Issue Brief: Ethanol

August 10, 2011

Issue Summary:

Ethanol is the only commercially viable biofuel alternative to gasoline available in the U.S. today.  In addition to creating thousands of jobs, cutting emissions and reducing U.S. dependence on foreign oil imports, grain ethanol is also a bridge fuel technology, which, along with second generation biofuels, has the potential of eventually replacing up to 90 percent of U.S. gasoline needs with domestically produced, clean American biofuels.

Policy Overview:

In its quest to break U.S. dependence on foreign oil, Congress implemented the Renewable Fuel Standard (RFS) in 2005, a provision of the U.S. Energy Policy Act that mandated a minimum of 7.5 billion gallons of renewable fuels to be blended into the fuel supply by 2012.  Later, the Energy Independence and Security Act of 2007 set a goal of 36 billion gallons of renewable fuel by 2022.

Today, most gasoline in the U.S. contains 10 percent grain-based ethanol, commonly known as “E10.” However, even as the RFS sets renewable fuel goals, other federal regulations such as the “blend wall” are capping the market, preventing the U.S. industry from meeting the RFS.

In March 2009, a coalition of ethanol supporters known as Growth Energy filed a petition with EPA seeking approval to blend up to 15 percent ethanol in gasoline, up from the current government-imposed cap of 10 percent.  Raising this cap – or “blend wall” as it is often referred to – from E10 to E15 would allow for greater consumer choice at the pump, accelerating the use of renewable fuel, increasing energy security, creating needed U.S. jobs, and greatly reducing expensive imports of foreign oil.  EPA has decided to allow E15 in cars 2001 and newer. This decision will apply to 239 million cars on the road today — meaning that E15 will now be allowed in all the autos manufactured in the last decade, more than 60 percent of the vehicles in the entire U.S. fleet, a group that consumes more than 70 percent of the annual motor fuels market.

The Volumetric Ethanol Excise Tax Credit (VEETC) provides oil companies with an incentive to blend ethanol with gasoline and ensure market access.  The VEETC is accompanied by a tariff designed to ensure American taxpayers are not subsidizing foreign ethanol.  Recently, an agreement was reached between key senators to reform the VEETC in order to invest in next generation ethanol, remove barriers to the marketplace by providing consumer access to alternative fuels at the pump, and reduce the federal budget deficit.

Ethanol, which is produced from corn, sorghum, sugar cane and various feedstocks is seen as a bridge to the development of next generation biofuels, including ethanol from biomass.  In a well-to-wheel lifecycle analysis, cellulosic ethanol, for instance, reduces harmful emissions by at least 87 percent compared to conventional gasoline. With more than a billion tons of biomass available in the U.S. every year, and in every state, cellulosic ethanol is a “50-state” fuel solution. It can be produced from a variety of feedstocks, such as citrus waste in South Florida, wood waste in New England, or Midwestern corn stover.  However, it’s critical to keep corn ethanol production strong and economically viable as cellulosic ethanol is ramped up to ensure a smooth transition to further advances in biofuels.

Policy Strengths:

Ethanol creates jobs: The Department of Energy (DOE) estimates that for every one billion gallons of ethanol produced, 10,000 to 20,000 jobs will be added.  In addition, DOE also estimates that ethanol reduces the price of gas by as much as 20-35 cents per gallon, saving the average American household $150-$300/year.

Ethanol promotes energy security: The vast majority of the fuel we use today is imported, often from countries at odds with U.S. policies.  Switching to a domestic energy is not only vital to our national security but will also reduce ballooning trade deficits.  According to the EPA, diversifying our energy sources will not only provide economic benefits but strategic benefits as well.  A Princeton University analysis found that the taxpayer tab for maintaining a U.S. military presence around the Persian Gulf to protect oil shipping routes amounts to a hefty tab of about $225 billion a year over the last three decades. That’s a total of more than $7.3 trillion.

Ethanol is pro-environment: According to a recent study published in Yale University’s Journal of Industrial Ecology, corn ethanol was found to decrease greenhouse gas emissions by approximately 59 percent over gasoline. Cellulosic ethanol is expected to reduce greenhouse gas emissions by at least 87 percent.

Opponents of Grain Ethanol:

There have been a number of organized efforts to undercut America’s advances in achieving energy independence. Chief among those:

  • Brazil, which is our chief competitor in the ethanol arena, would very much like to gain full access to the U.S. market.  Currently, there is a tariff in place that protects the U.S. industry from ethanol imports and offsets a U.S. tax credit, called the blender’s credit, which act in tandem to promote U.S. ethanol production and shield the industry from foreign fuel products.
  • There are a number of powerful groups in Washington who would rather oversupply the grain-food market in order to send ingredient costs spiraling downward and increase food company profit margins.  To this end, in 2008, large grocery manufacturers, led by the Grocery Manufacturers of America (GMA), launched a multi-million-dollar smear campaign against the ethanol industry in an attempt to blame the rising cost of food on American ethanol producers.  The attacks were so dishonest and over the top that Iowa Senator Chuck Grassley penned a letter to GMA demanding one of two things: cheaper food on the shelves or an apology for unfairly blaming ethanol and grain producers for higher retail food prices: “Now that grain and energy prices have been sliced in half, surely we can expect that the grocery manufacturers will pass on these savings to American consumers who are suffering from economic hardship,” the Senator mused.
  • Big Oil has funneled lots of petroleum dollars into smear campaigns against this viable source of clean energy.  It’s clear that they would never favor competition in the energy markets.

What They’re Saying:

“We need to move ourselves away from dependence on oil from outside and we need to build domestic fuel capacity. We can do that right now with a fuel that’s here, it’s clean, it’s green and it’s all-American. And that’s ethanol…“In 2009, the ethanol industry contributed $53.3 billion to the nation’s gross domestic product, created and supported more than 400,000 American jobs, and reduced oil imports by 364 million barrels. And studies show that ethanol is 59 percent cleaner than gasoline.”

— General Wesley K. Clark

“In addition to putting us squarely on our conservation focus, ethanol helps create American jobs and strengthens our energy independence.”

— Mike Lynch, managing director, NASCAR Green Innovation

“Oil to gas is a 19th century fuel. [Ethanol] is a 21st century fuel.”

— Sen. Al Franken (D-MN)

Ethanol helped keep $34 billion of our money at home last year instead of going to other countries for foreign oil. Because of ethanol, studies conclude a gallon of gas was about 89 cents cheaper, saving families an average of $800 annually.”

—   Sen. Mike Johanns (R-NE)

Big oil companies have enjoyed tax breaks that have produced record profits and American taxpayers have shouldered these costs for too long.  The ethanol industry came to the table and offered up over a billion dollars in savings to reduce the deficit and supported a compromise that is a model for reducing government subsidies going forward.  Now it is time for the oil industry to do the same.”

—   Sen. Amy Klobuchar (D-MN)

I have been a big supporter of ethanol. … I think agriculture, not just ethanol, but biodiesel [and] advanced biofuels, are an important part of our country’s solution to having American-made energy.”

—Sen. Debbie Stabenow (D-MI)

Our country is in serious danger because of skyrocketing energy costs. This growing crisis demands urgent  action. We must be committed to coming together in a bipartisan way to lessen our dependence on foreign oil, while aggressively pursuing alternative sources of energy such as biofuels.”

— Sen. Kent Conrad (D-ND)

Useful Links:

Growth Energy

Bushmills Ethanol

Farm Policy Facts