The Promise of Ethanol for the United States

The potential economic benefits of ethanol are many: as a domestic fuel source, ethanol will decrease U.S. demand for imported petroleum, help the country’s trade balance, and create a boon for domestic producers, in particular Midwest farmers. Ethanol is also a cleaner burning fuel that is potentially more environmentally friendly than petroleum. Furthermore, when it comes to the cost associated with converting gasoline stations and cars to use the new fuel, ethanol will be more economical in relation to other alternative fuels such as hydrogen. In many states, ethanol has already transplanted MTBE as an additive and octane enhancer in gasoline. Additionally, new cars are being produced that could use E85, a fuel mix that contains 85% ethanol.

The national capacity to produce ethanol has doubled in the past three years and is set to increase another 50% by 2007. There has been rapid capital investment in construction of new ethanol refinery plants across the Midwest. In addition to state and federal governments, private investors have jumped on board. Legislation was passed last year requiring biofuel production to reach 7.5 billion gallons annually by 2012, directly encouraging the construction of new ethanol plants.

Despite these recent developments, ethanol still faces numerous challenges if it is to become a mainstream alternative source of U.S. energy. Critics of ethanol are many, and they make several salient arguments. One point of contention is over how much energy is needed to make ethanol, or how much fuel is actually saved with ethanol use. Ethanol itself is renewable, but fossil fuels are used throughout the entire production process: diesel for the tractors, nitrogen for fertilizers, and additional energy for the refineries. Moreover, even in gasoline form, ethanol cannot be moved through the pipelines currently in place across the United States. Because ethanol absorbs water and corrodes the pipes, it must be moved by rail and truck, which requires more energy. Various studies have shown that ethanol provides anywhere between a net 30% Btu gain to an actual Btu loss, meaning the energy it takes to make and transport ethanol exceeds the energy it provides. Recent technological improvements, however, have greatly improved the net energy balance, including tailored corn hybrids that yield increased ethanol amounts per bushel, as well as more energy-efficient production processes at the distillery.

The next step is the development of cellulosic ethanol. The difference between cellulosic ethanol and conventional ethanol lies in how they are produced. Cellulosic ethanol can be produced from a wide variety of biomass feed stocks, including plant wastes and switch-grass. The benefits of cellulosic ethanol are threefold: in addition to vastly broadening the source of supply for production and thus decreasing the price and supply constraints on corn, cellulosic ethanol also provides more energy and is "greener" to produce. In its current stage, cellulosic ethanol is still too costly to produce on a commercial basis, but the hope is that technological improvements will make it an economically viable alternative fuel source. More-specific enzymes, as well as significant critical mass levels of cellulosic feedstocks, are key to driving costs down to be competitive with starch-based (corn) ethanol.

With the Energy Act of 2005, the momentum is clearly on the side of ethanol producers, as America seeks out an alternative fuel source. In August 2006, the U.S. Department of Energy’s secretary, Samuel Bodman, announced that the department plans to invest $250 million in two new bio-energy research centers, in order to speed up scientific research into developing cellulosic ethanol and other fuels.

Biodiesel production in the United States is primarily derived from soybean oil, but can be made from most any vegetable oil; recycled oil from the food industry also contributes to the supply of feedstocks. The biodiesel industry is much less mature than the ethanol industry, and faces at least a few large hurdles before it becomes as mainstream. Cost is one of the biggest. Biodiesel uses a much more expensive feedstock (vegetable oil) than does ethanol, and this is not expected to change soon. Also, the pipeline of technological improvements that can help drive the cost lower is not as developed as it is for ethanol. Further large investments will be needed to meet these challenges.

Other initiatives, such as automakers’ plan to increase production of flex-fuel vehicles, should also help spur ethanol production in the United States over the next few years. But there is a limit to the potential expansion of corn-based ethanol. Hopes are resting on the conversion into ethanol of other crops such as switch-grass or crop residue. Something along these lines will need to occur if biofuels are to displace a significant volume of fossil fuels over the longer term. The development of second-generation biofuels is regarded as the key to significantly lowering production costs for biofuels, and as a possible way of expanding supply without compromising the use of agricultural crops for food production. Increasing investment in new technologies could help accelerate the development of cellulosic ethanol on a large commercial scale.