The production and use of ethanol, a renewable fuel made from agricultural
products, increases economic activity, creates jobs, helps to stabilize commodity
prices, and boosts farm income. It can help us become independent from
imported oil and improve our balance of trade.
THE NATIONAL SCENE
The ethanol industry contributes positively to the U.S. economy, particularly
rural communities where ethanol production is based. The economy is increased
by providing direct and indirect jobs and increasing corn prices and rural income.
The U.S. Department of Agriculture has concluded that a 100 million gallon
ethanol facility could create 2,250 local jobs for a single community.
A report by the Renewable Fuel Association about the economic outlook of
the U.S. ethanol industry over a seven year period, 1996 to 2002, concluded:
· Ethanol will add $51 billion (1996 dollars) to the entire U.S. economy. The
goods and services purchased by ethanol producers represent increased
demand for other industries. These include purchases of grain, natural gas,
electricity, water, telephone, and accounting and legal services.
· Farm income for crop producers will be $2.2 billion, or nearly 3% higher,
each year because of ethanol production. Increased demand for grain
grown by American farmers provides market support for prices and incomes.
· Ethanol supports 55,000 jobs. Ethanol production directly accounts for over
5,800 jobs in the food/fuel processing industry in 17 states. Additionally,
the spending by ethanol manufacturers on goods and services indirectly
supports an average of 48,900 jobs annually throughout all other industries
in the entire economy. Increases in ethanol production offer enormous
potential for overall economic growth and additional employment in rural
communities where ethanol production is often based.
· Ethanol production will increase total household income by $12.5 billion over
the next seven years. The ethanol industry directly pays $277 million in
wages to employees. These employees and their families spend this
income, thereby creating demand. The indirect impact of ethanol production
adds another $1.8 billion to household income annually.
· Ethanol generates $555 million of net tax revenue for the Federal treasury
annually through personal and business income tax collections. Additional
revenues, provided by taxes on household and farm income that are
generated and supported by the ethanol industry, offset the cost of the
partial ethanol excise tax exemption for ethanol-blended gasoline.
· Ethanol contributes over $2 billion annually to the U.S. trade balance. The
U.S. currently imports 54% of its petroleum demand. Use of ethanol reduces
the trade deficit by about $1.3 billion annually by replacing imported MTBE.
Another $800 million is gained annually due to export of the by-products
of ethanol, corn gluten feed and gluten meal.
According to the American Coalition for Ethanol, more than $3 billion has
been invested in 60 ethanol production facilities operating in 20 different
states across the country.
IOWA
Ethanol, a home grown fuel, is made from corn which is grown in abundance in
Iowa. Iowa produces about 440 million gallons of ethanol annually, making it
the second largest ethanol producer in the nation. This industry uses 175 million
bushels of corn each year, or about 8% of Iowa's corn crop. Farmers benefit
because ethanol production provides consistent demand for surplus corn and
improves corn prices. Iowa's general economy benefits because the ethanol
industry creates 2,550 jobs and nearly 10,700 indirect jobs in related industry
and services.
AGRICULTURE
Ethanol is made from farm-produced raw products which are usually in surplus.
Corn is preferred in ethanol production and supplies most of the raw material
needed. Ethanol production creates domestic markets for corn and adds four to
six cents a bushel for each 100 million bushels used. Better prices mean less
reliance on government subsidy programs and more income and independence
for farmers. Ethanol production consumed 535 million bushels of corn in 1994
(5.3% of the record 10 billion bushel corn crop).
In a report by the Midwestern Governors' Conference, an association of 21 Midwestern
governors joined to foster regional development, the ethanol industry has become
an important value-added market for agriculture. Ethanol production is the
third largest user of corn, behind feed and export uses. Ethanol production uses
about 7 percent of the nation's corn crop. The conclusions of the report verify
that the federal ethanol program is cost effective. The partial excise tax
exemption for ethanol blends creates jobs, stimulates economic activity, and
reduces our trade imbalance. This February 1997 report concludes that the ethanol
industry:
· increases net farm income more than $4.5 billion;
· boosts total employment by 192,000 jobs;
· improves the balance of trade by over $2 billion;
· adds over $450 million to state tax receipts, and
· results in net federal budget savings of over $3.5 billion.
The report also states that the impact of the demand for ethanol can have the
following effects. The projected 1997 demand for ethanol was estimated at
1.52 billion gallons, or 0.6 billion bushels. Corn production would increase
by 0.42 billion bushels and raise the corn price by 45 cents per bushel. The
increase in production and price would raise gross farm income by $5.0 billion
and net farm income by $4.5 billion in 1997. The increase in farm
expenditures and employment opportunities in the ethanol industry in 1997
due to the demand for ethanol will be 192,000 jobs.
As the domestic ethanol industry continues to grow, it is witnessing a surge
in the construction of farmer owned ethanol production facilities. Farmers
are realizing the added benefits to the ethanol industry through ownership
of manufacturing plants.
Over the past 15 years, more than 12 billion gallons of high quality, high
performance ethanol fuel has been produced using about 5 billion bushels
of corn. Ethanol's importance to agriculture includes:
· Ethanol creates value-added markets for America's farmers, stimulating rural
economies by increasing corn prices and rural income.
