The federal regulation that requires ethanol producers to blend a small amount of denaturant with their pure biofuel prior to shipping has been in place for more than a hundred years and is deeply entrenched in the requirements of multiple governmental agencies. Likely or not, a call for change has been aired.

“This is just such an antiquated way of trying to separate two supply chains, which are already separated,” says Geoff Cooper, president and CEO of the Renewable Fuels Association. “There’s just no need for the additional burden of denaturant.”

Mick Henderson, general manager of Commonwealth Agri-Energy LLC, joins other U.S. producers who say the time is ripe to do away with the requirement once and for all. Asked if he believes it’s worth all the work required to make it happen, Henderson quickly answers.

“Yes. Wholeheartedly.”

Currently, the ethanol industry blends 2%-2.5% denaturant, primarily what is called natural gasoline—a byproduct of fracking—with fuel ethanol, before it leaves the facility, Cooper says. This requires ethanol producers to transport denaturant to every facility, store it in ample volumes, and then ship it out again mixed with fuel ethanol. Not only is that expensive, many producers argue, but it makes ethanol less environmentally friendly—by adding a fossil fuel—and less safe during transportation, especially via rail.

The RFA has had its eye on the denaturant requirement for a couple decades. “It’s been one of those issues that has sort of been on the back burner, I think, for many years,” Cooper says. “But given the current political landscape and the emphasis on removing burdensome unnecessary regulations, we felt like this was a good time to bring this issue back to the forefront for some discussion.”

On his first day in office, President Donald Trump issued an executive order—“Unleashing American Energy”—which, among other things, called for an immediate review of any actions that could burden the development of domestic energy, including biofuels. He asked that all agency heads identify any “undue burden on the identification, development or use of domestic energy resources.”

As far as RFA is concerned, the denaturant requirement for fuel ethanol fits the bill perfectly. “We think [it’s] really the poster child for wasteful, unnecessary, outdated regulations that have no benefit whatsoever to the U.S. economy or society,” Cooper says. “It’s a big burden on ethanol producers, and there’s really no rationale for keeping these requirements.”

Eric Mosbey, general manager of Lincolnland Agri-Energy LLC, agrees. “Eliminating the use of denaturant has been discussed for years, but there have always been bigger priorities for the industry,” he says. “Since there is now more emphasis on deregulation and eliminating waste, this is a good time to push this issue.”

Back to the Future
It started in the early 1900s, when the government issued guidance allowing industrial alcohol manufacturers to denature alcohol, exempting it from beverage alcohol taxes. By 1920, with Prohibition in place, the focus was on making sure ethanol was unfit for human consumption by adding toxic substances like benzene or methanol, which actually resulted in some deaths.

“This all came about during an era of copper stills and bootlegging, and you know, stoneware, jugs and oak barrels,” Cooper says. “This is all ancient history but, unfortunately, more than 100 years later, our government is acting like nothing has changed, and we still have the same requirements for denaturant in place.

“We are not producing ethanol in pot stills in a cave in the hill, somewhere.” he says. “These are highly complex, highly regulated, very large-scale facilities where every drop is accounted for when it’s leaving the facility.”

A small number of ethanol plants produce fuel ethanol as well as beverage alcohol or other products. One is Commonwealth Agri-Energy in Hopkinsville, Kentucky. The plant has completely separate process tanks, storage tanks and load-out equipment for those products, Henderson says. The company also complies with the separate paperwork requirements in order to do that. “We obviously can [produce fuel ethanol] and [also] sell a product that’s undenatured or specially denatured and have no issues,” he says.

Cooper talks about that separation as well. “Things have just evolved in a way, and the industry is of such a scale today, that there’s no risk of cross contamination, so to speak, or co-mingling of these products,” he says. “There’s also no risk of really anybody trying to circumvent beverage taxes.”

Mosbey agrees. “Gallons are tracked so meticulously now, there is virtually no chance gallons could be directed other than to the original intention, which is fuel ethanol,” he says.

