is another name for ethyl alcohol, or “grain
alcohol” (CH3CH2OH). The alcohol in
a glass of wine, beer, or liquor is ethanol.
Fuel ethanol is “denatured”
by the addition of 2-5% gasoline, which
makes it undrinkable. In the U.S. today
fuel ethanol is mostly made from the starch
in corn kernels; in Brazil it is made from
the juice in sugar cane. Commercial production
of ethanol from cellulose (plant fiber)
is expected within the next few years.
The production of ethanol today
involves the use of yeast to convert sugar
into alcohol – the same fermentation
process that has been used for thousands
of years, although on a much larger scale.
A typical dry mill production facility produces
50 to 100 million gallons of ethanol a year;
the process is shown below.
production also results in solid byproducts
known as distillers grains and solubles
(DGS), which can be dried and used to feed
In some plants close to cattle feedlots,
the grains can be fed wet to livestock,
avoiding the need for drying and saving
both energy and money.
The wet-mill process, which begins by soaking
the grain in water and acid, generally produces
corn oil, corn gluten meal (to feed poultry),
and sweeteners in addition to ethanol. Wet
mills tend to be much larger than dry mills.
As of February 2007, the ethanol production
capacity of the United States was estimated
at 5.6 billion gallons per year. An additional
capacity of 6.2 billion gallons per year
was under construction, which will bring
the total capacity to 11.8 billion gallons
per year spread across 23 states.
Corn represents roughly 95% of the feedstocks
used in those facilities. The corn used
for ethanol production is field corn typically
used to feed livestock, not the sweet corn
marketed for human consumption. Nearly 40%
of the nation’s ethanol production
capacity is farmer-owned.
“The fuel of the future
is going to come from fruit like
that sumac out by the road, or
from apples, weeds, sawdust –
almost anything. There is fuel
in every bit of vegetable matter
that can be fermented.”
– Henry Ford, 1925
Ethanol is a high-octane premium fuel. It
improves engine performance and prevents
A blend of 10% ethanol and 90% gasoline,
or E10, is approved for use in every vehicle
sold in the U.S.; about one-third of America’s
gasoline contains some ethanol.
In the past, this blend has been called
Ethanol can also be used as a substitute
for gasoline. In the U.S. it is sold in
blends of up to 85% (E85). Gasoline, the
remaining 15%, is needed to help the fuel
ignite in cold weather. In very cold weather,
higher proportions of gasoline may be needed.
Ethanol at these higher blends should not
be used in conventional vehicles but only
in flexible fuel vehicles (FFVs), which
are designed to run on any combination of
ethanol and gasoline up to E85.
• Ethanol will become standard
in Indy race cars in 2007, replacing
another alcohol – methanol.
The higher octane of alcohols (compared
to gasoline) allows engines to be
set at a higher compression ratio,
increasing the car’s performance.
Back to top The
U.S. consumes a little more than 20 million
barrels of oil a day. The largest end
uses are motor gasoline (9 million barrels)
and diesel (4 million barrels).
That works out to about 140 billion gallons
of gasoline and 60 billion gallons of
diesel a year.
In 2006, the U.S. consumed nearly 5.4
billion gallons of ethanol, 12 percent
of which was imported.
Adjusting for its lower energy content,
that amounted to about 2.5% of the total
U.S. demand for gasoline.
Biodiesel consumption was much lower,
about 250 million gallons in 2006.
In the Energy Policy
Act of 2005, Congress enacted the Renewable
Fuels Standard, which requires an annual
increase in biofuels use to 7.5 billion
gallons by 2012.
The chart above details past levels of
U.S. ethanol production and the minimum
levels set by the Renewable Fuels Standard.
In the 2006 State of the Union address,
President Bush announced a goal of replacing
“more than 75% of our oil imports
from the Middle East by 2025.” According
to the Department of Energy, meeting that
goal will require 60 billion gallons of
biofuels a year.
A year later, the President accelerated
the timetable and called for “20
“Tonight, I ask Congress to
join me in pursuing a great goal.
Let us build on the work we've done
and reduce gasoline usage in the
United States by 20 percent in the
next 10 years. … To reach
this goal, we must increase the
supply of alternative fuels, by
setting a mandatory fuels standard
to require 35 billion gallons of
renewable and alternative fuels
– President George W.
The two largest variables in the
cost of ethanol are the cost of corn and
the cost of natural gas or other sources
of heat needed to process the mixture. When
corn costs $2 a bushel, it costs between
$1 and $1.20 to make a gallon of ethanol.
Because ethanol has only two-thirds the
energy content of gasoline, that’s
equivalent to $1.50-$1.80 per gallon of
gasoline (wholesale), or $50-$60 per barrel
of oil. At that price of corn, ethanol is
competitive with gasoline with the current
subsidy for gasoline blenders when oil costs
$30 a barrel or more. It is economically
competitive with gasoline without a subsidy
when oil costs $50 a barrel or more.
It takes a little more than a third of a
bushel of corn to make a gallon of ethanol,
so, if the cost of corn rises from $2 to
$3 a bushel, that adds about 35 cents to
the cost of a gallon of ethanol.
At $1.50 a gallon, ethanol competes with
gasoline without a subsidy when oil costs
$70 a barrel or more.
Corn prices spiked upward at the end of
2006 and reached $4 per bushel, but it remains
to be seen if that is a temporary phenomenon.
