3.2.1 Industrial Significance of Grain Ethanol

Ethanol production and utilization as automotive fuel received a major boost with the enforcement of the Clean Air Act Amendments (CAAA) of 1990. Blending gasoline with ethanol has become a popular method for gasoline producers to meet the new oxygenate requirements mandated by the CAAA. Provisions of the CAAA established the Oxygenated Fuels Program (OFP) and the Reformulated Gasoline (RFG) Program in an attempt to control carbon monoxide (CO) emissions and ground-level ozone problems. Both programs require certain oxygen levels in gasoline, viz., 2.7% by weight for oxygenated fuel and 2.0% by weight for reformulated gasoline. Public poli­cies aimed at encouraging ethanol development/production were largely motivated by the nation’s desire to improve air quality as well as to enhance future energy supply security. In addition, agricultural policymakers keenly see the expansion of the ethanol industry as a means of stabilizing farm income and reducing farm subsidies. Increasing ethanol production induces a higher demand for corn crops and raises the average corn price. Higher corn prices and stronger demand for corn reduce farm commodity program payments and the participation rate in the Acreage Reduction Program. From technical and scientific viewpoints as well as energy and environmen­tal viewpoints, the use of ethanol as a motor fuel or blend fuel makes sense, inasmuch as ethanol can be produced in a renewable manner, that is, as a nondepletable energy source.

The rapidly growing corn ethanol industry in the first decade of the twenty-first century has increased the demand for corn very highly, which resulted in a significant price increase for corn. Although the market’s corn prices are determined largely by the supply-and-demand relation­ship, several important observations about the market responses involving corn prices can be made, from both technoeconomic and socioeconomic viewpoints.

1. The tight supply of corn pushed the corn price on the market to esca­late faster than other crops, thus hampering the affordability of corn for food purposes and creating a fuel versus food dilemma.

2. The corn price’s escalation on the market has affected other food prices to varying extents. When the corn price went up, the poul­try price also went up, due to the increase in the price of poultry feed which was also corn-based. Prices of other grain products were also affected, because higher corn prices have motivated farmers to increase corn acreage at the expense of other food crops.

3. When the crude petroleum price on the market went up, so did the corn ethanol price, although this trend is not unique for corn etha­nol only. Furthermore, higher corn demand by the ethanol industry pushed the corn price higher, which in turn made ethanol produc­tion costlier due to higher feedstock prices [4].

4. Due to the large global market share of the U. S. corn trade, world­wide corn prices were largely affected by the U. S. domestic corn prices.