Ethanol and Biofuels: Agriculture, Infrastructure, and Market Constraints Related to Expanded Production
Ethanol and Biofuels: Agriculture,
Infrastructure, and Market Constraints
Related to Expanded Production
March 16, 2007
Brent D. Yacobucci
Specialist in Energy Policy
Resources, Science, and Industry Division
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Ethanol and Biofuels: Agriculture, Infrastructure, and
Market Constraints Related to Expanded Production
High petroleum and gasoline prices, concerns over global climate change, and
the desire to promote domestic rural economies have greatly increased interest in
biofuels as an alternative to petroleum in the U.S. transportation sector. Biofuels,
most notably corn-based ethanol, have grown significantly in the past few years as
a component of U.S. motor fuel supply. Ethanol, the most commonly used biofuel,
is blended in nearly half of all U.S. gasoline (at the 10% level or lower in most
cases). However, current biofuel supply represents less than 4% of total gasoline
While recent proposals have set the goal of significantly expanding biofuel
supply in the coming decades, questions remain about the ability of the U.S. biofuel
industry to meet rapidly increasing demand. Current U.S. biofuel supply relies
almost exclusively on ethanol produced from Midwest corn. In 2006, 17% of the
U.S. corn crop was used for ethanol production. To meet some of the higher ethanol
production goals would require more corn than the United States currently produces,
if all of the envisioned ethanol was made from corn.
Due to the concerns with significant expansion in corn-based ethanol supply,
interest has grown in expanding the market for biodiesel produced from soybeans and
other oil crops. However, a significant increase in U.S. biofuels would likely require
a movement away from food and grain crops. Other biofuel feedstock sources,
including cellulosic biomass, are promising, but technological barriers make their
Issues facing the U.S. biofuels industry include potential agricultural
“feedstock” supplies, and the associated market and environmental effects of a major
shift in U.S. agricultural production; the energy supply needed to grow feedstocks
and process them into fuel; and barriers to expanded infrastructure needed to deliver
more and more biofuels to the market. This report outlines some of the current
supply issues facing biofuels industries, including the limitations on agricultural
feedstocks, infrastructure constraints, energy supply for biofuel production, and fuel
In troduction ......................................................1
Issues with Corn-Based Ethanol Supply................................3
Overview of Long-Run Corn Ethanol Supply Issues...................3
Food vs. Fuel.............................................6
Energy Supply Issues...........................................6
Natural Gas Demand.......................................7
Infrastructure and Distribution Issues..............................8
Higher-Level Ethanol Blends.................................9
List of Tables
Table 1. U.S. Production of Biofuels from Various Feedstocks..............3
Ethanol and Biofuels: Agriculture,
Infrastructure, and Market Constraints
Related to Expanded Production
High petroleum and gasoline prices, concerns over global climate change, and
the desire to promote domestic rural economies have raised interest in biofuels as an
alternative to petroleum in the U.S. transportation sector. Biofuels, most notably
corn-based ethanol, have grown significantly in the past few years as a component
of U.S. motor fuels. For example, nearly half of all U.S. gasoline contains some
ethanol (mostly blended at the 10% level or lower). However, current supply
represents only about 3.6% of annual gasoline demand on a volume basis, and only
about 2.4% on an energy basis. In 2006, the United States consumed roughly 5
billion gallons of biofuels (mostly ethanol); this 5 billion gallons was blended into
roughly 65 billion gallons of gasoline. Total annual gasoline consumption is roughly
Recent proposals, including President Bush’s goal in his 2007 State of the
Union Address, aim to significantly expand biofuel supply in the coming decades.
The President’s goal would be to expand consumption from 5 billion gallons in 2007
to 35 billion gallons in 2017. While this proposal included not just biofuels but
alternative fuels (including fuels from coal or natural gas), it would likely mean a
significant growth in biofuels production over the next 10 years. Other legislative
proposals would require significant expansion of biofuels production in the coming
decades; some proposals would require 30 billion gallons of biofuels alone by 2030
or 60 billion gallons by 2050.
