Background Information on Biofuels: Ethanol Production in the United States

bridges vol. 17, April 2008 / Feature Articles

by Sylvia Nedbal

Office of Science & Technology, Juliet M. Beverly, 2008
Ford Hydrogen Fusion 999, Washington DC Auto Show, 2008: The show's focus was on alternatives to gasoline

Petroleum-based fuels have been the primary source of energy for transportation needs since the early 20th century. The United States of America alone is currently using 9.29 million barrels per day  as motor gasoline. With a crude oil price reaching the all-time high of $120  (WTI crude oil price: for details click on view history, or click here ) per barrel this month, and the majority of oil reserves located outside of developed countries, often concentrated in politically uncertain areas such as the Middle East, the pressure for changing (transportation) energy habits grows as fast as the oil price rises.

These concerns are particularly acute in the United States. In 2006, the transportation sector accounted for 28.5 percent of the total energy use. High energy prices and increasing dependency on oil imports forced President Bush, known for his strong ties to the oil lobby, to rethink America's energy policy. The administration's silver bullet for the problem seems to be "biofuel," which is said to have the potential to address not only energy security and oil independency, but also to reduce greenhouse gas emissions from cars and trucks.

Over the past months, biofuels have received a lot of attention. They are in the media spotlight, hailed by some as "the" alternative fuel of the 21st century, condemned by others for not being "bio" at all, while blaming politicians for the creation of a biofuel bubble.

What are biofuels?

Biofuels, also called agrifuels, can be defined as solid, liquid, or gas fuel derived from plant or animal materials (biomass). In the current discussion, biofuels are often grouped into so-called 1st, 2nd, and 3rd generation biofuels (UN report, p.6, .


{access view=guest}Access to the full article is free, but requires you to register. Registration is simple and quick – all we need is your name and a valid e-mail address. We appreciate your interest in bridges.{/access} {access view=!guest} → 1st generation biofuels contain biodiesel, bioalcohols, biogas, and syngas. They are usually made from sugar, starch, vegetable oil, or animal fat. The alcohol fuel ethanol, a 1st generation biofuel, is the most common in the world.

Ethanol is produced from a variety of feedstock; grain ethanol is made from wheat, barley, sorghum or corn, whereas sugar ethanol is made from sugar cane. Methods used for production are enzyme digestion (to release sugars from stored starches), fermentation of the sugars, distillation (to remove the water), and drying. Ethanol is mixed with gasoline. The most common blend is E10, which means a mixture of 10 percent ethanol and 90 percent gasoline. The fuel E85 is a blend of 85 percent ethanol and 15 percent gasoline.

Credit: US Department of Energy, EERE
Bus running on soybean biodiesel

Biodiesel is derived from vegetable oil and animal fats. Although a wide variety of crops can be used, soybeans, rapeseed, sunflower, and palm oil are the common feedstocks for the production of biodiesel. The "B" factor states the amount of biodiesel mixed with conventional diesel in the fuel mix: fuel containing 20 percent biodiesel is labeled B20, while pure biodiesel is referred to as B100.

2nd generation biofuels
are biofuels extracted from non-food crops like waste biomass, the stalks of wheat, corn, or wood. Those biofuels are not yet commercial on a large scale due to the fact that conversion technologies are in the development stage. Cellulosic ethanol, which is one of the 2nd generation biofuels, can be produced from corn, stover, switchgrass, and woodchip. Calling it cellulosic ethanol is initially misleading however, because cellulosic ethanol does not differ from corn- or wheat-made ethanol of the 1st generation. In essence, the term is used to describe the production process rather than specifying a type of ethanol.

3rd generation biofuels refer to an alternative fuel made from algae (, also called algae fuel. It needs only water, sunlight, and carbon dioxide to grow and can quadruple in a day under good conditions. But due to a lack of efficient technology its commercial production is years away from realization.

Today, the most popular biofuel worldwide is ethanol. According to the Renewable Fuel Association, the American trade association

In Millions of Gallons
U.S.A. 6498.6
Brazil 5019.2
European Union 570.3
China 486.0 
Canada 211.3 
Thailand 79.2 
Colombia 74.9 
India 52.8 
Central America 39.6 
Australia 26.4 
Turkey 15.8 
Pakistan 9.2
Peru 7.9 
Argentina 5.2 
Paraguay 4.7
Total 13,101.7
Source: F.O. Licht 

for the ethanol industry, the United States and Brazil together produce approximately 90 percent of the world's fuel ethanol .

