The future of US ethanol industry still uncertain

It has been almost a year after the ethanol tax credit expired in United States, at the end of 2011. Over the period of more than 30 years, the U.S government has provided more than $45 billion in subsidies for use of the ethanol.

The tax credit was about half a dollar for every 3.8 liters of ethanol and was intended to bolster the alternative fuel industry and decrease the need for foreign fuel import.

For many years this tax credit seemed politically invulnerable but the current U.S. economic situation characterized by deficits and debt managed to kill it, and it seems somewhat strange that U.S. ethanol industry hasn't put up a bigger fight and has in fact rather voluntarily accepted the expiration of tax credit.

It is still to early to tell whether this was the sign that U.S. ethanol industry has matured enough to survive without this key federal incentive and whether U.S. ethanol marketplace has evolved enough not to depend too much on tax benefits.

Ethanol is already 10 percent of the nation’s gasoline supply and the U.S. ethanol industry remains positive in future predictions, even despite the latest report from IEA in which it can be seen that the US ethanol production in 2012 fell to an average of around 850 kilobarells per day, 60 kb/d lower than in 2011. This, however, is mostly the result of major droughts that have had huge negative impact on corn, resulting in high corn prices, leading to reduced profits of ethanol producers.

The increased use of ethanol in United States has played significant role in keeping gasoline prices at reasonable levels. It still remains to be seen whether ethanol industry is able to stand on its own and help the nation's desire to reduce reliance on foreign oil.

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How can U.S. achieve its renewable fuel targets?

Ethanol leads the way in U.S. biofuel production. In the last 20 years there has been a growing demand for more renewable fuels in United States, with corn-derived ethanol, a biofuel produced through the fermentation of sugar in corn kernels, currently leading the US biofuel industry forward.

Under the U.S. Renewable Fuel Standard (RFS) 36 billion gallons of biofuel are supposed to go into U.S. vehicles by the year 2022. In order to achieve this goal the main focus will no doubt be on corn-based ethanol, or to be more precise by adding corn-based ethanol to gasoline.

Is this goal reachable with ethanol alone? According to the US researchers ethanol alone is not enough to achieve the RFS targets because currently available technologies are able to use only limited amounts of ethanol.

In 2011, Wallace Tyner, an agricultural economist from Purdue University, said that U.S. is already producing more corn-based ethanol than it can use, concluding that relying solely on ethanol will not be enough to meet the US renewable fuel targets.

Many cars on U.S. roads are not compatible with E85 blend.

Tyner believes that U.S. does not only have to improve current technologies in order to create biofuels that have more similar properties to gasoline than ethanol but also needs to change its vehicle fleet.
Today, the most gas stations in America pump gasoline that has 10 percent ethanol and 90 percent gasoline, a blend known as E10. Higher blends are still not widespread because there is still large number of older cars that have incompatible engine parts.

Such a countrywide usage of E10 means that U.S. is already producing more ethanol than it needs to create enough E10 fuel, and this is the main reason why U.S. cannot only rely on ethanol to meet its renewable fuel targets.

The higher blends of ethanol such as for instance E85 blend, which consists of 85 % ethanol, are available but there is not enough cars on U.S. roads to support use of higher blends (there are only around 7 million cars on U.S. roads that could support such high blend, and in order to meet RFS 2022 goal US would need to have at least 90 million E85 compatible cars on the road).

The U.S. therefore needs to focus on diversifying its biofuel production, especially focusing on more advanced biofuels (such as biofuels from cellulose and other plant waste products) and not rely solely on ethanol. These advanced biofuels would not only help meet RFS goals but they are better for environment compared to ethanol because they produce less greenhouse gas emissions than ethanol, and they also require less energy in production process.

However, these new biofuels need new technologies because current technologies are not enough to make them commercially feasible. New technologies require plenty of research and of course significant investment but this looks to be the only way for U.S. to meet the RFS goals for 2022.

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U.S. ethanol production data and info

The production of ethanol isn't a brand new thing in United States. On the contrary, ethanol fuel has more than century old tradition in United States. It all started at the end of the 19th century when the famous industrial Henry Ford designed the first car to run on pure ethanol. Throughout his entire life Henry Ford remained a great advocate of ethanol to be used as a fuel for cars.

United States still leads the world in ethanol production with 13.2 billion U.S. liquid gallons being produced in 2010. The ethanol market share in the U.S. gasoline supply is constantly growing, and is now over 10%; in 2007, for instance, ethanol fuel share represented only about 3% of the U.S. gasoline supply.

Most cars on the U.S. roads today can run on blends of up to 10% ethanol, and some U.S. states like Missouri and Minnesota have even mandated the use of 10% ethanol gasoline.

At the start of the year 2009 there were 170 U.S. ethanol distilleries in operation in 26 U.S. states. Today there are more than 200 ethanol distilleries in operation across the United States (there were 204 at the end of 2011).

The majority of U.S. ethanol production still comes from corn. If U.S. continues to significantly expand ethanol production this would lead to large parts of arable land being used for the production of ethanol instead of food. This could lead to major increase in food prices and even more hunger in the world (the food vs. fuel debate).

Sugarcane field. It is more efficient to produce ethanol fuel from sugarcane than from corn.

 The most common ethanol blend is 85% ethanol (E85), and by the end of 2011, there were more than 10 million E85-compatible vehicles on U.S. roads.

Ethanol industry in big job creator in United States and is currently employing more than 200,000 people.
The 2008 study has estimated that the growth in US ethanol production has caused retail gasoline prices to be US $0.29 to US $0.40 per gallon lower than would otherwise have been the case.

The U.S. ethanol industry needs to improve its efficiency. The domestic ethanol production is significantly less efficient compared to ethanol production in Brazil. Brazil's ethanol is mostly produced from sugarcane, and sugarcane ethanol has an energy balance 7 times greater than ethanol produced from corn.

The question whether current U.S. ethanol production is sustainable or not is still open for debate. While it is true that ethanol is environmentally more friendly option than gasoline the required electricity for many U.S. distilleries still mainly comes from coal, the dirtiest energy source of them all. The large land requirement is also one of the main drawbacks.

In order to overcome these issues, there has been recently plenty of talk about cellulosic ethanol as this would means moving away from food crops and instead using waste residues and native grasses to produce ethanol.

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