Current U.S. biofuel supply relies almost exclusively on ethanol produced from
Midwest corn. Other fuels that play a smaller role include ethanol from Brazilian
sugar, biodiesel from U.S. soybeans, and ethanol from U.S. sorghum. A significant
increase in U.S. biofuels would likely require a movement away from food and grain
crops. For example, U.S. ethanol production in 2006 consumed roughly 17% of the
U.S. corn crop. If only corn is used, expanding ethanol production to 35 billion
gallons would require more corn than the United States currently produces, which
would be infeasible. Corn (and other grains) have myriad other uses, and such a shift
would have drastic consequences for most agricultural markets, including grains
(since corn would compete with other grains for land), livestock (since the cost of
animal feed would likely increase), and land (since total harvested acreage would
likely increase). In addition to agricultural effects, such an increase in corn-based
ethanol would likely affect fuel costs (since biofuels tend to be more expensive than
petroleum fuels), energy supply (natural gas is a key input into corn production), and
the environment (since the expansion of corn-based ethanol production raises many
environmental questions). These constraints are discussed below
Due to the concerns with significant expansion in corn-based ethanol supply,
interest has grown in expanding the market for biodiesel (a diesel substitute produced
from vegetable and animal oils) and spurring the development of motor fuels
produced from cellulosic materials (including grasses, trees, and agricultural and
municipal wastes). However, all of these technologies are currently even more
expensive than corn-based ethanol.
In addition to expanding domestic production of biofuels, there is some interest
in expanding imports of sugar-based ethanol from Brazil and other countries.
However, ethanol from Brazil is currently subject to a 54 cent-per-gallon tariff that
in most years is a significant barrier to direct Brazilian imports. Some Brazilian
ethanol can be brought into the United States duty free if it is dehydrated
(reprocessed) in Caribbean Basin Initiative (CBI) countries. Up to 7% of the U.S.
ethanol market could be supplied duty-free in this fashion, although historically
ethanol dehydrated in CBI countries has only represented about 2% of the total U.S.
Any fuel produced from biological materials (e.g., food crops, agricultural
residues, municipal waste) is generally referred to as a “biofuel.” More specifically,
the term generally refers to liquid transportation fuels. The most significant biofuel
in the United States is ethanol produced from U.S. corn.1 Approximately 4.9 billion
gallons of ethanol were produced in the United States in 2006, mostly from corn.
Other domestic feedstocks for ethanol include grain sorghum and sweet sorghum;
imported ethanol (600 million gallons in 2006) is usually produced from sugar cane
in Brazil. Ethanol is generally blended into gasoline at the 10% level or lower (E10).
Ethanol can be used in purer forms such as E85 (85% ethanol and 15% gasoline) in
vehicles specially designed for its use, although E85 represents less than 1% of U.S.
After ethanol, biodiesel is the next most significant biofuel in the United States,
although 2006 U.S. production is estimated at only about 100 million gallons.
Biodiesel is a diesel fuel substitute produced from vegetable and animal oils (mainly
soybean oil in the United States), as well as recycled cooking grease. Other biofuels
with the potential to play a role in the U.S. market include ethanol and diesel fuel
substitutes produced from various biomass feedstocks containing cellulose.
However, these “cellulosic” biofuels are currently prohibitively expensive relative
to conventional ethanol and biodiesel. Other potential biofuels include other alcohols
(e.g., methanol and butanol produced from biomass).
This report outlines some of the current supply issues facing biofuels industries,
including supply limitations of agricultural feedstocks, infrastructure limitations,
energy supply for fuel conversion, and fuel prices.
1 For more information on ethanol, see CRS Report RL33290, Fuel Ethanol: Background
and Public Policy Issues, by Brent D. Yacobucci.
Table 1. U.S. Production of Biofuels from Various Feedstocks
FuelFeedstockU.S. Production in 2006
EthanolCorn4.9 billion gallons
Sorghumless than 100 million gallons
Cane sugarNo production
(600 million gallons imported from Brazil
and Caribbean countries)
(one demonstration plant in Canada)
BiodieselSoybean oilapproximately 90 million gallons
Other vegetable oilsless than 10 million gallons
Recycled greaseless than 10 million gallons
ButanolCellulose, otherNo production
Sources: Renewable Fuels Association; National Biodiesel Board; CRS analysis.
Issues with Corn-Based Ethanol Supply
Overview of Long-Run Corn Ethanol Supply Issues
The U.S. ethanol industry has shown rapid growth in recent years with national
production increasing from 1.8 billion gallons in 2001 to 4.9 billion in 2006. This
rapid growth — which is projected to continue for the foreseeable future — has
important consequences for U.S. and international fuel, feed, and food markets.
