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Biofuel Economics: Will Ethanol Wean the U.S. from Oil Imports?

Cole Gustafson, NDSU Extension Service Biofuels Economist Cole Gustafson, NDSU Extension Service Biofuels Economist
Initially, critics of the emerging ethanol industry questioned whether there really was a net gain in fossil fuel produced.

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

Through the years, biofuel advocates have justified formation of the ethanol industry because the additional fuel produced lessens U.S. dependence on oil imports from foreign countries. At present, the U.S. imports 60 percent of its petroleum.

Initially, critics of the emerging ethanol industry questioned whether there really was a net gain in fossil fuel produced. Indeed, several early studies reported that the total fossil fuel produced (ethanol) relative to the total amount of fossil fuel consumed during the entire production process was less than 1. The accounting of energy consumed not only included energy utilized in the ethanol plant, but all of the fossil fuel required to produce corn used as the ethanol plant’s feedstock. The fossil fuel needed to produce fertilizer, pesticides and even the rubber on tractor tires was considered.

Through time, the efficiency of ethanol plants has increased. New ethanol plants now produce 3 gallons of ethanol for each bushel of corn. When the energy balance of ethanol hovered around 1 (equal amount of fossil fuel produced relative to fuel consumed), the ethanol industry argued that the U.S. reliance on imported oil was being reduced because the ethanol plants were converting one form of energy (natural gas or coal) to a liquid fuel that was in greater demand for transportation.

Research now finds that the energy balance of corn-based ethanol is 1.30. Thus, we are now getting 30 percent more fossil fuel from ethanol production relative to the amount of fuel being consumed as an input. In essence, corn-based ethanol is a step toward energy independence because of the net gain in fossil fuel produced.

To put the energy balance of new ethanol plants (1.30) into perspective, gasoline or diesel production in the U.S. have energy balance factors of 0.80 and 0.83, respectively. Diesel has a slightly more positive energy balance than gasoline because it doesn’t have to be refined as much. Both gasoline and diesel fuel require fossil fuel to pump it out of the ground, refine it and transport it for eventual consumption, hence the energy balance is less than 1.

The path to real energy independence lies with the development of cellulosic ethanol. Rather than quibble about the energy balance being less than 1, equal to 1 or greater, the early estimates of the energy balance for cellulosic ethanol is 10. Thus, cellulosic ethanol would generate 10 times the amount of fossil fuel relative to the total amount of fuel required as an input.

It is easy to see that people concerned with our reliance on foreign oil favor the development of cellulosic ethanol over the expansion of corn-based ethanol. In the 2007 Energy Independence and Security Act, tax credits for corn-based ethanol are reduced from 51 cents to 46 cents per gallon, while the tax credits for cellulosic are $1.01 per gallon.

In my next article, we will find that the carbon footprint of cellulosic ethanol is much smaller than corn-based ethanol. Thus, those people concerned about global warming and greenhouse gas emission also favor the development of cellulosic ethanol over corn-based ethanol. In essence, two strong political groups – those concerned about energy independence and global warming - are rallying around cellulosic ethanol.

Q: With blender pumps becoming more available across the northern Plains, who gets the tax credit? (Lon, Glyndon, Minn.)

A: As you know, it is the entity that blends the ethanol with gasoline that receives the federal 51- cent-per-gallon tax credit for ethanol production. Whether or not the local retail gasoline station receives the credit depends if the station actually is buying the ethanol and mixing it. In most cases, corporate headquarters is buying the ethanol from wholesalers, shipping it to the local retail station and claiming the tax credit.

NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096,
Editor:Rich Mattern, (701) 231-6136,
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