1. An Overview of the U.S. Ethanol Industry: Implications for Consumers Consumer Issues Conference University of Wyoming Tim Burkink, Ph.D. University of Nebraska at Kearney September 25, 2008 References Available Upon Request

2. Recent Headlines  “Ethanol Sows Enthusiasm in the Heartland” Beacon News  “Ethanol and Its Many Consequences” LA Times  “Corn Prices Soar, Pushing Up Cost of Food Globally” WSJ  “EPA Report Questions Value of Ethanol in Terms of Smog” AP  “Rural Boon or Corn-Doggle?” Rocky Mountain News

3. Ethanol  Ethanol, an alcohol-based petroleum- alternative fuel, is made by fermenting grain or other carbohydrates (sugar cane, sorghum) Ethanol and by-products  97% of U.S. ethanol is made from corn  Other cellulose feedstocks are suitable but not yet economically viable

4. World Ethanol Production, 2007 Source: Renewal Fuels Association 4% 2%

5. Ethanol Production, 1985-07 Source: Renewable Fuels Association

6. Ethanol Plants - 2008 Source: Iowa State University – CARD

7. Ethanol as Fuel  Over 90% of U.S. ethanol is used as fuel  Although ethanol and gasoline can be blended in any proportion, in the U.S. it is largely: 10% ethanol & 90% gasoline 85% ethanol & 15% gasoline (E85)  Blends with high ethanol content require modifications in the automobile (flexible fuel vehicle) Sensor to detect ethanol/gasoline ration Corrosion resistant fuel tank & lines

8. Gasoline & Ethanol Production, 1986-06

9. U.S. Gasoline Usage  141 billion gallons per year  If all U.S. corn were made into ethanol, it would produce 31 billion gallons per year  Mandating 10% ethanol in all gasoline would require that nearly half of the U.S. corn crop be processed into ethanol, given current technology

10. Subsidies for Ethanol Production  $0.51/gallon federal excise tax/tax credit Amounts to 5.1 cents/gallon for 10% blend 43 cents/gallon for E-85  Between 2001 and 2006, ethanol traded $0.41/gallon premium to gasoline  In August, ethanol was $0.35/gallon less than gasoline (Nebraska Energy Office)

11. Mandated Ethanol Use  2007 federal energy bill mandates use of 36 billion gallons of renewable fuels by 2022 20 billon gallons from non-corn based substances  Ethanol production was 6.5 billion gallons in 2007

12. Model of the Ethanol System Food: Prices & Availability Rural Economic Development Agricultural Producers Agricultural Suppliers Technology Government Policy Energy dependence Geopolitical instability Increase in price of oil Global warming Corn availability Initiators of Change Ethanol Production Rapid increase in ethanol production Increased demand for corn Rapid rise in price of corn Increased bidding for acres by all users of land Natural Environment

13. Impact on Food: Prices and Availability  Demand for ethanol contributes to higher prices for corn, other crops, beef, eggs, etc.  World-wide grain stocks at historic lows  Compounded by global economic growth  Food prices increasing around the world 75% increase between 2000 and 2007 (The World Bank)

14. Impact on the Environment  Most studies conclude GHS emissions are reduced (Argonnne National Lab. 2005)  Some conflicting conclusions (Pimental an Patzek 2005)  More corn -> more fertilizer -> more pollution  Less crop rotation  Water usage  Conversion of fragile lands from CRP to production

15. Impact on Rural Development  Rising agriculture land values 17% in Nebraska  New plant investment $59-$112 million per plant  Job creation  Tax revenues  The next boomtowns?

16. Winners and Losers  Winners Land owners Rural labor By-product users  Losers Consumers in the developing world

17. Long-Run Sustainability  Fossil fuels are not sustainable in the long-run  Corn-based ethanol has limited continued growth potential Supply constraints Competing demands  Corn-based ethanol may be an important bridge to a more sustainable and significant biofuels sector