Corn accounts for about 98% of the feedstocks used in ethanol production in the
United States. USDA estimates that 2.15 billion bushels of corn (or 20% of the 2006
corn crop) will be used to produce ethanol during the September 2006 to August
2007 corn marketing year.2 As of February 2, 2007, existing U.S. ethanol plant
capacity was a reported 5.6 billion gallons per year (BGPY), with an additional
capacity of 6.1 BGPY under construction.3 Thus, total annual U.S. ethanol
production capacity in existence or under construction as of February 2, 2007, was
11.7 billion gallons. This production capacity is well in excess of the 7.5 billion
gallon supply required in 2012 by the Renewable Fuel Standard (Energy Policy Act
2 USDA, WAOB, World Agricultural Supply and Demand Estimates (WASDE) Report, Jan.
3 See Renewable Fuels Association, Industry Statistics, at [http://www.ethanolrfa.org/
of 2005 [P.L. 109-58]). The current pace of plant construction suggests that annual
corn-for-ethanol use will likely require more than 3 billion bushels in 2007 and
approach, or possibly exceed, 4 billion bushels in 2008.
The ethanol-driven surge in corn demand has fueled a sharp rise in corn prices.
For example, the futures contract for March 2007 corn on the Chicago Board of
Trade, rose from $2.50 per bushel in September 2006 to a contract high of over $4.16
per bushel in January 2007 (a rise of 66%). This sharp rise in corn prices owes its
origins largely to increasing corn demand spurred by the rapid expansion of corn-
based ethanol production capacity in the United States since mid-2006. The rapid
growth in ethanol capacity has been fueled by both strong energy prices and a variety
of government incentives, regulations, and programs. Major federal incentives
include a tax credit of $0.51 to fuel blenders for every gallon of ethanol blended with
gasoline; a Renewable Fuel Standard (RFS) that mandates a renewable fuels blending
requirement for gasoline suppliers that grows annually from 4 billion gallons in 2006
to 7.5 billion gallons in 2012; and a 54¢ per gallon most-favored-nation duty on most
imported ethanol.4 A recent survey of federal and state government subsidies in
support of ethanol production reported that the total annual federal support fell
somewhere in the range of $5.1 to $6.8 billion per year.5
Market participants, economists, and biofuels skeptics have begun to question
the need for continued large federal incentives in support of ethanol production,
particularly when the sector would have been profitable during much of 2006 without
such subsidies.6 Their concerns focus on the potential for widespread unintended
consequences that might result from excessive federal incentives adding to the rapid
expansion of ethanol production capacity and the demand for corn to feed future
ethanol production. These questions extend to issues concerning the ability of the
gasoline-marketing infrastructure to accommodate more ethanol in fuel, the
likelihood of modifications in engine design, the environmental impacts, and other
Rapidly expanding corn-based ethanol production could have significant
consequences for traditional U.S. agricultural crop production. As corn prices rise,
so too does the incentive to expand corn production either by expanding onto more
marginal soil environments or by altering the traditional corn-soybean rotation that
dominates Corn Belt agriculture. This would crowd out other field crops, primarily
soybeans, and other agricultural activities. Large-scale shifts in agricultural
production activities will likely have important regional economic consequences that
4 For more information on incentives (both tax and non-tax) for ethanol, see CRS Report
RL33572, Biofuels Incentives: A Summary of Federal Programs, by Brent D. Yacobucci.
5 Koplow, Doug. Biofuels — At What Cost? Government Support for Ethanol and Biodiesel
in the United States, Global Subsidies Initiative of the International Institute for Sustainable
Development, Geneva, Switzerland, October 2006; available at [http://www
6 Chris Hurt, Wally Tyner, and Otto Doering, Department of Agricultural Economics,
Purdue University, Economics of Ethanol, December 2006, West Lafayette, IN.
have yet to be fully explored or understood. Further, corn production is among the
most energy-intensive of the major field crops. An expansion of corn area would
likely have important and unwanted environmental consequences due to the resulting
increase in fertilizer and chemical use and soil erosion. The National Corn Growers
Association estimates that U.S. corn-based ethanol production could expand to
between 12.8 and 17.8 billion gallons by 2015 without significantly affecting
agricultural markets.7 However, as noted above, other evidence suggests effects are
already being felt in the current run-up in production.
Feed Markets. Prolonged higher corn prices could have significant
consequences for traditional feed markets and the livestock industries that depend on
those feed markets. Corn has traditionally represented about 57% of feed8
concentrates and processed feedstuffs fed to animals in the United States. As corn-
based ethanol production increases, so do total corn demand and corn prices.
