Biodiesel and Ethanol

Report: Cost of Corn Hindering Ethanol Blending Plans

May 10, 2011

WASHINGTON – A new report from the Energy Policy Research Foundation concludes that one of the major obstacles to rapid increases of corn ethanol into the U.S. gasoline pool is the rising cost of ethanol's principal feedstock -- corn.

Corn prices have more than doubled over the past 10 months, an increase considerably greater than the rise in crude prices over the same period. Growing mandates for blending ethanol into the gasoline pool are likely to further increase prices at the pump, researchers conclude.

The report focuses on the Renewable Fuels Standard, a government program that provide subsidies, tax incentives, and regulatory mandates to promote the integration of corn ethanol and other renewable fuels into the national gasoline pool.

The report asserts that U.S. policy requiring growing volumes of ethanol blended into the gasoline pool is now running into two distinct hurdles affecting cost. The first is the rapidly rising cost of corn. Disappointing U.S. corn yields, loss of wheat crops worldwide and increasing domestic and international demand for corn has pushed prices from $3.50/bushel to over $7.50/bushel since the summer of 2010. This has driven up ethanol prices to levels well above the cost of gasoline when adjusted on a GGE (gallon of gasoline equivalent) energy basis, according to researchers.

Expanding access for ethanol in the gasoline pool will not solve the cost problem because it cannot provide a cost-competitive alternative to E10, the type of gasoline used by most U.S. motorists, the study concludes.

The Congressional debate over the deficit has highlighted concerns over the cost of ethanol subsidies, now estimated at nearly $6 billion per year to encourage its blending into the gasoline pool. Ethanol also receives other government incentives such as loan and investment guarantees.

The report can be downloaded for free by clicking here.

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