· Each 100 million bushel increase in the demand for corn results in a corn price
increase of 4 to 6 cents per bushel.
· Ethanol accounts for 14 cents of the value of every bushel of corn marketed
by American farmers. Price response will vary according to crop prospects,
carryover levels, and global supply and demand.
· Ethanol accounts for 6.2 percent of the total corn utilization in the U.S. and
is the third largest individual use of corn, behind only feed and exports.
· Each 100 million bushels of corn used in increased ethanol production effects
the price of other commodities adding 2 cents per bushel to the wheat price
and 10 to 13 cents to the price of soybeans.
The production of ethanol does not mean less corn is available for food. Instead,
ethanol production produces many valuable high protein food and feed co-products.
An acre of corn (125 bushels) produces 313 gallons of ethanol, 1,362 pounds of
21% distillers grains, 325 pounds of 60% gluten meal, and 189 pounds of corn oil.
Distillers grain can be used for feed in most every type of animal system and are
used as a cost efficient, nutritional, digestible, and palatable protein feed for
cattle, swine, and sheep. Approximately 1.4 billion tons of distillers grain is
produced annually.
PRODUCTION & PRICE
Advances in technology in ethanol production process has substantially reduced
costs. A shift to larger production plants along with improved yeast strains and
enzymes have reduced cost by more than 50 percent. These innovations have
lowered production costs from $1.40 per gallon in 1980 to less than $1.00 in 2001.
Still newer plants and improved technologies have further reduced costs to an
approximate current average of $1.09 to produce one gallon of ethanol. This
trend is expected to continue. The cost of producing ethanol will also be affected
by corn yields, corn costs, and markets for co-products.
Consumer prices at the service station pump for E-10 ethanol blend is usually the
same price per gallon as unblended fuel. This is also true for E-85 blends. The
price at the retail gas pump reflects federal and state tax exemptions, loan
guarantees, and other government subsidies.
Offsetting the cost of these tax incentives is a reduction in farm subsidies and
the increase of tax revenues. According to the U.S. Department of Agriculture,
if ethanol use does not continue to grow, "deficiency payments for corn and
other program crops will increase by $580 million for crop year 1998 and $740
million by the year 2000"-more than the cost of the tax incentives. The economic
activity attributable to the ethanol industry will generate $3.5 billion in
additional income tax revenue over the next five years -- $1 billion more than
the cost of tax exemptions. The U.S. ethanol industry will create a net gain
to the taxpayers of almost $4 billion over the next five years.
The oil industry began receiving federal subsidies as early as 1916 to promote
development of an energy industry. As the oil industry became more profitable,
the subsidy payments continued. In 1984, the oil industry received over $8.5
billion from the federal government. During the same time period, renewable
fuel industries -- solar, wind, geothermal, hydropower, and alcohol fuels --
received only $l.7 billion.
STUDY QUESTIONS
Check: Check each phrase that correctly finishes the following statement:
The production and use of ethanol:
______ 1. Increases the U.S. economy.
______ 2. Increases Iowa's economy.
______ 3. Uses about 19% of Iowa's annual corn crop.
______ 4. Creates jobs.
______ 5. Creates a shortage of corn available for food.
______ 6. Creates more than 13,000 jobs in Iowa.
______ 7. Uses about 7% of the nation's corn crop.
______ 8. Increases farm income.
______ 9. Increases government tax receipts.
______ 10. Saves money for the federal government.
______ 11. Reduces balance of trade.
______ 12. Increases national dependence on imported oil.
______ 13. Uses about 170 million bushels of Iowa corn each year.
______ 14. Has exceeded 10 billion gallons of ethanol fuel during the
past 15 years.
______ 15. Decreases soybean prices.
Essay: Completely answer each of the following questions:
1. Half of the oil used in the U.S. comes from foreign countries. The raw
materials used to make ethanol are all grown in the U.S. How would producing
more ethanol affect the U.S. economy?
2. Large quantities of the corn that is grown are used to feed cattle. What might
happen to meat and milk prices if more corn is used to make ethanol?
PROJECTS
1. Construct a bar graph showing the amount of corn used for Iowa ethanol
production. Use the following Iowa Corn Promotion Board information.
Amounts are in million bushels.
Year|Bushels Year|Bushels Year|Bushels Year|Bushels
1979 - 4 1980 - 10 1981 - 15 1982 - 19
1983 - 23 1984 - 27 1985 - 27 1986 - 50
1987 - 70 1988 - 70 1989 - 85 1990 - 85
1991 - 95 1992 - 125 1993 - 150 1994 - 170
1995 - 170 1996 - 138 1997 - 170 1998 - 172
1999 - 175 2000 - 175
2. Interview a farmer about ethanol and its use as a fuel. Does he/she use it in
his/her own vehicles? What does the use of ethanol mean to him/her?
Prepare a report of your findings.
3. Calculate the miles that an automobile can be driven using ethanol produced from
750 acres of corn. Assume the car is using E-10 and gets 26.3 average miles per
gallon. One acre of corn produces an average of 127 bushels.
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