1. The Ethanol Boom Colin Carter University of California, Davis Oct 11, 2007

2. Outline of Talk Background on U.S. Industry & Policy Other major world players Ethanol Economics & Impact on Corn Market Where is the ethanol boom headed?

3. “.. ethanol contributes to the American economy, creating jobs, increasing market opportunities for farmers, generating income & tax revenues” Renewable Fuels Association "If ethanol were an economically intelligent investment, you would not need to subsidize it from stem to stern" Cato Institute “Ethanol Industry is Losing Clout” Wall St Jo 10/11/07

4. World Ethanol Production: 2006 Starch Crops 53% Sugar Crops 47% 13.5 billion gals: 2006 Projected 30 billion gals: 2015

5. U.S. Biofuel Overview U.S. is world’s largest ethanol producer & user. U.S. EPAct (2005) mandated renewable fuel standards (RFS) in gasoline (& credits for biodiesel) to reach 7.5 billion gallons by 2012. EPAct eliminated mandatory MTBE additive. RFS contained sugarcane program Additional State programs US will remain heavily reliant on oil, despite efforts to increase ethanol use

6. U.S. Ethanol Production Billion Gallons Source: Renewable Fuels Association 9.6 B. gals by 2008; 3.5 billion bu. corn

7. U.S. Corn use for Ethanol Million Bushels 10% blend would require 5.2+ billion bushels corn

9. U.S. Policy Tax credit = 51¢/gal for ethanol & $1/gal for biodiesel (50¢ for biodiesel made from recycled veg oil & animal fats). Import tariff of 54 ¢/gal, with duty-free status on up to 7% of U.S. ethanol market for imports from Caribbean Basin Initiative countries.

10. U.S. Policy U.S. aims to reduce gasoline use by 20% in 10 years; this would take entire U.S. corn crop, or 40% of world's corn supply. Goal is infeasible without significant technological advances Why not ease import restrictions?

11. Source: USDA 4.3 B bu corn; 12 B gals eth 30% of corn crop USDA Projections

12. Other Global Players Brazil’s production 4.5 B gals; expected to be 7 B gals by 2010; competitive with $30- $40 oil/barrel Energy output/input ratio about 8.3 for sugarcane; 1.3 for corn EU's target of 10% blend will require 18% of agric land (rapeseed, wheat, & sugar beets). IMF China & India expected to produce about 2 B gals ethanol by 2015

13. Global Ethanol Production: 2006 Source: RFA

14. Ethanol Yields Litres per ha Source: F.O.Licht

15. Ethanol Economics A bushel of corn produces about 2.7 gals ethanol & 17.5 lbs of dried distillers grains. Break-even corn price Price of corn = 2.7* ((price of gasoline*0.667) + tax credit) + price of DDG – cost of capital – operating cost

16. Iowa State Calculations Ethanol valued at BTU content is 2/3 that of gasoline Distillers grains valued at $77/ton Cost of running an ethanol plant = 52 ¢/gal Cost of building an ethanol plant = 24 ¢/gal Future production efficiency = 3 gals/bushel

17. Corn Breakeven Price for Ethanol Crude oil/barrel Corn/bu. Energy Value With Subsidy  

18. Where is the ethanol boom headed? Drivers: Policy, Economics,Technology & Weather Risk of supply disruption is high (weather) Lots riding on price of oil Additional acres; including conversion of pasture & grassland to crops Investment in yield boosting technology Biomass Ethanol Supply response in Brazil & elsewhere

19. Where is the ethanol boom headed? Ethanol is a political commodity Renewable Fuels Standards (RFS) ensures a market for ethanol World production of ethanol (especially in U.S. & Brazil) will continue to grow strongly, as will trade Food vs. Fuel debate will continue Ethanol Boom may be running out of gas