He points to the temporary guidance issued by the U.S. Food and Drug Administration during the COVID-19 pandemic, which allowed ethanol producers to sell some gallons into the hand sanitizer market. Since it was for human use, rather than adding denaturant, the FDA specified the addition of a very small amount of so-called bitterant. “This had us thinking again about the inefficiency of hauling in thousands of gallons of natural gasoline, just to haul it right back out in the fuel ethanol,” he says. “It is one of the most hazardous materials in an ethanol plant, so why not eliminate it if we can, or … replace it with a more efficient bitterant that could safely fulfill the same purpose.”

Many countries, including Brazil, do not have a denaturant requirement for their ethanol industries, Henderson says. He also has concerns about the potential barrier denaturant could pose as the ethanol industry works to open up new export markets. “It’s not just domestic, it’s going to be international export reasons why I’d really like to see that reduced.”

Potential Benefits of Change
For a typical 120 MMgy ethanol plant, the denaturant requirement means spending at least $4 million annually to transport natural gasoline to the facility, store it and blend it with ethanol, Cooper says. Across the whole industry, the number reaches nearly $600 million per year.

“That’s just the denaturant, that doesn’t include the amount of investment that’s already been put into the tankage and the other infrastructure and the blending equipment and the amount of money spent on permitting these tanks,” he says. “So, it’s a huge cost burden on the industry. In fact, it ranks right up there with labor costs. We’re spending as much money, as an industry, on denaturant as we’re spending on our workforce, which is crazy.”

If ethanol producers weren’t required to add denaturant, the industry could potentially produce an additional 350 million gallons of ethanol annually. “That, in turn, would boost corn demand by roughly 120 million bushels, especially at a time when farmers are looking at a record corn crop, low prices and a growing surplus,” Cooper says.

Beyond the economic considerations, Cooper says his biggest pet peeve is that the denaturant is a “dirty, toxic hydrocarbon” with very low octane, high sulfur content and extremely high volatility. In other words, ethanol starts out as a clean, environmentally friendly fuel that, due to government regulations, becomes more polluted. “It makes no sense that the ethanol industry should be the dumping ground for the dregs of the fracking industry,” he says. “I mean, you’re taking this product that has very little use anywhere else and that’s what’s being dumped into ethanol.”

That leads into another good reason to do away with the denaturant requirement: rail safety. Kelly Davis, vice president of New Energy Blue, says she worked on the denaturant issue for years while working previously for the RFA as vice president of technical and regulatory affairs. “The absurdity of taking a low-volatility product like ethanol and [blending it with] a higher-volatility product like natural gasoline … and then putting it into the transportation world,” she exclaims.

It wasn’t only RFA that noticed this. Davis recalled a past leader of the National Transportation Safety Board who picked up on it after a 2017 rail accident involving ethanol. He started asking questions that had long been on the minds of people in the ethanol industry. “What’s going on here, why do we add this?” she says, adding that the agency made it a goal at the time to look into whether it would be safer to transport fuel ethanol without denaturant.

Making It Happen
The first stop to change the denaturant requirement would be with the Alcohol and Tobacco Tax and Trade Bureau (TTB). That agency oversees taxes on beverage alcohol, which are significantly higher than the taxes on fuel ethanol.

Although it is possible to make this change, Davis acknowledges it will be difficult. The TTB is an agency with old school rules and a reluctance to change. Plus, if the TTB requirement is successfully changed, multiple additional changes would be required, such as with the Renewable Fuel Standard, renewable identification numbers (RINs) rules for biointermediates and more.

“Those of us in the regulatory world know that it interacts with a lot of other rules that would be changed at the same time,” she says. “It seems easy, and it seems reasonable, but it would be very difficult to go after, and it would take a lot of angles to work it.”

Cooper compares it to the many layers of an onion. Over the years, many in the ethanol industry have looked at the denaturant requirement and said, “This is just too big, it’s too ingrained, it’s too complex to take on.” The difference now is that with President Trump in office, there’s a real chance for change. “We just need to have the opportunity to sit down at the table with these decision makers and have this conversation,” he says.

Author: Holly Jessen
writer@bbiinternational.com

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