TERMS. ETHANOL (ethyl alcohol) is produced by distillation of fermented simple sugars in grains and other plant materials, called biomass. In U.S. about 90% of ethanol produced from corn. Used as gasoline extender, octane enhancer and oxygenate. GASOHOL Gasoline extender made of 90% gasoline a
1. OPEC vs.ETHANOL Ralph J. Brown
2. TERMS ETHANOL (ethyl alcohol) is produced by distillation of fermented simple sugars in grains and other plant materials, called biomass. In U.S. about 90% of ethanol produced from corn. Used as gasoline extender, octane enhancer and oxygenate.
GASOHOL – Gasoline extender made of 90% gasoline and 10% ethanol.
Ethanol has higher octane content.
Gasohol 89 vs 87 unleaded gasoline
Ethanol has lower energy content
Gasohol 3% lower mileage
3. SUBSIDIES TO ETHANOL FUEL TAX EXEMPTION
GASOHOL 10% ETHANOL 90% GASOLINE
FEDERAL FUEL TAX EXEMPTION
5.2 cents per gallon of GASOHOL
52 cents per gallon of ETHANOL
SOUTH DAKOTA FUEL TAX EXEMPTION
2 cents per gallon of GASOHOL
20 cents per gallon of ETHANOL
PRODUCER SUBSIDY (SOUTH DAKOTA)
20 cents per gallon of Ethanol (NOT FULLY FUNDED)
$7 million per year starting 2007.
4. Price Comparison Ethanol Price = $1.85/gallon 4/22/04 Yankton
Rack Price $1.26 $1.32
SD Tax $0.22 $0.20
Tank Fee $0.02 $0.02
Federal Tax $0.184 $0.132
Wholesale P $1.684 $1.672
Difference (U-G) $0.012
5. Is Ethanol More Costly? Ethanol Price = $1.85
Ethanol Price w/Full Tax = $2.274
Unleaded Gasoline Price = $1.26
Unleaded Gasoline Price w/Full Tax = $1.684
Ethanol Made Cheaper
by Taxpayer Subsidies
6. Historical Ethanol vs Unleaded Gas Prices-FOB Omaha 1982-2003
7. COST TO TAXPAYER Ethanol Subsidy 2003 2004 2005
Fuel Tax Exemption
SD $0.20 gallon $4.7 $4.6
US $0.52 gallon $12.8 $12.3
Producer Subsidy $3.5 $4.5 $5.5
Total $21.1 $21.5
8. COST OVER LIFE OF PROGRAM (1979-2004) Fuel Tax Exemption (South Dakota only)
SD $55 million $68 million (2000$s)
US $141 million $171 million (2000$s)
Fuel Tax Exemption (US) (estimated)
$12.8 bil $16.2 bil (2000$s)
9. Why Ethanol Subsidies? Higher Corn Prices
Increased Security From OPEC power
Improve Balance of Trade
More jobs in Rural America
10. HIGHER CORN PRICES More ethanol, more corn demand, higher corn prices
Also higher soybean prices (acreage & substitutes)
Higher prices for corn & soybean farmers means higher cost for corn & soybean buyers.
a. livestock feeders
b. other consumers
Net Benefits?? Probably a Wash
11. ENERGY SECURITY In 2003
2.81 bil gallons ethanol
125 bil gallons gasoline
Ethanol 2.1% of gasoline
5.0 bil gallons ethanol
147 bil gallons gasoline
Ethanol 3.4% of gasoline
12. ENERGY SECURITY Price shocks caused by OPEC cutbacks.
Would we be less susceptible if we imported less?
Domestic price set by world price not by import share.
13. Crude Oil Prices Independent of Import Share 4/16/04
OPEC $31.33 Import Share
Non-OPEC $31.12 Does Not
Total World $31.21 Determine Price
China $32.52 Importers
Norway $33.58 Exporters
Canada $30.90 Energy Independence
Mexico $30.46 Does Not Mean Price
Russia $30.06 Independence
Prices vary by grade and location
14. ENERGY SECURITY Oil embargo reduces world supply of oil for all countries not just US.
Even if we eliminated all imports, we are still subject to same oil price shocks.
It would require ethanol production of 18 times. More than triple corn prodn from 10 bil bushels to 34 bil bushels. Corn would 83% of harvested acres.
Ethanol buys no increase in energy security.
15. IMPROVES BALANCE OF TRADE Using more ethanol and importing less oil does not alter the balance of trade.
Ethanol? Oil Imports? Supply $?
Value of $? Exports? Trade Balance ?
Ethanol use does not change balance of trade.
16. JOBS IN RURAL AMERICA Ethanol plants provide jobs in rural America.
SDDOL 9/2003 300 jobs in ethanol plants
Less motor fuel tax revenue reduces jobs in highway construction and maintenance.
14 Road construction jobs per $1 million revenue
2003 Lost revenue $21.1 million
Probably no net jobs created by ethanol subsidies.
17. ENVIRONMENTAL IMPACT In certain Metro areas oxygenated gasoline (MTBE or ETBE) required during winter.
VOCs (volatile organic compounds)
In summer ETBE can lead to NOx. Ground level ozone.
Probably slight postive environmental impact.
18. BEST STRATEGY TO REDUCE OIL DEPENDENCY & IMPROVE ENVIRONMENT Carbon taxes & broad-based oil taxes
Other efficiency & growth-inducing taxes cuts can be made to offset revenue.
Eliminate ethanol subsidies - not needed with higher gas taxes.
Don’t need CAFÉ standards as they provide wrong incentives – drive more, more congestion, more accidents, more pollution.
19. The End
20. 1970s ENERGY INDEPENDENCE
1980s HELP FARMERS
1990s IMPROVE THE ENVIRONMENT
2000s ENERGY INDEPENDENCE ARGUMENTS FOR ETHANOL
21. KEY LEGISLATION - ETHANOL ENERGY TAX ACT OF 1978 Defined gasohol
Enacted fuel tax exemption
5.4 cents and then gradual reduction to 5.1 cents by 2008
CLEAN AIR ACT AMENDMENTS (1990)
New role as clean-air additive
Certain metropolitan areas (nonattainment areas)
CO in winter and ground-level ozone
Oxygenated fuels (reformulated gasoline)
MTBE or ETBE
ENERGY POLICY ACT OF 2003
Provisions to mandate ethanol increasing use from 2.7 billion gallons to 5.0 billion gallons by 2012.