Ethanol’s Environmental, Economic Profiles Superior to Gasoline

By Jane Fyksen Crops Editor
Thursday, November 27, 2008 8:37 PM CST

Two landmark studies recently unveiled by the Illinois Corn Growers Association conclude that the production of ethanol leaves a smaller carbon footprint than gasoline and has substantial room for growth without affecting corn supply to the food and feed sectors of the U.S. economy. This comes as a broad-based coalition calls for repeal of subsidies for ethanol.

“Amid the long and sometimes heated debate between ethanol proponents and detractors, these studies indicate that modern ethanol plants have a superior carbon footprint and net energy benefit when compared to gasoline refineries. And the ‘Korves study’ provides compelling data that ethanol production can grow substantially at no risk to food supplies,” says ICGA vice-president Rob Elliott, also mentioning that a single 50-million-gallon ethanol plant typically produces 32 new full-time jobs, spends $47 million annually on local goods and services and produced $1.2 million in new taxes.

The two studies, titled “The Global Warming Impact of Corn Ethanol Assessed at the Plant Level of a Modern Facility” and “Ethanol’s Potential Role in Meeting U.S. Energy Needs 2016-2030” were prepared for the Illinois Corn Marketing Board.

The studies authors are Ross Korves, economic policy analyst at ProExporter Network, and Steffen Mueller, principal research economist at the University of Illinois at Chicago’s Energy Resources Center. Mueller’s study examined a single ethanol plant, the Illinois River Energy facility near Rochelle, Ill., which turns out 55 million gallons of ethanol annually.

“We looked at the global warming and land use impact of corn ethanol produced at the Illinois River Energy ethanol plant n which is a modern, natural gas-fueled facility n on a full life-cycle basis,” Mueller explains. “We found conclusively that the global warming impact of the modern ethanol plant is 40 percent lower than gasoline. This is a sizable reduction from numbers currently being used by public agencies and in the public debate.”

“The study also documents the significant net energy benefits of ethanol when compared to gasoline,” Mueller continues, noting that “additional opportunities exist to expand that margin even more through technological improvements and on-farm changes in corn production that reduce greenhouse gas emissions.”

“Furthermore,” he adds, “corn supply for the ethanol plant was primarily met through yield increases in the surrounding area and, as documented with satellite imagery, without conversion of non-agricultural land to corn.”

The Korves study, which was broader in scope, looks at the consequences of a technology-driven revolution that’s occurring throughout U.S. agriculture, which would see average corn production increase from 155 bushels an acre today to an estimated 289 bushels over the next two decades. This study suggests that sufficient amounts of corn will be available to increase ethanol production from the current level of 7.1 billion gallons last year to 33 billion gallons by 2030, with current technology. The study also factors in increased future demand for corn from both export and the livestock feed sectors.

Korves also looked at the environmental impact of ethanol production, predicting that the “global warming impact” (GWI) of the average ethanol plant would decline dramatically through increased efficiencies in coming years. “The GWI of the average ethanol plant is expected to decline 27 percent by 2030,” says Korves. “By that year, the GWI of corn ethanol processed in a plant using a biomass combined heat and power system will be less than one-third of the GWI of gasoline.”

The Illinois Corn Growers Association reports that at that level of reduction, corn to ethanol could be categorized as an advanced biofuel based on the performance requirements in the Energy Independence and Security Act of 2007.

Meantime, a coalition, anchored by the Grocery Manufacturers Association, launched another wave of attacks on corn and ethanol at a news conference in Washington, D.C. last week, continuing to attempt to prove a link between higher corn prices, increased ethanol production, world hunger and soaring U.S. food prices.

According to the U.S. corn industry, the new attack appears to seek the elimination of government incentives for ethanol.

