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The other side to the ethanol story
September 10, 2008
Ethanol, the renewable alternative to gasoline, can be made from many
crops. Whether a particular crop becomes a viable product is a matter of
chemistry, technology, economics - and politics. Ethanol has been held
up as a solution to dependence on imported foreign oil for decades.
In Brazil, ethanol is principally made from sugar cane, a crop that grows
quickly and can produce 590 gallons per acre. There, a government investment over 25 years has
paid off: Thanks to ethanol, Brazil has reached energy self-sufficiency.
In the United States, corn is king, and corn-based ethanol has been heavily subsidized for
decades. An acre of corn can produce 400 gallons of ethanol. But it's more expensive to make
ethanol from corn – according to Bio-fuels Economist, Robert Wisner, of Iowa State University -
Ag Marketing Resource Center, from December 2007 through May 2008, ethanol prices and
production costs both trended higher. During this time ethanol production returns ranged from a
small loss of $0.01 per gallon to profits of $0.29 per gallon (averaging $0.13 per gallon during
the December 2007 through May 2008 period). By mid-June 2008, ethanol production costs had
risen to $2.64-$2.72 per gallon, with ethanol prices in the $2.78-$2.80 range. Average net returns
ranged from $0.08 to $0.16 per gallon of ethanol produced. As of September 2008, the price of
ethanol in the U.S. is at $2.16, so producers are losing money.
Sugarcane can be grown in the United States, of course, but federal agricultural laws artificially
prop up its price and limit its production. According to the St. Petersburg Times, unrefined raw
sugar sells on the world market for 12 cents a pound, as opposed to 20 cents a pound in the U.S.
The result is that, with current pricing policies, it costs $2.40 a gallon to produce sugar-based
ethanol in the U.S. Brazil can produce ethanol for as little as 68 cents a gallon.
Supply growth accelerated for the third year in a row due to increases in the US and Brazil.
Chart of global fuel ethanol production
US production grew by 33% to 12
MT as the market responded to
increased mandates and oil prices.
Brazilian production rose 27% to
11.3 MT as rising oil prices made
relatively inexpensive ethanol
production from sugar cane even
more commercially attractive.
Chinese ethanol production growth
decelerated after the government
imposed a moratorium on the construction of new plants, due to concerns over the impact on
food production. European production rose by 7%; performance was mixed among countries
with new capacity leading output growth in some countries, but rising feedstock costs or higher
imports reducing output elsewhere.
2007 U.S. Ethanol In recent years, the Brazilian untaxed retail price of
Impor ts ethanol has been lower than that of gasoline per
Total Gallons
Country gallon. Approximately US$50 million has recently
(Through Nov. 2007)
Brazil 188,825,960 been allocated for research and projections focused
Jamaica 75,193,188
El Salvador 73,280,595 on advancing the ostentation of ethanol from
Trinidad & Tobago 42,738,552 sugarcane in São Paulo.
Costa Rica 39,359,298
Canada 5,382,504
China Today, ethanol is blended into more than 50% of
1,468,844
Tota l 426,248,940
RFA estimate for 2007
the gasoline sold in the U.S., the majority as E10 (a
450,000,000
Source: International Trade blend of 10% ethanol and 90% gasoline). It is
Commission (ITC)
blended in every gallon of gasoline sold in some
areas of the country, including California, Minnesota, Missouri, Texas, and along the Eastern
Seaboard from Washington, D.C. to Boston.
Expanding the marketplace for ethanol also requires the development of infrastructure to
accommodate greater volumes of ethanol. That infrastructure is coming online. Across all areas
of Brazil, infrastructure is being developed to transport, store, blend, and dispense greater
volumes of ethanol-blended fuel.
Ethanol Car Manufacturing in Brazil 1979-2007
Alcohol E100 Flex fuel Cars Total Cars
Year % Ethanol Cars
Manufactures Manufactured Manufactured
1979 3,328 - 912,018 0.4
1980 239,251 - 933,152 25.6
1986 619,854 - 815,152 76.0
1990 71,523 - 663,084 10.8
1998 1,188 - 1,254,016 0.1
2000 9,428 - 1,361,361 0.7
2002 48,022 - 1,521,431 3.2
2003 31,728 39,853 1,361,361 4.8
2004 49,796 282,706 1,862,780 17.8
2005 43,278 776,164 2,011,817 40.7
2006 758 1,249,062 2,092,003 59.7
2007 3 1,716,716 2,388,402 71.9
Source: Brazilian Automakers Association (ANFAVEA), 2007 and 2008.
