An Overview of the U.S. Ethanol Industry: Implications for Consumers

Consumer Issues ConferenceUniversity of Wyoming

Tim Burkink, Ph.D.University of Nebraska at Kearney

September 25, 2008

References Available Upon Request

Recent Headlines “Ethanol Sows Enthusiasm in the Heartland”

Beacon News

“Ethanol and Its Many Consequences” LA Times

“Corn Prices Soar, Pushing Up Cost of Food Globally” WSJ

“EPA Report Questions Value of Ethanol in Terms of Smog” AP

“Rural Boon or Corn-Doggle?” Rocky Mountain News

Ethanol Ethanol, an alcohol-based petroleum-

alternative fuel, is made by fermenting grain or other carbohydrates (sugar cane, sorghum) Ethanol and by-products

97% of U.S. ethanol is made from corn Other cellulose feedstocks are suitable but not

yet economically viable

World Ethanol Production, 2007

Source: Renewal Fuels Association

4%2% 2%

Ethanol Production, 1985-07

Source: Renewable Fuels Association

Ethanol Plants - 2008

Source: Iowa State University – CARD

Ethanol as Fuel Over 90% of U.S. ethanol is used as fuel Although ethanol and gasoline can be blended in any

proportion, in the U.S. it is largely: 10% ethanol & 90% gasoline 85% ethanol & 15% gasoline (E85)

Blends with high ethanol content require modifications in the automobile (flexible fuel vehicle) Sensor to detect ethanol/gasoline ration Corrosion resistant fuel tank & lines

Gasoline & Ethanol Production, 1986-06

U.S. Gasoline Usage 141 billion gallons per year If all U.S. corn were made into ethanol, it

would produce 31 billion gallons per year Mandating 10% ethanol in all gasoline would

require that nearly half of the U.S. corn crop be processed into ethanol, given current technology

Subsidies for Ethanol Production $0.51/gallon federal excise tax/tax credit

Amounts to 5.1 cents/gallon for 10% blend 43 cents/gallon for E-85

Between 2001 and 2006, ethanol traded $0.41/gallon premium to gasoline

In August, ethanol was $0.35/gallon less than gasoline (Nebraska Energy Office)

Mandated Ethanol Use 2007 federal energy bill mandates use of 36

billion gallons of renewable fuels by 2022 20 billon gallons from non-corn based substances

Ethanol production was 6.5 billion gallons in 2007

Model of the Ethanol System

Food: Prices & Availability

Rural Economic Development

Agricultural Producers

Agricultural Suppliers

Technology

Government Policy

Energy dependenceGeopolitical instabilityIncrease in price of oilGlobal warmingCorn availability

Initiators of Change

Ethanol Production

Rapid increase in ethanol production

Increased demand for corn

Rapid rise in price of corn

Increased bidding for acres by all users of land

Natural Environment

Impact on Food: Prices and Availability

Demand for ethanol contributes to higher prices for corn, other crops, beef, eggs, etc.

World-wide grain stocks at historic lows

Compounded by global economic growth

Food prices increasing around the world 75% increase between 2000

and 2007 (The World Bank)

Impact on the Environment Most studies conclude GHS emissions are

reduced (Argonnne National Lab. 2005)

Some conflicting conclusions (Pimental an Patzek 2005)

More corn -> more fertilizer -> more pollution

Less crop rotation Water usage Conversion of fragile lands from CRP to

production

Impact on Rural Development Rising agriculture land values

17% in Nebraska New plant investment

$59-$112 million per plant Job creation Tax revenues The next boomtowns?

Winners and Losers Winners

Land owners Rural labor By-product users

Losers Consumers in the developing world

Long-Run Sustainability Fossil fuels are not sustainable in the long-run Corn-based ethanol has limited continued

growth potential Supply constraints Competing demands

Corn-based ethanol may be an important bridge to a more sustainable and significant biofuels sector