recognizing the importance of the EU ethanol industry, the European Commission took action in early November. Responding to a request from France supported by its fellow EU Member State governments, the commission decided to introduce surveillance measures on imports of renewable ethanol for fuel from outside the EU.

This will allow a close monitoring of the volume of fuel ethanol imports into the EU, which will facilitate a prompt and effective reaction in case the threat related to increased imports materializes. The decision represents an important step toward preventing a surge in imports from causing further injury to the EU renewable ethanol industry.

EU renewable ethanol producers sounded the alarm in the context of a trade situation that has gone from worrying to worse due to the COVID-19 market disturbances. Even before the pandemic radically altered global fuel and commodities markets, imports of renewable ethanol for fuel into the EU had sharply increased since 2017, from 87,600 metric tons to 536,200 metric tons in 2019, an increase of 512%.

Fuel ethanol imports have rapidly gained a significant EU market share during the past three years, from 2% in 2017 to 14% in the first quarter of 2020. The rapid surge of imports has already started to have a negative impact on the European renewable ethanol industry, as measured by several indicators, therefore causing an imminent threat of serious injury to the European renewable ethanol industry.

In the first months of COVID-19 market disturbances, foreign fuel ethanol producers accumulated significant stocks they were eager to sell. For example, U.S. stocks in March-May 2020 reached more than 3.2 million metric tons, a figure that corresponds to three-quarters of total EU demand in 2019. Brazil’s spare capacity had reached almost 2.4 million metric tons on May 1, 2020, a figure corresponding to more than half the total EU demand in 2019.

And that’s not even the only threat on the horizon. If adopted, the pending agreement with the Mercosur bloc in Latin America would radically alter the transatlantic ethanol trade balance. This deal, approved by negotiators in 2019 after 20 years of talks, would open EU markets to a flood of Brazilian ethanol. But it might never actually be ratified in its current form, as several EU Member States have signaled their opposition to the deal on the grounds of environmental concerns.

Why is action needed at the European level to address these looming threats? Because the EU renewable ethanol industry is a strategic sector for the European Union. It contributes directly and indirectly to the employment of at least 50,000 people. It plays a significant role in tackling climate change and decarbonizing the transport sector, which are among the top priorities of the EU. Renewable ethanol production is an important source of income for Europe’s farmers, and it boosts rural economies.

The EU renewable ethanol industry has played a vital role in the current health crisis and provided significant efforts to contain the COVID-19 pandemic. In this situation, the preservation of a solid renewable ethanol industry is key to ensure a sufficient supply of hand sanitizers and other disinfectants throughout the EU.

The European Commission’s decisive action in launching surveillance is a positive sign that it is willing to stand up for a vital and strategic domestic industry. The coming months could determine whether more action is required.