Dedicating an increasing share of the U.S. corn harvest to ethanol production will
likely lead to higher prices for all grains and oilseeds that compete for the same land,
resulting in higher feed costs for cattle, hog, and poultry producers. In addition,
supply distortions are likely to develop in protein-meal markets related to expanding
production of the ethanol processing by-product Distiller’s Dried Grains (DDG),
which averages about 30% protein content and can substitute in certain feed and meal9
markets. While DDG use would substitute for some of the lost feed value of corn
used in ethanol processing, about 66% of the original weight of corn is consumed in
producing ethanol and is no longer available for feed. Furthermore, not all livestock
species are well adapted to dramatically increased consumption of DDG in their
rations — dairy cattle appear to be best suited to expanding DDG’s share in feed
rations; poultry and pork are much less able to adapt. Also, DDG must be dried
before it can be transported long distances, adding to feed costs. There may be some
potential for large-scale livestock producers to relocate near new feed sources, but
such relocation would likely have important regional economic effects.
Exports. The United States is the world’s leading producer and exporter of
corn. Increased use of corn for ethanol production could diminish U.S. capacity for
exports. Since 1980 U.S. corn production has accounted for over 40% of world
production, while U.S. corn exports have represented nearly a 66% share of world
corn trade during the past decade. In the 2006/2007 marketing year, the United
States is expected to export about 21% of its corn production.10 Higher corn prices
would likely result in lost export sales. It is unclear what type of market adjustments
would occur in global feed markets, since several different grains and feedstuffs are
7 National Corn Growers Association, How Much Ethanol Can Come From Corn?,
November 9, 2006, Washington.
8 USDA, ERS, Feed Situation and Outlook Yearbook, FDS-2003, Apr. 2003, Washington.
9 For a discussion of potential feed market effects due to growing ethanol production, see
Bob Kohlmeyer, “The Other Side of Ethanol’s Bonanza,” Ag Perspectives (World
Perspectives, Inc.), Dec. 14, 2004; and R. Wisner and P. Baumel, “Ethanol, Exports, and
Livestock: Will There be Enough Corn to Supply Future Needs?,” Feedstuffs, no. 30, vol.
10 USDA, WAOB, WASDE Report, Jan. 12, 2007; available at [http://www.usda.gov/oce/].
relatively close substitutes. Price-sensitive corn importers may quickly switch to
alternative, cheaper sources of feed, depending on the availability of supplies and the
adaptability of animal rations. In contrast, less price-sensitive corn importers, such
as Japan and Taiwan, may choose to pay a higher price in an attempt to bid the corn
away from ethanol plants. There could be significant economic effects to U.S. grain
companies and to the U.S. agricultural sector if ethanol-induced higher corn prices
caused a sustained reshaping of international grain trade.
Food vs. Fuel. A sustained rise in grain prices driven by ethanol feedstock
demand could lead to higher U.S. and world food prices. Most corn grown in the
United States is used for animal feed. Higher feed costs ultimately lead to higher
meat prices. The feed-price effect will first translate into higher prices for poultry
and hogs which are less able to use alternate feedstuffs. Dairy and beef cattle are
more versatile in their ability to shift to alternate feed sources, but eventually a
sustained rise in corn prices will push their feed costs upward as well. The price of
corn is also linked to the price of other grains, including those destined for food
markets, through competition in the feed marketplace and in the producer’s planting
choices for limited acreage. The price run-up in the U.S. corn market has already
spilled over into price increases in the markets for soybeans and soybean oil.
Since food costs represent a relatively small share of consumer spending for
most U.S. households, the price run-up is relatively easily absorbed in the short run.
However, the situation is very different for lower-income households, as well as in
many foreign markets, where food expenses can represent a larger portion of the
household budget. Due to trade linkages, the increase in U.S. corn prices has become
a concern for international markets, as well. In January, Mexico experienced riots
following a nearly 30% price increase for tortillas, the country’s dietary staple. In
China, where corn is also an important food source, the government has recently put
a halt to its planned ethanol plant expansion due to the threat it poses to the country’s
food security. Similarly, humanitarian groups have expressed concern for the
potential difficulties that higher grain prices imply for developing countries that are
net food importers.
Energy Supply Issues
Ethanol is not a primary energy source. Energy stored in biological material
(through photosynthesis) must be converted into a more useful, portable fuel. This
conversion requires energy. The amount and types of energy used to produce
ethanol, and the feedstocks for ethanol production, are of key concern. Because of
the input energy requirements, the energy and environmental benefits of corn ethanol
may be limited.
