U.S. investment in corn ethanol has surged over the past few years due to high oil prices and growing concerns over rising petroleum import dependency. Grain ethanol is produced from the distillation of crops such as corn, barley and sugarcane that contain starches or sugars. It is typically blended into gasoline as E10 (10 percent ethanol) to improve octane levels and reduce vehicle pollutants. The world currently produces enough ethanol to displace roughly 2 percent of total gasoline consumption. Brazil is the world’s largest exporter of ethanol, and its sugarcane industry supplies 40 percent of their transportation fuel.
While ethanol has been around since the 1800s, it gained popularity in the 1970’s during the OPEC oil disruptions. Ethanol has enjoyed renewed popularity as a replacement for both lead and methyl tertiary-butyl ether (MTBE)—less-than-ideal gasoline additives meant to improve combustion. The recent spike in oil prices, and resulting sense of energy insecurity, has created further momentum for ethanol use. Over one-third of the gasoline pumped in the U.S. now contains at least some ethanol, although it offsets only a few percent of the total gasoline used. The other common ethanol blend, E85 (85 percent ethanol), requires special engine modification and can only be used in flexible fuel vehicles (FFV).
Corn ethanol has some lifecycle greenhouse gas benefits compared to regular gasoline. The general consensus among researchers is that corn ethanol provides a lifecycle 10-20 percent reduction in greenhouse gases compared to traditional gasoline, although outlying estimates also exist. The fermentation process requires significant energy input, often in the form of coal or natural gas. Finally, growing the crops that can be converted to ethanol often carries a significant local environmental penalty in terms of water, fertilizer, and pesticide use.
Ethanol production has grown by roughly 30 percent annually in the U.S. recently. Federal subsidies since 1978 have allowed production costs to remain competitive with gasoline, with the current tax credit at 51 cents per gallon. In 2005, 4 billion gallons of ethanol were produced in the U.S. The Energy Policy Act of 2005 requires almost doubling that production to 7.5 billion gallons a year by 2012, and numerous energy legislation proposals in Congress have called for up to 60 billion gallons of “renewable fuels” by 2030.
A major barrier to expansion of grain ethanol in the U.S. is the amount of corn required. Already, 10-20 percent of the nation’s corn harvest goes to ethanol production. If more corn is used for ethanol, we will likely see higher prices for commodity crops, higher prices for livestock and other processed goods that rely on commodity crop inputs, fewer commodity crop exports, and more land dedicated to cultivation. Although recent advances have made ethanol production more efficient than in years past, other major cost-reducing breakthroughs are not expected. Another barrier to greater use of grain ethanol is that while there are more than 4 million FFVs on the road, most E-85 stations are in the, and developing a nationwide infrastructure of service stations will be necessary for large-scale penetration.