On what was the 30th anniversary of ethanol subsidies last week, a broad array of allies called for legislative action by the incoming Obama Administration and Congress to repeal ethanol subsidies, which the groups contend are partially responsible for rising food prices. Three decades ago this November, Congress created the first subsidy for ethanol, and those subsidies, the allies contend, have since ballooned, costing taxpayers nearly $5 billion annually and leading to increased food prices by diverting corn, a food crop, to ethanol. This broad coalition of groups - from government watchdog organizations, to environmental organizations (like the World Wildlife Fund), hunger advocates, to industry groups like the national Turkey Federation - gathered to demand an end to “harmful and wasteful” ethanol subsidies. Others in the coalition include the American Bakers Association, American Meat Institute, Citizens Against Government Waste, National Cattlemen's Beef Association, National Chicken Council, National Restaurant Association, National Retail Federation, Small Business and Entrepreneurship Council and more.

“These same ethanol critics are the ones who virtually promised to reduce food prices immediately, and have failed to do so, even though corn prices and energy prices are down by more than half in the last few weeks. Food prices remain at a new high,” criticizes Bob Dickey, National Corn Growers Association President.

“When will their prices come down?” asks Dickey. “It’s ironic that food companies are reporting record profits and food prices are higher n for smaller packages of food items in many cases.” He says this is the “wrong time” to attack an industry important to rural America like ethanol is.

“Increasing domestic energy production will only help our nation’s economy,” he states. “And the serious drop in corn prices shows there is little connection between expanding ethanol production and rising food prices.”

Corn futures went from a high of $7.88 in June to $3.85 early last week. National average gas prices have dropped more than 50 percent since a record high of $4.11 a gallon in July.

EPA mandates increased ethanol use

While debate rages, the Environmental Protection Agency (EPA) has announced that the national blend rate for ethanol next year will be 10.21 percent. “This directive raises a number of interesting questions for auto owners, ethanol producers and the livestock industry,” says Cole Gustafson, Biofuels Economist with North Dakota State University. The previous ethanol blend rate was 7.76 percent, as established by the Energy Independence and Security Act of 2007.

He explains this is an average national blend rate. There are some areas of the country, namely the Southeast, that have minimal ethanol consumption. To meet the mandate, other areas of the country must blend higher levels of ethanol in gasoline to meet the national goal.

He says EPA was under pressure from the ethanol industry to increase the blend rate to avoid hitting a "blend wall." With the rapid growth of the ethanol industry, more ethanol is being produced than consumers are purchasing with the existing 7.76 percent blend rate.

Nationally, the United States consumes about 140 billion gallons of gasoline annually. In the next couple of years, the ethanol industry capacity will exceed 14 billion gallons. Thus, a blend rate higher than 10 percent is needed unless more consumers start to purchase higher blends of ethanol, such as E85 (fuel containing 85 percent ethanol). This is in stark contrast to overall consumer petroleum demand. Next year, ethanol consumption will increase, while overall petroleum demand falls, says Gustafson.

EPA has resisted a blend rate higher than 10 percent because of existing automobile warranties. Automobile manufacturers only warrant vehicles if 10 percent or less ethanol is used unless the vehicle is flex-fuel equipped. The EPA could be liable for damages if automakers don't revise their warranties. While future vehicles can be modified to accommodate higher ethanol blends, the greatest potential risk is to automobiles that already have been sold and still are under warranty. Consumers owning older vehicles without warranties will have to weigh the risks of using higher blends, Gustafson says.

Livestock producers also are concerned about the EPA's action. Now that the EPA has decided to move past the prior threshold of 10 percent, he says the livestock industry feels the EPA will continue increasing the blend rate. “They argue that devoting increasing portions of our nation's crop base to biofuel production leaves lower quantities of livestock feed available,” he notes.

“Ethanol producers now will have to adjust production levels to meet the new blend rate. Prices of ethanol, along with most petroleum products, have dropped considerably since midsummer. This new increase in demand will aid the industry, but only on a temporary basis,” he says.

New ethanol production plants continue to begin operations, which is increasing total supplies even further. Risk and margin management still are going to be key underlying contributors to overall plant and industry health, Gustafson reports.

The two studies, highlighted by the Illinois Corn Growers, can be accessed in full at http://www.ilcorn.org/internal.php?subj=research&menu=resources&banner=resources.

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