Biofuels and Ethanol

Biofuels come from recently living organisms. They can be manufactured from animals or their byproducts (e.g. manure), but are usually made from plant matter. The highest profile biofuel in discussions about both globalization and the environment is ethanol.

Ethanol is another name for ethyl alcohol, a chemical compound produced from a wide variety of feedstocks including corn, sugar, and cellulosic materials such as switchgrass, straw, and plant waste. To produce ethanol, enzymes are first added to the feedstock to isolate the valuable sugars. This mixture is then combined with yeast, which causes the sugars to ferment and create a substance containing alcohol. This substance is distilled to raise the alcohol content to the 85-95 percent range. Finally, a cocktail of chemicals is blended with the ethanol to make it undrinkable.¹


Source: http://www.eia.doe.gov/kids/energyfacts/sources/renewable/biomass.html

Ethanol is by no means a recent discovery. It has a long history dating back to the “dawn of the automobile age, [when] Henry Ford predicted that ‘ethyl alcohol is the fuel of the future’” ² Rarely used on its own, ethanol typically serves as a fuel additive to gasoline. Combining ethanol with traditional fuels optimizes engine performance and enables fuel to burn cleaner, thus decreasing emissions of carbon monoxide and ozone.³

Ethanol blends come in three main forms: E10 (90 percent gasoline/diesel, 10 percent ethanol), which accounts for 99 percent of ethanol consumption in the United States; E25 (75 percent gasoline, 25 percent ethanol), which dominates the Brazilian market; and E85 (15 percent gasoline/diesel, 85 percent ethanol), which only about 7 million cars in the United States are equipped to use. While E85 is capable of reducing harmful emissions by up to 20 percent, E10 has a much less dramatic impact, accounting for a mere one percent improvement.⁴

Ethanol production levels have been steadily rising across the world, with Brazil and the United States dominating the young global market. Brazil began aggressively laying the foundation for a globally competitive ethanol industry in the 1980s with extensive government assistance. The United States was a bit slower to adopt ethanol, but has since caught up in most measures of production capacity.

Ethanol has displaced the chemical known as MTBE, which used to be the most widely distributed fuel additive in the United States until a series of findings determined that it might cause cancer in some animals. As part of the MTBE phase-out, the U.S. Congress established ambitious targets for ethanol usage in the Energy Policy Act of 2005.⁵ This provided a huge lift to the American ethanol industry, until the economic recession and high gas prices hit this industry particularly hard. Ethanol industry lobbyists urge President Obama to raise the ethanol content of blended fuels to combat the downturn. There is talk of raising the ethanol content from ten percent to 12 percent, but it is still unclear if this policy will be enacted.⁶

Government Support

As with most renewable fuels, governments play an important role in the development of the ethanol industry. In the United States, the use of ethanol blends is promoted in two ways. First, renewable fuel standards, drafted by the Environmental Protection Agency and enacted into law by Congress, mandate that all gasoline contain a renewable component. These were first introduced in amendments to the Clean Air Act of 1990 to address concerns about the effects of greenhouse gas emissions on air quality and have been updated in successive energy policy legislation.⁷ The latest standards mandate a heavy component of ethanol.

Second, the federal government provides tax incentives for ethanol production. Some predict the industry would collapse without such supports, with production falling to 80 percent of 1998 levels. The 51 cent-per-gallon tax credit that production of ethanol receives is equivalent to a $4.4 billion annual subsidy.⁸ Many believe these incentives are overly generous, claiming, “Even by the standards of special-interest-driven Washington, the ethanol industry gets an unusually sweet deal.”⁹

Since most American ethanol is derived from corn, critics complain that the “sweet deal” is a gift to the powerful corn lobby, which is a major player in the politics of the Midwest region. They object on the grounds that corn is already “the nation’s most plentiful and heavily subsidized crop.”¹⁰

In addition, the benefits of federal supports accrue mostly to a few massive agribusinesses such as Archer Daniels Midland (ADM), which by itself commands one-thired of the American ethanol market. From this perspective, “Tax incentives for ethanol production equate to ‘corporate welfare’ for a few large producers.”¹¹

There are several factors that make ethanol’s continued expansion problematic.

Net Energy/Environmental Gains

The most frequently cited reason for developing the ethanol industry is that it decreases fossil fuel consumption by substituting for some gasoline usage and is thus a more environmentally-friendly fuel. But this argument glosses over the fact that ethanol must itself be manufactured.

The ethanol production process, like many other forms of manufacturing, must be powered by natural gas or electricity generated by burning fossil fuels. Consequently, some experts believe there are few overall net energy gains from ethanol usage, meaning the benefits for the environment are often minimal. Ethanol may help decrease petroleum dependence, but it will not decrease energy consumption or contribute much to a nation’s overall energy independence.¹² The problem of net negative gains provides ammunition to those who question the motivations underlying huge ethanol subsidies.

