A key change in the pricing structure of industrial alcohol in the United States occurred in the decade after 1975: the price of petrochemical ethylene showed an increase of nearly tenfold, and this steep rise in feedstock costs pushed the price of synthetic industrial alcohol from 150/l (570/gallon) to 530/l ($2.01/gallon).16 Corn prices fell significantly (from $129/ton to $87/ton) between 1984 and early 1988; because the coproduct costs were increasing as a percentage of the corn feedstock cost at that time, the “net corn cost” for ethanol production (the net cost as delivered to the ethanol production plant minus the revenue obtained by selling the coprod­ucts) and the net corn cost per unit volume of ethanol were both halved (figure 5.3).

By 1988, the costs involved in corn-derived ethanol production were entirely competitive with those of synthetic industrial alcohol (table 5.5). The major concern was that unexpectedly high investment costs could place a great strain on the eco­nomics of the process if the selling price for ethanol dipped: in general, such costs could be minimized by adding on anhydrous ethanol capacity to an existing bever­age alcohol plant or adding an ethanol production process to a starch or corn syrup plant, but expensive grassroots projects could face financial problems. Across the whole range of production facilities (small and large, new or with added capacity,

and with varying investment burdens), a manufacturing price for ethanol could be as low as 180/l (680/gallon) or as high as 420/l ($1.59/gallon).16 By 1988, the average fuel ethanol selling price had fallen below 3O0/l ($1.14/gallon), an economic move­ment that would have placed severe pressures on farm-scale production business plans (see section 5.2.1.4). As an incentive to fuel ethanol production and continuing the developments noted above (section 5.2.1.2), federal excise tax concession of 160/l (150/gallon), discounting by individual states by as much as 210/l (610/gallon), and direct payments by states to producers amounting to as much as 110/l (420/gallon), in conjunction with loan guarantees and urban development grants, encouraged the development of production by grassroots initiatives.16 Industrial-size facilities, built without special incentives, were already reaching capacities higher than 1 billion gallons/year as large corporations began to realize the earning potential of fuel etha­nol in what might become a consumer-led and consumer-oriented market.