The New Global Oil Market: Understanding Energy Issues in the World Economy

By Siamack Shojai | Go to book overview

Chapter 18
Corn-Derived Ethanol as a Liquid Fuel

Wallace E. Tyner

There has been considerable interest in the agricultural sector in using corn to make ethanol fuel. Ethanol is seen as a means of increasing the demand and, consequently, price of corn. The corn growers and alcohol producers have been successful in obtaining substantial subsidies from federal and state governments for alcohol production. Today ethanol subsidies are about the same as the wholesale spot gasoline price per gallon (meaning a 100 percent subsidy).

Even with these high subsidies, interest in ethanol fuels had waned a bit until the passage of the 1990 Clean Air Act. That act mandates a substantial change in the motor vehicle fuels used in the United States over the next decade to reduce the amount of auto-based air pollution. In particular, it mandates that gasoline, in general, have a higher oxygen content. Ethanol has a high oxygen content, and its potential use as a gasoline oxygenate has stimulated a renewed interest in ethanol production and use. Some analysts and advocates have predicted rapid rises in the price of ethanol due to its value as an oxygenate and as an octane enhancer.

Various organizations have produced forecasts indicating ethanol production could double, quadruple, or expand even more by the end of the decade. Current ( 1993) ethanol production capacity is about 1 billion gallons per year. This 1 billion gallons of ethanol uses about 390 million bushels of corn. Some ethanol producers have indicated they intend to expand production. Some oil companies have indicated they intend to use ethanol; others plan to use different oxygenates.

This chapter reviews the key issues or drivers that will in the future determine the extent to which ethanol is used as a petroleum fuel or oxygenate. The drivers that will determine the demand for ethanol as an oxygenate are as follows: federal and state subsidies on ethanol production and use; interpretation and rule

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