The type of feedstock used to produce ethanol largely determines how big the net energy gains will be. Corn yields the lowest gains but continues to be the favored feedstock in the United States because of the size and political power of the American corn industry. Cane sugar, which is usually grown in more tropical climates, is a much more efficient feedstock, but costs almost twice as much as corn to process.

Source: James Jacob. “Ethanol From Sugar.” USDA Rural Development http://www.rurdev.usda.gov/rbs/pub/sep06/ethanol.htm.

According to some estimates, “For each unit of energy expended to turn cane into ethanol, 8.3 times as much energy is created, compared with a maximum of 1.3 times for corn.” In addition, increasingly sophisticated Brazilian producers have found ways to process sugar without the use of fossil fuels, adding to ethanol’s positive environmental contribution.¹³

The net energy gains from cellulosic ethanol are less well understood. But cellulose-based feedstocks have the unique benefit of not requiring much energy to grow. In contrast to corn and sugar cane, agricultural byproducts like switchgrass need not be farmed using energy-intensive methods and can be harvested under naturally-occurring conditions. Switchgrass, for example, grows faster, uses less fertilizer, can grow on land unfit for other agricultural purposes, and also double as a source of animal feed.¹⁴

(Picture Source: http://bioenergy.ornl.gov/papers/misc/switgrs.html)

Unfortunately, the enzymes and processes used to break tough, cellulose-rich materials into usable sugars are not yet commercially viable. But the rapid pace of advances in biotechnology suggests that costs will likely eventually decrease to acceptable levels.

With government incentives and loans, cellulosic ethanol could take off within the next ten years.  It would be more beneficial because cellulosic ethanol can use materials that are readily available and can use more parts of the corn already being planted.  There are continued payoffs for the corn industry while better renewable fuels produced with less fossil fuel are made commercially accessible.¹⁵

Global Trade in Ethanol

Because the net energy gains from corn-based ethanol are so small, many have called for the United States to ease trade barriers against sugar-based ethanol imported from Brazil. Currently, the United States levies a 2.5 percent tariff and 54 cent per gallon duty on ethanol imports from Brazil.¹⁶ Brazilian ethanol is highly competitive because it can be produced 30 percent more cheaply than the American corn-based variety while yielding nearly eight times as much energy.¹⁷

America’s ethanol producers are hampered by their dependence on corn and are still inexperienced relative to their Brazilian counterparts. As a result, the U.S. government has chosen to intervene with tariffs and taxes to safeguard the development of its domestic industry. This protectionist position is bolstered by the fear among American policymakers of relying too heavily on imports from Brazil, “The United States and other industrialized countries are reluctant to trade their longstanding dependence on oil for a new dependence on [imports of] renewable fuels.”¹⁸

Impact on Farming

The United States would need to produce and consume a lot of ethanol if it really wants to change its energy mix. Some experts believe that production would have to rise from current levels of 4.6 billion gallons a year to 50 billion gallons a year, to replace oil imports from the Persian Gulf.¹⁹

Globally, some estimates hold that “powering all the world’s vehicles with biofuels would mean doubling the amount of land devoted to farming.”²⁰ Even approaching these targets with existing technological expertise would require a radical shift in thinking and practices for the agriculture sectors of many nations.

Under such a scenario, farming would increasingly be viewed as a source of energy production as much as a source of food, thus putting those two priorities in competition with one another. According to Dan Basse, president of the economic forecasting firm AgResources, “By the middle of 2007, there will be a food fight between the livestock industry and this biofuels or ethanol industry…As the corn price [in the United States] reaches up above $3 a bushel, the livestock industry will be forced to raise prices or reduce their herds. At that point the U.S. consumer will start to see rising food prices or food inflation.”²¹

Transportation and Cost

Also hindering the expansion of ethanol use is its high transportation cost. Ethanol corrodes the pipelines used to carry it and is therefore often diluted by water when traveling long distances. While it can be hauled by trucks, trains, or barges, cost dictates that it is mostly refined and consumed close to the main feedstock suppliers.²²

In the United States, for example, 70 percent of ethanol production occurs in only five states in the Midwest (Iowa, Illinois, Nebraska, South Dakota, and Minnesota).²³ This geographical reality is an “obstacle to the use of ethanol on the East and West Coasts,” where energy consumption is highest.²⁴ Until transportation methods are improved or cellulosic feedstocks that are widely distributed can be exploited, ethanol use will likely remain local and limited.

To read more about cars that run on ethanol blends, see Appendix E, “Hybrid Cars and Flexcars.”