Energy Balance. A frequent argument for the use of ethanol as a motor fuel
is that it reduces U.S. reliance on oil imports, making the U.S. less vulnerable to a
fuel embargo of the sort that occurred in the 1970s. However, while corn ethanol use
displaces petroleum, its overall effect on total energy consumption is less clear. To
analyze the net energy consumption of ethanol, the entire fuel cycle must be
considered. The fuel cycle consists of all inputs and processes involved in the
development, delivery and final use of the fuel. For corn-based ethanol, these inputs
include the energy needed to produce fertilizers, operate farm equipment, transport
corn, convert corn to ethanol, and distribute the final product. Some studies find a
significant positive energy balance of 1.5 or greater — in other words, the energy
contained in a gallon of corn ethanol is 50% higher than the amount of energy needed
to produce and distribute it. However, other studies suggest that the amount of
energy needed to produce ethanol is roughly equal to the amount of energy obtained
from its combustion. A review of research studies on ethanol’s energy balance and
greenhouse gas emissions found that most studies give corn-based ethanol a slight
positive energy balance of about 1.2.11
Natural Gas Demand. As ethanol production increases, the energy needed
to process the corn into ethanol, which is derived primarily from natural gas in the
United States, can be expected to increase. For example, if the entire 4.9 billion
gallons of ethanol produced in 2006 used natural gas as a processing fuel, it would
have required an estimated 240 to 290 billion cubic feet (cu. ft.) of natural gas.12 If
the entire 2006 corn crop of 10.5 billion bushels were converted into ethanol, the
energy requirements would be equivalent to approximately 1.4 to 1.7 trillion cu. ft.
of natural gas. This would have represented about 6% to 8% of total U.S. natural gas
consumption, which was an estimated 22.2 trillion cu. ft. in 2005.13 The United
States has been a net importer of natural gas since the early 1980s. Because natural
gas is used extensively in electricity production in the United States, a significant
increase in its use as a processing fuel in the production of ethanol would likely
increase prices and imports of natural gas.
Energy Security. Despite the fact that ethanol displaces gasoline, the benefits
to energy security from corn-based ethanol are not certain. As was stated above,
while roughly 20% of the U.S. corn crop is used for ethanol, ethanol only accounts
for approximately 2.4% of gasoline consumption on an energy equivalent basis.14
The import share of U.S. petroleum consumption was estimated at 54% in 2004, and
is expected to grow to 70% by 2025.15 Further, as long as ethanol remains dependent
on the U.S. corn supply, any threats to this supply (such as drought), or increases in
corn prices, would negatively affect the supply and/or cost of ethanol. In fact, that
happened when high corn prices caused by strong export demand in 1995 contributed
to an 18% decline in ethanol production between 1995 and 1996.
11 Alexander E. Farrell, Richard J. Plevin, Brian T. Turner, Andrew D. Jones, Michael
O’Hare, and Daniel M. Kammen, “Ethanol Can Contribute to Energy and Environmental
Goals,” Science, Jan. 27, 2006, pp. 506-508.
12 CRS calculations based on energy usage rates of 49,733 Btu/gal of ethanol from Shapouri
(2004), roughly 60,000 Btu/gal from Farrell (2006). Hosein Shapouri and Andrew
McAloon, USDA, Office of the Chief Economist, The 2001 Net Energy Balance of Corn-
Ethanol, 2004, Washington; Farrell, op. cit.
13 U.S. Department of Energy (DOE), Energy Information Administration (EIA), Annual
Energy Outlook 2006 with Projections to 2030, Table 1-Total Energy Supply and
Disposition Summary, Washington; at [http://www.eia.doe.gov/oiaf/aeo/index.html].
14 By volume, ethanol accounted for approximately 3.6% of gasoline consumption in the
United States in 2006.
15 DOE, EIA, Annual Energy Outlook 2004 with Projections to 2025, Washington.
Further, expanding corn-based ethanol production to levels needed to
significantly promote U.S. energy security is likely to be infeasible. If the entire 2006
U.S. corn crop of 10.5 billion bushels were used as ethanol feedstock, the resultant
28 billion gallons of ethanol (18.9 billion gasoline-equivalent gallons (GEG)) would
represent about 13.4% of estimated national gasoline use of approximately 141
billion gallons.16 In 2006, an estimated 71 million acres of corn were harvested.
