People for far too long have underestimated both the U.S. farmer and the ethanol industry's desire and ability to make ethanol a staple fuel source. Things begin to really change this summer. $4 a gallon gas will be reached and this will be the summer consumers finally have had enough and start to rise up in chorus to demand more ethanol at their pumps.
Currently ethanol is blended in 3% of gas in the U.S. We could up that number to 10% and need no modifications to any vehicle on the road. Million of people are driving E85 capable vehicles and are not even aware of it. My 2005 Suburban, purchased in Massachusetts, for example, can run on E85, which I would be using were it available. Plus, every study done to date has confirmed that people would be willing to pay more for a home grown fuel than for gas from oil from the middle east.
The renewable fuels standard President bush signed in 2005 called for refiners to use 4.7 billions gallon of ethanol by the end of 2007 and it increases gradually to 7.4 billion gallon by 2012. Many ethanol critics use this as proof that were it not for the mandate, ethanol would not be used. To illustrate why this is false, one must consider that in 2006, 4.8 billion gallons were produced for a demand of 5.3 billion gallons. Were the mandate the only reason for ethanol demand, these numbers would not exist. By the end of 2008, a minimum of eight billion gallons will be available and no slackening in demand is seen. Why? Ethanol extends gas supplies and keeps the cost of gas down. Demand for E85 in the Midwest cannot be met. In short, farmers and the ethanol industry have made the "required standard" irrelevant.
Has there ever been a product that the majority of Americans wanted that business did not find a way to produce affordably and in quantities to satisfy them? I can't think of any, either... do not ever bet against American ingenuity.
Here are some more ethanol tidbits:
FACT: In 2005, the ethanol industry supported the creation of more than 153,725 jobs in all sectors of the U.S. economy, boosting U.S. household income by $5.7 billion.
Ethanol industry operations and spending for new construction added $1.9 billion of tax revenue for the Federal government and $1.6 billion for state and local governments. And the combination of spending for annual plant operations and capital spending for new plants under construction added more than $32.2 billion to gross output in the U.S. economy.
FACT: By increasing the demand for corn, and thus raising corn prices, ethanol helps to lower federal farm program costs.
In 2004, USDA estimates ethanol production reduced farm program costs by $3.2 billion.
FACT: Ethanol refineries serve as local economic power houses. Click here for information on how a 50 and 100 million gallon ethanol refinery can benefit your community.
FACT: If ethanol were removed from the market, a shortfall would have to be made up from expensive imports.
Gasoline prices would increase 14.6% in the short term (36.5 cpg if gas is $2.50/gal). Prices would increase 3.7% in the long term (9.25 cpg if gas is $2.50/gal) even after refiners built new capacity or secured additional sources of supply.
Source: LECG, LLC, May 2004.
FACT: The federal ethanol program generates revenue for the U.S. Treasury.
The federal ethanol incentive, which is available to gasoline marketers and oil companies (not ethanol producers) as an incentive to blend their gasoline with clean, domestic, renewable ethanol, is a cost-effective program. It actually returns more revenue to the U.S. Treasury than it costs, due to increased wages and taxes and reduced unemployment benefits and farm program payments, while at the same time holding down the price of gasoline and helping the American farmer.
The federal ethanol program was established following the OPEC oil embargoes of the 1970s, which exposed our dangerous dependence on imported oil. As an alternative to petroleum, ethanol directly displaces imported oil and reduces tailpipe emissions while helping to bolster the domestic economy. Yet today we import more petroleum than ever before. With rising crude oil prices and increasing international instability, incentives for production and use of domestic ethanol are critical.
We have subsidized the oil industry substantially since the early 1900s, and continue to do so. In fact, according to the General Accounting Office in an October 2000 report, the oil industry has received over $130 billion in tax incentives just in the past 30 years - dwarfing the roughly $11 billion provided for renewable fuels. During this time, U.S. oil production has fallen while annual U.S. ethanol production has grown dramatically. [GAO/RCED-00-301R)
FACT: In 2005, the use of ethanol reduced the U.S. trade deficit by $8.7 billion by eliminating the need to import 170 million barrels of oil.
Source: LECG, LLC January 2006.
FACT: In 2005, the U.S. ethanol industry increased household income by $5.7 billion, money that flows directly into the pockets of American consumers.
FACT: The U.S. ethanol industry has a proven track record of cost-effectively replacing MTBE and expanding gasoline supplies from coast to coast.
When California, New York and Connecticut switched from MTBE to ethanol in 2004, the transition went smoothly and both state and federal officials agree there was no negative impact on gasoline supplies or prices. The industry continues to expand and is prepared to assist any state confronting water quality issues or high gasoline prices.
FACT: A modern dry-mill ethanol refinery produces approximately 2.8 gallons of ethanol and 17 pounds of highly valuable feed coproducts called distillers grains from one bushel of corn.
In 2005, ethanol dry mills produced approximately nine million metric tons of distillers grains. Ethanol wet mills produced approximately 430,000 metric tons of corn gluten meal, 2.4 million metric tons of corn gluten feed and germ meal, and 565 million pounds of corn oil. The U.S. exports distillers dried grains with solubles mainly to Ireland, the UK, Europe, Mexico and Canada. Click here for more information on co-products.
FACT: Ethanol production does not reduce the amount of food available for human consumption.
Ethanol is produced from field corn fed to livestock, not sweet corn fed to humans. Importantly, ethanol production utilizes only the starch portion of the corn kernel, which is abundant and of low value. The remaining vitamins, minerals, protein and fiber are sold as high-value livestock feed.
An increasing amount of ethanol is produced from nontraditional feedstocks such as waste products from the beverage, food and forestry industries. In the very near future we will also produce ethanol from agricultural residues such as rice straw, sugar cane bagasse and corn stover, municipal solid waste and energy crops such as switchgrass.
FACT: Most nations have an import tariff on fuel ethanol, and comparatively the U.S. tariff is nearly non-existent.
The U.S. ad valorem tariff is 2.5% of the product value, and is lower than any other country in the world. To prevent U.S. tax dollars from further subsidizing foreign-produced ethanol, which has already received support from the country of origin, there is a secondary duty of 14.27 cents per liter or 54 cents per gallon. The secondary duty was created to offset the value of the ethanol tax credit taken by the petroleum industry when ethanol, both domestic and imported, is blended with gasoline. As evident by the history of ethanol imports into the U.S., the secondary tariff is not a barrier to market entry.
There are exceptions to this rule. First, in some of our bilateral trade agreements like the U.S.-Israel Free Trade Agreement and the North American Free Trade Agreement, we allow ethanol that is fully produced with feedstocks from those countries to enter the U.S. duty-free.
Secondly, Congress has created some unilateral trade preference programs, such as the Caribbean Basin Initiative and the Andean Trade Preference Act that allow ethanol produced in those countries to enter the U.S. duty free. This means that ethanol producers in those countries avoid the secondary tariff as long as the ethanol is produced from within their own country. The purpose of this program is to encourage economic development in the Andean and Caribbean region, which helps fight poverty and drug trafficking. Notably, to date, these trade agreements and preference programs have not led to significant ethanol imports to the U.S.
Click here for more information on import tariffs and trade.