Although Europe is on the 3rd rank of ethanol producers, most of the biofuel sold in Europe is biodiesel. Traditionally, Europe has more cars running on diesel, therefore biodiesel has a higher market share than ethanol. Biodiesel has been produced on an industrial scale in the European Union since 1992, largely in response to positive signals from the EU institutions. Today, there are approximately 120 plants in the EU producing up to 6,100,000 tonnes (long tons, tn.l.; 1 tonne = 1.1 short tons) of biodiesel annually. These plants are mainly located in Germany, Italy, Austria, France, and Sweden

In 2007, America was again the world's largest ethanol producer with 6.5 billion gallons, which is triple its 2002 production. (Click here to see historic U.S. fuel ethanol production; page 5). Ethanol is currently produced in 139 US refineries, most of them concentrated in the Midwest with Iowa as its center point. While ethanol is expanding very fast, E85 in particular is still not widely available for consumers. As published by the US Department of Energy, 1,328 ethanol fuel stations exist in America - compared to 167,000 gasoline retail outlets .

A closer look at the locations of the ethanol fuel stations reveals that most of the E85 ethanol fuel stations are concentrated in the Midwest (where the corn and the refineries are) in states like Minnesota, Illinois, Indiana, Iowa, Wisconsin, and South Dakota, whereas Connecticut, Rhode Island, Maine, and Massachusetts do not have even one single E85 pump. California, one of the biggest states, has only two public ethanol fuel stations available (Click here to see, Trends in alternative fueling stations by state and fuel type from 1992-2007).

Ethanol fuel - a long way to go ...

In general, ethanol is still unavailable for the majority of motorists. To transport ethanol from the production location (Midwest) to the energy-hungry, highly populated East and West Coast areas where it's needed, uses an expensive and inefficient distribution system. Ethanol cannot be transported through the same pipelines currently used by gasoline, as it can easily absorb water and erode the pipes. Consequently ethanol cannot be blended into gasoline at refineries, but needs to be transported in trucks - fueled with oil - to a facility where it is mixed with gasoline and then distributed to ethanol fuel stations.

Neither this expensive system of transportation nor its retail price helps ethanol to compete with gasoline. Let's look at the following example: On March 17, 2008, the national average retail price for one gallon of gasoline was $3.28, compared to $2.79 for a gallon of E85 (biofuels data At first glance, the lower price of a gallon of E85 leads people to assume that ethanol is cheaper than regular gasoline. However, consumers are fooled by this price, as ethanol contains less energy than gasoline - reducing fuel efficiency by one-third (4th paragraph: ). In fact, E85 price in terms of cost per gasoline equivalent shows that ethanol is the more expensive fuel: To reach the same energy output, E85 costs $4.18 compared to $3.28 per gallon of gasoline. ($2.79 = 2/3 of energy of 1 gallon gasoline, 2.79 : 66.67*100%= 4.18, to obtain the same amount of fuel energy, I need to buy ethanol for $4.18, whereas gasoline costs $3.28)

Nevertheless, the US ethanol industry is skyrocketing. At the Washington International Renewable Energy Conference (WIREC) in March 2008 (, the supporters of biofuels easily identified ethanol's market drivers, namely 1) decreasing oil dependency and 2) reducing global warming. What they forgot to mention: ethanol also means big money for a lot of stakeholders involved in the energy business.

Ethanol production comes convenient for farmers in the Corn Belt states. The Volumetric Ethanol Excise Tax Credit (VEETC, HR4520, 108th Congress TITLE III - TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS Subtitle A-Volumetric Ethanol Excise Tax Credit), a government subsidy of 51 cents per gallon helped to spur ethanol production. As the current ethanol production capacity contains 8.3 billion gallons (, total annual public expenditure will reach more than $4 billion, without even adding the subsidies given to producers by their respective home states. In addition, 54 cents per gallon duty becomes due on imported ethanol when entering the United States.

Who's afraid of ethanol?
Neither the car nor the oil industry, that much is sure. In December 2007, President Bush signed the Energy Independence & Security Act , expanding the national Renewable Fuel Standard (RFS) to at least 36 billion gallons of biofuels by 2022. Of this total, 15 billion gallons are mandated to come from corn and 21 from other more advanced but largely unproven sources. The reality is that with current technology almost all of this biofuel would have to come from corn, as no other feasible and commercial useable alternative exists so far.
Ethanol is convenient for oil companies: Significant fossil fuel is needed to produce ethanol. Fertilizers, herbicides, and pesticides contain oil, and fossil-fueled tractors and trucks plough the field. Not only the production of ethanol but also the transportation process (as mentioned earlier) requires the use of oil.