Nearly 137 million acres would be needed to produce enough corn (20.5 billion
bushels) and resulting ethanol (56.4 billion gallons or 37.8 billion GEG) to substitute
for roughly 20% of petroleum imports.17 Since 1950, the U.S. corn-harvested acreage
has never reached 76 million acres. Thus, barring a drastic realignment of U.S. field
crop production patterns, corn-based ethanol’s potential as a petroleum import
substitute appears to be limited by crop area constraints, among other factors.18
Infrastructure and Distribution Issues
In addition to the above concerns about raw material supply for ethanol
production (both corn and energy), there are additional issues involving ethanol
distribution and infrastructure. Expanding ethanol production will likely strain
existing supply infrastructure. Further, expansion of ethanol use beyond certain
levels will require investment in entirely new infrastructure that would be necessary
to handle a higher and higher percentage of ethanol in gasoline.
Distribution Issues. Ethanol-blended gasoline tends to separate in pipelines.
Further, ethanol is corrosive and may damage existing pipelines. Therefore, unlike
petroleum products, ethanol and ethanol blended gasoline cannot be shipped by
pipeline in the United States. Another issue with pipeline transportation is that corn
ethanol must be moved from rural areas in the Midwest to more populated areas,
which are often located along the coasts. This shipment is in the opposite direction
of existing pipeline transportation, which moves gasoline from refiners along the
coast to other coastal cities and into the interior of the country. While some studies
have concluded that shipping ethanol or ethanol-blended gasoline via pipeline could
be feasible, no major U.S. pipeline has made the investments to allow such
16 Based on USDA’s Jan. 12, 2007, World Agricultural Supply and Demand Estimates
(WASDE) Report, and using comparable conversion rates.
17 This represents roughly half of gasoline’s share of imported petroleum. However,
petroleum imports are primarily unrefined crude oil, which is then refined into a variety of
products. CRS calculations assume corn yields of 150 bushel per acre and an ethanol yield
of 2.75 gal/bu.
18 Two recent articles by economists at Iowa State University examine the potential for
obtaining a 10 million acre expansion in corn planting: Bruce Babcock and D. A. Hennessy,
“Getting More Corn Acres From the Corn Belt”; and Chad E. Hart, “Feeding the Ethanol
Boom: Where Will the Corn Come From?” Iowa Ag Review, Vol. 12, No. 4, Fall 2006.
19 Some small, proprietary ethanol pipelines do exist. American Petroleum Institute,
Shipping Ethanol Through Pipelines. Available at [http://www.api.org/aboutoilgas/sectors
Thus, the current distribution system for ethanol is dependent on rail cars, tanker
trucks, and barges. These deliver ethanol to fuel terminals where it is blended with
gasoline before shipment via tanker truck to gasoline retailers. However, these
transport modes lead to higher prices than pipeline transport, and the supply of
current shipping options (especially rail cars) is limited. For example, according to
industry estimates, the number of ethanol carloads has tripled between 2001 and
2006, and the number is expected to increase by another 30% in 2007.20 A
significant increase in corn-based ethanol production would further strain this tight
Because of these distribution issues, some pipeline operators are seeking ways
to make their systems compatible with ethanol or ethanol-blended gasoline. These
modifications could include coating the interior of pipelines with epoxy or some
other, corrosion-resistant material. Another potential strategy could be to replace all
susceptible pipeline components with newer, hardier components. However, even
if such modifications are technically possible, they will likely be expensive, and
could further increase ethanol transportation costs.
Higher-Level Ethanol Blends. One key benefit of gasoline-ethanol blends
up to 10% ethanol is that they are compatible with existing vehicles and
infrastructure (e.g., fuel tanks, retail pumps, etc.). All automakers that produce cars
and light trucks for the U.S. market warranty their vehicles to run on gasoline with
up to 10% ethanol (E10). As a major producer of ethanol for its domestic market,
Brazil has a mandate that all of its gasoline contain 20-25% ethanol. For the United
States to move to E20 (20% ethanol, 80% gasoline), it may be that few (if any)
modifications would need to be made to existing vehicles and infrastructure. Vehicle
testing, however, would be necessary to determine whether new vehicle parts would
be required, or if existing vehicles are compatible with E20. Similar testing would
be necessary for terminal tanks, tanker trucks, retail tanks, pumps, etc.
There is also interest in expanding the use of E85 (85% ethanol, 15% gasoline).
