Mexico’s Ethanol Boost Fuels Cross-Border Environmental Debate

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By Emily Pickrell

Mexico’s decision to nearly double the amount of ethanol permitted in gasoline is pitting two big winners—U.S. corn growers and ethanol producers—against some environmental activists and Mexico’s own auto industry.

Last month Mexico’s Energy Regulatory Commission (CRE) announced it was immediately boosting the maximum amount of ethanol that could be blended in Mexican gasoline supplies from 5.8 percent to 10 percent, and that the change would bring Mexico (outside of its three biggest cities) in line with U.S. gasoline standards.

The U.S. Grains Council—which represents ethanol producers such as Cargill, John Deere, Dow AgroSciences, and Kansas Ethanol—welcomed the decision, as did former commission president Francisco Salazar.

“I think that the CRE has made the right move,” Salazar, the agency’s president from 2005 to 2015, told Bloomberg BNA. “The standard on the other side of the border is a good one.”

While the U.S. already supplies about half of Mexico’s gasoline and is the primary producer of ethanol used in Mexico, the change, which took effect June 26, also could expand gasoline imports from the U.S. because retailers won’t need to sell gasoline with different ethanol levels on either side of the border.

Cross-Border Cooperation

Despite feuding with Mexico over a border wall, President Donald Trump promised to support ethanol while campaigning for president, and he reiterated that position in a speech in Iowa last month. The ethanol industry is “under siege,” but the Trump administration is saving it, the president told an Iowa crowd in June.

Earlier this month, Energy Minister Joaquin Coldwell and U.S. Energy Secretary Rick Perry agreed to work on standardizing energy regulations between the countries, as a way of moving toward a single North American energy region. The Trump administration has listed this integration as one of its objectives in renegotiating the North American Free Trade Agreement, and Mexican President Enrique Pena Nieto has identified it as a key priority.

“We are pleased to see this [ethanol] decision, which is the culmination of significant work by Mexican authorities and industry as they continue to diversify and improve their fuel supplies,” Tom Sleight, the U.S. Grains Council’s president and chief executive officer, told Bloomberg BNA in a statement.

U.S. Winners

U.S. corn growers had pushed hard for their southern neighbor to adopt the U.S. ethanol standards, according to George Baker, publisher of Mexico Energy Intelligence, a Houston-based research group.

“There was a big effort on the part of U.S. refineries to lobby Mexico,” Baker said. “It basically is an effort to prop up the Iowa corn industry by exporting gasoline.”

And U.S. companies are likely to become the big ethanol suppliers for Mexico, which currently produces about 66 million gallons per year of ethanol, according to the Grains Council. By contrast, the largest U.S. ethanol plants alone make as much as 300 million gallons per year of ethanol.

Whether the council’s efforts should be seen as lobbying or helping a neighbor develop its own market is a matter of perspective, said Mike Dwyer, the Grains Council’s chief economist and head of the global ethanol program. The mission of his program, he explained, is to provide regulators around the world with information on the benefits of ethanol and the science that supports its impact on the environment.

“We are working with the Mexican ethanol industry and helping them develop a resource,” Dwyer told Bloomberg BNA. “Mexico has the necessary feedstocks to produce ethanol; they have plenty of sugar and sorghum. What they don’t have is the knowledge, and that is what is the focus of our engagement—education.”

Environmental Dissent

Research on the health impacts of ethanol in gasoline are mixed. The addition of ethanol reduces two types of carcinogens, benzene and butadiene, according to a 2009 Stanford University report, but may increase ozone, which has been linked to asthma and other lung ailments, depending on the characteristics of the atmosphere.

Ethanol in gasoline has not been permitted for sale in Mexico’s three most heavily populated cities—Mexico City, Guadalajara or Monterrey—because of their significant air quality issues. And this ban continues, at least for now.

Mexican environmental groups argue the decision to increase the percentage of ethanol in the rest of the country overlooks the potential environmental and health damage it could inflict, in part by increasing ozone in the atmosphere.

Ethanol advocates point to research—such as a January 2017 report from the U.S. Department of Agriculture— that ethanol gasoline produces fewer greenhouse gases and thus benefits climate change reduction goals.

But some environmental groups question the actual environmental benefits of ethanol, including as it relates to greenhouse gas emissions. They point to the fossil resources that are invariably required to grow these crops and then process them into an additive for fossil fuel, which they say can largely neutralize the carbon footprint benefit.

High-Altitude Cities

In Mexico, the environmental issues have focused mostly on air quality.

The concerns that ethanol gasoline would be especially problematic for high-altitude cities, such as Mexico City, have not been proven by the experience of other cities who once raised the same concerns, Dwyer said. He listed Denver and Bogota, Colombia, as examples.

“They have not had any reported problems of ozone going up,” Dwyer said. “The Mexicans will find the same thing that is found everywhere else on the planet—that ethanol is a great additive for improving air quality, for reducing GHG emissions in the transportation market and is a great low carbon source of octane.”

And while a 2014 Northwestern University study on air quality in Sao Paulo, Brazil, showed that ozone levels dropped when drivers switched from ethanol to gasoline in flexible-fuel vehicles, the study also noted that the impact of ethanol versus gasoline on air quality depends on the characteristics of the local atmosphere.

‘Waiting For the Data’

The Energy Regulatory Commission commissioned the Mexican Petroleum Institute to study the health implications of increasing ethanol to 10 percent in gasoline, and to conduct a cost-benefits analysis. But the study’s findings have yet to be released.

“Right now, we are waiting for the data,” said Anaid Velasco, an air quality analyst with the Mexican Center for Environmental Law. “We do not think that we have enough data to make that kind of decision.”

Carmakers Unhappy

The Mexican Auto Industry, or AMIA, which represents some of the most powerful international auto producers in Mexico, such as General Motors Co., Honda Motor Co., Audi and Volkswagen, has also expressed concern about the new rules.

AMIA contends that because Mexico’s auto emissions standards—especially for its older cars—are less stringent than those in the U.S., a larger portion of its fleet is potentially less capable of processing the higher percentage of ethanol in gasoline.

“The older vehicles in circulation lack the same emissions control capacity as the more recent vehicles,” wrote Osvoldo Belmont Reyes, the technical director of AMIA, in a June 22 letter to the Energy Regulatory Commission. “The resulting increase of particles would eliminate the same air quality improvements that the government is trying to achieve, with consequential health implications for the public.”

VW, GM and Audi told Bloomberg BNA they support the AMIA position.

But former CRE president Salazar said the idea in Mexico that ethanol is more harmful for air pollution is based on older research that used cars with no catalytic converters.

“Ethanol is used in areas with an altitude even higher than Mexico City and it is not a problem,” Salazar said. “Why would Mexico have a different standard when the U.S. standards have been approved by the EPA? It doesn’t really make sense to counter the tough environmental standards of the U.S.”

To contact the reporter on this story: Emily Pickrell in Mexico City at correspondents@bna.com

To contact the editor responsible for this story: Greg Henderson at ghenderson@bna.com

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