Ethanol is convenient enough for automakers as well: Ethanol can be mixed with gasoline and can be burned in traditional combustion engines. Most cars can run on E10 (a blend containing 10 percent ethanol and 90 percent gasoline) without any modifications. The fuel E85 can be used in so-called flex-fuel vehicles. FFVs are designed to operate on any mixture of gasoline and ethanol with ethanol concentrations of up to a maximum of 85 percent. The Alternative Motor Fuels Act of 1988 provides Corporate Average Fuel Economy (CAFÉ) incentives to the auto industry for producing vehicles capable of operating on biofuels either exclusively or in conjunction with gasoline or diesel fuel. The additional cost for automakers to convert a traditional car or truck into a FFV is relatively low. As the fuel economy (miles per gallon, or mpg) of flex-fuel vehicles is rated higher than for conventional gasoline, car producers are willing to produce FFVs to get the production incentive. Moreover they can undercut the current corporate average fuel economy standard while saving a lot of money in potential fees that would otherwise accrue for failing to meet the CAFÉ standards. The CAFÉ Act requires every automotive manufacturer selling more than 50,000 vehicles in the US to meet a specific fuel economy average for its entire fleet. The current CAFÉ of 27.5 mpg for cars and 21.6 mpg for light trucks is going to rise to 35 mpg by 2020 due to the H.R.6: Energy Independence and Security Act of 2007.   The use of ethanol and its E85 blend is therefore an easy way for automakers to meet the mandatory fuel economy requirements without investing billions of dollars in new technologies.

Alternatives to agrifuels in transportation

Ten years ago, Toyota started with its revolutionary petrol-electric hybrid car, Prius. Hybrids use an electric motor and a large battery to capture and store energy that is normally lost in inefficient gasoline engines. Hybrids have become the most popular green vehicle with an alternative engine on the road today.

Plug-in hybrids are a further development of hybrids, and are currently seen as very attractive. Plug-in hybrid-electric vehicles (PHEVs) are more efficient than regular hybrids due to a bigger battery pack and a plug, which make those vehicles run on electricity from the grid or from solar power on roof tops. The battery pack is used for the first 20 to 40 miles. After the batteries are spent, a smaller gasoline engine takes over. Commercialization of PHEVs depends on the batteries used, which need to be improved for safety and durability. Especially for city folks, plug-in hybrids provide a serious alternative to traditional (bio)fuel powered vehicles.

The difference between PHEVS and pure electric vehicles (EV) is the complete lack of a gas tank, resulting in zero emissions. Electric cars reduce dependence on petroleum and decrease or eliminate greenhouse gas emissions, depending on how their electricity is produced. EVs have already been sold in the United States. The major US automobile manufacturers have been accused of deliberately sabotaging their electric vehicle production efforts ( .

Hydrogen fuel cells, mentioned by President Bush at the WIREC 2008 as important in the long run, are still closer to science fiction than to reality. With current technology, hydrogen fuel cells won't be market-ready for the next decades. So far, there are no affordable means to produce hydrogen, because generating the amount of electricity needed to get hydrogen from water produces a huge amount of pollution.

Wolfgang Pribitzer, 2005
Biodiesel refinery near Zistersdorf, Austria

International policy outlook
To ensure promoting "the right" biofuels and alternative vehicles for future transportation needs, policy makers should strive to set up a framework that creates a true market in which renewable technologies can thrive and prosper. Such a policy framework will provide the business community with the certainty and stability it needs to make its investment decisions. At the same time it will give the industry enough flexibility to adjust wrong developments, encourage new technologies, and strengthen commitments for a sustainable future.

The International Association of Public Transport (UITP) and the United Nations Environment Program (UNEP) launched a large awareness campaign to encourage more individuals to use public transportation systems in order to emphasize the role motorists can play in reducing people's negative impact on the environment and combating climate change. Also, the European Union is promoting less car-dependent lifestyles, a key aim of the EU Commission, explained in the "Green Paper on Urban Mobility."

This certainly calls for quite a change of peoples' mindsets and habits, especially in the US. The public transportation system in both urban and rural areas in the US has to be greatly improved, but even more challenging might be the change of one's own habits: cars are an important part of American life, often seen as status symbols, to the extent that people who take the bus can be seen as (economic) losers. A true and sustainable change in transportation requires a commitment from policy makers, industry, and last but not least the consumer side - not a simple task, but not impossible either.


The author, Sylvia Nedbal, studies business administration at the Vienna University of Economics and Business Administration.