Current E85 consumption represents only approximately 1% of ethanol consumption
in the United States. A key reason for the relatively low consumption of E85 is that
relatively few vehicles operate on E85. The National Ethanol Vehicle Coalition
estimates that there are approximately six million E85-capable vehicles on U.S.
roads,21 as compared to approximately 230 million gasoline- and diesel-fueled22
vehicles. Most E85-capable vehicles are “flexible fuel vehicles” or FFVs. An FFV
can operate on any mixture of gasoline and between 0% and 85% ethanol. However,
owners of a large majority of the FFVs on U.S. roads choose to fuel them exclusively
20 Ilan Brat and Daniel Machalaba, “Can Ethanol Get a Ticket to Ride?,” The Wall Street
Journal, Feb. 1, 2007, p. B1.
21 National Ethanol Vehicle Coalition, Frequently Asked Questions, accessed February 3,
22 Federal Highway Administration, Highway Statistics 2003, November 2004, Washington.
with gasoline, largely due to higher per-mile fuel cost23 and lower availability of E85.
However, E85 capacity is expanding rapidly, with the number of E85 stations
roughly doubling between February 2006 and February 2007. But those stations still
represent less than 1% of U.S. gasoline retailers. Further expansion will require
significant investments, especially at the retail level. If a new E85 pump and
underground tank are necessary, they can cost as much as $100,000 to $200,000 to
install.24 However, if existing equipment can be used with little modification, the
cost could be less than $10,000.
Excluding feedstock costs, producing ethanol from sugar cane can be less costly
than producing it from corn. This is because the starch in corn must first be broken
down into sugar, before it can be fermented, adding costly processing. Further, sugar
cane waste (bagasse) can be burned to provide process energy for the ethanol plant,
reducing associated energy costs, and improving sugar ethanol’s energy balance
relative to corn ethanol. Using sugar cane, Brazil produces nearly as much ethanol
as the United States, but its passenger vehicle fuel demand is roughly 90% lower.
Brazil’s success at integrating sugar ethanol into the fuel supply has stimulated
interest in adopting Brazilian practices in the United States. However, differences
in market prices for sugar in the two countries cause the economics of sugar-based
ethanol to differ significantly. USDA concluded that producing sugar cane ethanol
in the United States would be more than twice as costly as U.S. corn ethanol and25
nearly three times as costly as Brazilian sugar ethanol. Feedstock costs accounted
for most of this price differential. Therefore, the USDA study shows that while sugar
ethanol may be a positive energy strategy in other countries, it may not be economical
in the United States.
Because of the above cost advantage, it is expected that any sugar ethanol used
in the United States will continue to be Brazilian ethanol reprocessed in Caribbean
Basin Initiative (CBI) countries or imported directly from Brazil. Up to 7% of the
U.S. ethanol market can be met duty-free with Brazilian ethanol dehydrated in CBI
countries.26 While only about 2% of the U.S. market historically has been supplied
in this manner, there is growing interest among investors in expanding CBI
dehydration capacity to approach the 7% quota. Further, high ethanol prices in recent
23 Ethanol has a lower energy content than gasoline per gallon. Therefore, FFVs tend to
have lower fuel economy when operating on E85. For the use of E85 to be economical, the
pump price for E85 must be low enough to make up for the decreased fuel economy relative
to gasoline. Generally, to have equivalent per-mile costs, E85 must cost 20% to 30% less
per gallon at the pump than gasoline.
24 David Sedgwick, Automotive News, January 29, 2007. p. 112.
25 USDA, The Economic Feasibility of Ethanol Production from Sugar in the United States,
July 2006, Washington.
26 For more information, see CRS Report RS21930, Ethanol Imports and the Caribbean
Basin Initiative, by Brent D. Yacobucci.
years (mostly brought on by the elimination of MTBE, another gasoline blending
component) have led to a significant increase in direct imports from Brazil despite
Biodiesel is a diesel fuel substitute produced from agricultural products. While
the term is generally used to refer to fuel produced from vegetable oils (such as
soybean oil or palm oil), it can also be produced from animal fats and recycled27
cooking grease. Further, research is underway on gasification and other processes
to convert cellulose and biomass waste products into synthetic diesel fuel. Biodiesel
has the key advantage of being largely compatible with existing infrastructure and
vehicles. Most diesel engines can run on low-percentage blends of biodiesel and
conventional diesel, and most new diesel engines can likely tolerate significantly
higher percentage blends.28 Further, although there is little experience with
transporting biodiesel in pipelines, the fuel may be more compatible with existing
infrastructure than ethanol.