In 2006, crude oil prices ranged from $54
and wholesale gasoline prices ranged from
$1.87 to $2.46 a gallon
as retail gasoline prices ranged from $2.28
to $3.08 a gallon.
In the 2006 Annual Energy Outlook, the U.S.
Energy Information Administration increased
its oil price forecast by $20 a barrel over
the next 20 years, relative to its prior-year
forecast, as the chart below shows.
The price is now not projected to fall below
$49.64 during that time.
red line on top shows the higher
oil prices contained in the
2006 Annual Energy Outlook,
compared to the 2005 forecast
important to note that the market price
of ethanol does not always reflect the cost
of production. As oil refiners abandoned
the substitute MTBE in 2006, ethanol demand
increased. Ethanol prices
rose to match or exceed gasoline prices
without any major changes in production
costs (although corn prices rose late in
the year). In addition, most ethanol is
sold under long-term contracts, so the spot
price of ethanol may not represent typical
transactions. Ethanol prices are expected
to decline with the increase in production
capacity and the accompanying competition.
The federal government provides
a tax incentive to gasoline blenders (not
ethanol producers) to encourage the use
of ethanol. This subsidy affects how ethanol’s
competitiveness with gasoline. For example,
gasoline blends containing 10% ethanol earn
a tax credit of 5.1 cents per gallon. In
effect, the blenders can pay up to 51 cents
more for a gallon of ethanol than the equivalent
amount of gasoline and still break even.
This tax break is called the Volumetric
Ethanol Excise Tax Credit. Its cost to the
government ($2.5 billion in 2006) is offset
by savings in crop payments to farmers.
In 2006 high corn prices caused by ethanol
demand reduced farm support payments by
roughly $6 billion.
A tariff of 54 cents a gallon is
imposed on most foreign ethanol. The tariff
is meant to counterbalance the ethanol tax
credit and ensure that foreign producers
are not subsidized. Significant exemptions
were created by the Central America Free
Trade Agreement. More than 700 million gallons
of ethanol were imported in 2006, a five-fold
increase from 2005.
Some states do pay production subsidies
directly to ethanol producers, but the federal
tax credit for ethanol is paid to gasoline
blenders, not ethanol producers. Small producers
receive an additional production income
tax credit of 10 cents per gallon on up
to 15 million gallons of production annually.
Corn growers receive government
support if the price of corn falls below
a certain level,
which encourages production. High levels
of production keep the market price low,
making ethanol more economically competitive
by reducing the cost of corn. On the other
hand, ethanol production reduces farm payments
because the increased demand for corn causes
its price to rise. (It also increases taxable
• Animals consumed most of
the corn produced in the U.S. in
2005 – 54.5% of 11 billion
bushels. The rest went to exports
(18.2%), ethanol (14.7%), and domestic
food consumption (12.4%).
Every gallon of ethanol requires a small
amount of petroleum, mostly for farming.
The equivalent of 5-8% of the energy in
ethanol goes to such uses as diesel for
farm tractors, fuel to ship corn to a processing
plant, and more fuel to ship the finished
ethanol to a pump.
Most of the energy used at a processing
plant comes from natural gas or coal. Thus,
ethanol is highly effective at displacing
oil; just one gallon of oil is required
to make 12-20 gallons of ethanol.
On this point, it makes little difference
whether the ethanol is made from corn, sugar
cane, or cellulose.
The term “energy balance” refers
to the difference between the amount of
fossil energy needed to produce a fuel and
the energy the fuel contains. It takes energy
to transform any product from one form into
(For example, electricity contains less
than 40% of the energy of the coal used
to make it.)
For every unit of energy delivered at the
pump, corn ethanol requires 0.76 units of
fossil energy, and gasoline requires 1.22
The use of ethanol thus results in the consumption
of 40% less fossil energy than the gasoline
Papers by a Cornell entomologist and a Berkeley
petroleum geologist have asserted a more
negative view of ethanol and have received
much attention – but their methodology
has been disputed by their peers.
Most of the fossil energy consumed in making
corn ethanol goes to processing the feedstock
– from cooking and distilling to drying
the distillers grains. Very little fossil
energy is needed to make ethanol if renewable
energy is used for processing. For example,
in Brazil, sugar cane waste, known as “bagasse,”
is used for boiler fuel. Thus Brazilian
ethanol contains eight times more energy
than was required to make it.
Ethanol from cellulose is expected to have
a similar fossil energy balance (and therefore
greenhouse gas balance). In one assessment,
cellulosic ethanol from wood residue required
0.16 units of fossil energy per unit of
delivered energy; corn stover required just
The fossil energy balance of corn ethanol
would improve if corn stalks, wood waste,
or methane from cattle manure were used
for its process heat, as a couple of U.S.
facilities already do.
Ethanol in the U.S. is transported
mostly by truck, train, and barge, unlike
oil, which is generally transported through
pipelines. Unlike oil, ethanol mixes with
water. Because water accumulation in pipelines
is a normal occurrence, unless the pipeline
is cleaned out and made watertight, transporting
ethanol in a pipeline risks making it unusable
as a fuel.
Given the time and resources required to
make oil pipelines suitable for ethanol,
as well as the diffuse sources of U.S. ethanol
supply, it currently makes more sense to
transport the fuel in other ways.
However, as production of ethanol increases,
it may make sense to make the investment
needed to “dry out” pipelines,
or new water-tight pipelines may be built,
as they are in Brazil.