Data shown for FFs does not include light commercial vehicles.
In May 2003 Volkswagen built for the first time a production flexible fuel car, the Gol 1.6 Total
Flex. Chevrolet followed two months later with the Corsa 1.8 Flexpower, using an engine
developed by a joint venture with Fiat called PowerTrain. That year production of full-flex
reached 39.853 automobiles and 9.411 light commercial vehicles. By 2005, popular
manufactures that build flexible fuel vehicles are Chevrolet, Fiat, Ford, Peugeot, Renault,
Volkswagen, Honda, Mitsubishi, Toyota and Citröen. Flexible fuel cars were 15.2% of the car
sales in 2004, 38.6% in 2005, 59.7% for 2006 and 71.9% for 2007. By March 2008, the fleet of
dual-fuel vehicles, including autos and light commercial vehicles had reached 5 million.
On December 19, 2007, President George W. Bush signed into law the Energy
Independence and Security Act (EISA) of 2007. Central to this legislation was an expansion
of the Renewable Fuels Standard (RFS), first enacted into law as part of the Energy Policy
Act of 2005.
The expansion of the RFS Renewable Advanced Cellulosic Biomassbased
Undifferentiated
Total
requires the use of 36 billion Year Advanced
Biofuel Biofuel Biofuel Diesel RFS
Biofuel
gallons of renewable fuels 2008 9.0 9.0
annually by 2022. The original 2009 10.5 6 .5 0.1 11.1
2010 12 .95 .1 .65 0.2 12.95
RFS called for 7.5 billion 2011 12.6 1.35 2.5 .8 0.3 13.95
gallons of annual use by 2012. 2012 13.2 2 .5 1 0.5 15.2
2013 13.8 2.75 1 1.75 16.55
Significantly, the RFS requires 2014 14.4 3.75 1.75 2 18.15
that 21 billion gallons of the 2015 15 5.5 3 2.5 20.5
standard must come from 2016 15 7.25 4.25 3.0 22.25
2017 15 9 5.5 3.5 24
advanced bio-fuels, including a 2018 15 11 7 4.0 26
requirement that 16 billion 2019 15 13 8.5 4.5 28
2020 15 15 10.5 4.5 30
gallons come from cellulosic 2021 15 18 13.5 4.5 33
ethanol by 2022. 2022 15 21 16 5 36
Energy Security is National Security
The seemingly unabated rise in world crude oil prices, the continued unrest in oil producing
regions of the world, and the increasingly hostile rhetoric from leaders in oil rich nations further
underscore the need for greater energy security.
With the volatile prices a barrel of oil, the impact of our dependence on imported oil takes on
greater importance. The U.S. imports 12.5 million barrels of oil a day, costing the economy
hundreds of billions of dollars annually. By increasing the use of renewable alternatives like
sugar-based ethanol, our nation can begin dramatically reducing our reliance on foreign oil and
the economic price tag it carries.
The displacement of 228 million
barrels of oil
By displacing hundreds of millions of barrels of imported oil, the
in 2007 saved Americans $16.5 increasing reliance on ethanol is making available billions of
billion. That dollars for investment in renewable energy technologies. Before
is an average of $45 million a day.
Source: “Contribution of the
the increased use of ethanol, that money was flowing into the
Ethanol Industry to the pockets of oil barons around the globe, transferring the wealth of
Economy of the United States,” Americans to nations like Saudi Arabia and Kuwait.
LECG, LLC, February 2008.
Moreover, independent analysts suggest that the military cost of ensuring the free flow of oil
from the Persian Gulf is tens of billions of dollars a year. Milton Copulos, President of the
National Defense Council Foundation, estimates that the U.S. spends more than $137 billion a
year on military operations securing the safe delivery of oil from the Persian Gulf.
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