Currently, U.S. biodiesel production and consumption are significantly lower
than ethanol: approximately 100 million gallons of biodiesel were produced in 2006,
compared to roughly 5 billion gallons of ethanol. However, in relative terms,
biodiesel production has been expanding rapidly, with U.S. production roughly
quadrupling between 2004 and 2006. Like ethanol, there are limits on the amount
of biodiesel that could be produced from existing agricultural products. If all U.S.
oilseed production, available animal fats, and recycled grease were used for biodiesel
production, only about 4 billion gallons of biodiesel could be produced annually —
less than current U.S. production of corn-based ethanol.29
Despite the limitations on current feedstock supply for biodiesel, like ethanol
there is the potential in the future to produce a significantly greater amount of
biodiesel from cellulosic materials.
Ethanol and biodiesel produced from cellulosic feedstocks, such as prairie
grasses and fast-growing trees, have the potential to improve the energy and
environmental effects of U.S. biofuels. Further, moving away from feed and food
crops to dedicated energy crops could avoid some of the agricultural supply and price
concerns discussed above. Although research is ongoing, there are no demonstration-
or commercial-scale cellulosic biofuel plants in the United States at this time, and
27 For more information on biodiesel, see CRS Report RL32712, Agriculture-Based
Renewable Energy Production, by Randy Schnepf.
28 Currently, few engine and vehicle manufacturers warranty their engines at levels higher
than B5 (5% biodiesel, 95% conventional diesel), but research and testing are ongoing.
29 Randy Schnepf, Agriculture-Based Renewable Energy Production, CRS Report
RL32712, January 8, 2007.
there is only one demonstration-scale plant in Canada.30 A major barrier to cellulosic
fuel production is that production costs still remain significantly higher than for corn
ethanol or other alternative fuels. Currently, various production processes are
prohibitively expensive, including physical, chemical, enzymatic, and microbial
treatment and conversion of these feedstocks into motor fuel.
A key potential benefit of energy crops (e.g., prairie grasses, fast-growing trees)
is that they can be grown without the need for chemicals. Reducing or eliminating
the need for chemical fertilizers would address one of the largest energy inputs for
corn-based ethanol production. Using biomass to power a biofuel production plant
could further reduce fossil fuel inputs. Improving the net energy balance of ethanol
would also reduce net fuel cycle greenhouse gas emissions.
However, increases in per-acre yields would be required to make energy crops
for fuel production economically competitive. Questions remain whether high yields
can be achieved without the use of fertilizers and pesticides. Another question is
whether there is sufficient feedstock supply available. USDA estimates that by 2030
1.3 billion tons of biomass could be available for bioenergy production (including
electricity from biomass, and fuels from corn and cellulose).31 From that, enough
biofuels could be produced to replace roughly 70 billion gallons of gasoline per year.
However, this projection assumes significant increases in per-acre yields and,
according to USDA, should be seen as an upper bound on what is possible. Further,
new harvesting machinery would need to be developed to guarantee an economic
supply of cellulosic feedstocks.32
In addition to the above concerns, other potential environmental drawbacks
associated with cellulosic fuels must be addressed, such as the potential for soil
erosion, runoff, and the spread of invasive species.
There is continuing interest in expanding the U.S. biofuel industry as a strategy
for promoting energy security and environmental goals. However, there are limits
to the amount of biofuels that can be produced and questions about the net energy
and environmental benefits they would provide. Further, rapid expansion of biofuel
production may have many unintended and undesirable consequences for agricultural
30 However, on February 28, 2007, DOE announced $385 million in grant funding for six
cellulosic ethanol plants in six states. If operational, combined capacity of these six plants
would be 130 million gallons per year. DOE, DOE Selects Six Cellulosic Ethanol Plants
for Up to $385 Million in Federal Funding, February 28, 2007, Washington.
31 Oak Ridge National Laboratory for DOE and USDA, Biomass as a Feedstock for a
Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual
Supply, April 2005, Oak Ridge, TN.
32 For example, the study assumes roughly 400 million tons of biomass from agricultural
residues. To economically supply those residues to biofuel producers, farm equipment
manufacturers would likely need to develop one-pass harvesters that could collect and
separate crops and crop residues at the same time.
commodity costs, fossil energy use, and environmental degradation. As policies are
implemented to promote ever-increasing use of biofuels, the goal of replacing
petroleum use with agricultural products must be weighed against these other