Are the Ethanol Wars Over?

Published February 1, 2006

Ethanol–the gasoline substitute made by distilling corn or other vegetation–has long been the subject of intense debate. According to its critics, ethanol does little to improve air quality and may actually contribute to smog, costs taxpayers billions of dollars in subsidies, and doesn’t do much to reduce our dependence on foreign oil.

Ethanol’s defenders say its environmental effects are more positive than negative, the so-called subsidies are mostly federal and state tax breaks, and as the cost of making ethanol falls while the cost of fossil fuels remains high, ethanol could substantially reduce the nation’s oil consumption and even overtake gasoline as the preferred transportation fuel.

Ethanol was in the news recently [January 5] when General Motors, Chevron, the state of California, and other partners unveiled at the Los Angeles Auto Show a plan to greatly expand the use of E85, a motor fuel composed of 85 percent ethanol. GM already has manufactured 1.5 million “flexible fuel vehicles” able to run on E85, but they seldom do because the fuel is not widely available. Chevron announced plans to provide the fuel at selected gas stations, and Pacific Ethanol, another one of the partners, announced plans to build four ethanol plants in California over the next two years.

I’ve observed this debate for many years as a citizen and as a scientist. As a citizen, I don’t like subsidies or regulations that distort markets. But as a scientist, I’ve long supported ethanol as a “win-win” proposition for farmers and consumers alike.

I view the recent announcements as evidence that ethanol has reached a tipping point, and that the debate over the fuel may be over. Ethanol’s advocates have won.

Many people are surprised to learn that Henry Ford used ethanol to power his first automobiles. Decades later it became cheaper to pump oil from the ground than to distill ethanol from plant matter. Now history is reversing itself as oil prices climb and improvements in production processes make ethanol the more affordable choice.

Ethanol is called an oxygenate because it is 35 percent oxygen by weight. When mixed with gasoline it allows the fuel to burn more cleanly, thus enhancing octane. Some ethanol opponents complain fuel filters must be changed more frequently, and they are right about that. Ethanol loosens deposits and residues, making engines cleaner. It’s not a bad thing.

For many years, ethanol opponents claimed the energy needed to make a gallon of ethanol was greater than the energy value of the ethanol. More recent studies show a positive balance of between 25 and 50 percent. Continual improvements in the chemical engineering of the ethanol manufacturing progress will ensure additional gains are made.

Currently nearly all ethanol is made from corn, but it can be made from any easily grown plant material or even municipal waste. Sweet sorghum, a tall grass widely cultivated in the Midwest and Arizona for forage, silage, and feed grain, may be a more efficient and lower-cost feedstock than corn. Advances in genetically modified seeds will soon create corn with a higher starch value grown specifically for ethanol production.

While the price of corn can be volatile at times, it will rarely affect the price of ethanol. This is so because a major portion of income from economic production of ethanol is the dry distilled grain (DDG) that remains as animal feed once the starch is removed from the corn for fermentation. When corn prices go up, so does the value of the DDG.

A bushel of corn will produce 2.7 gallons of ethanol with 17 pounds of feed left over, enough to create four beef steaks or eight quarts of milk. The price of corn has been under $2.00 a bushel for some time. Average yields per acre through the nation range between 140 and 160 bushels. Continued agronomic improvements will lead to yields above 200, which are already common in some areas.

Currently most ethanol plants burn natural gas, whose price has skyrocketed in recent years. Cheaper energy is available from burning kernel corn itself. As corn furnaces already on the market expand into ethanol plants, production costs will drop significantly. Natural gas at current prices will yield 1,000 BTUs (British thermal units) at a cost of about $17, while corn produces the same amount of heat for half as much. The comparable price for propane is near $34 and for oil is $23.

A typical ethanol plant produces about 45 million gallons of ethanol fuel per year and has a capital cost of $50 million. It produces 132,000 tons of dry distilled grain from 17 million bushels of corn, provides 36 quality jobs with a collective payroll of $1.5 million, pays about $8 million for energy, and has total expenses in the range of $55 million per year. Obviously these plants boost rural and farm economies.

One can argue, using the numbers cited above, that the industry may no longer need subsidies, without at the same time denying the industry would not have emerged without them. Similarly, ethanol may provide too small a share of our total transportation fuel needs today to significantly improve the nation’s energy security. But if the industry continues to grow and gradually supplant gasoline, perhaps a longer time frame will show the subsidies were worthwhile.

Unlike the much-hyped and -subsidized wind and solar power, ethanol is an alternative fuel with genuine promise of social and economic benefits. Its foes and proponents alike would do well to set aside their past disagreements and start planning for a fast-growing and environmentally sustainable industry without the needless costs of mandates and taxpayer subsidies.

Jay Lehr, Ph.D. ([email protected]) is science director for The Heartland Institute, a nonprofit public policy research organization. He is also the editor of The Water Encyclopedia and other major science reference books.