Outside primary scientific journals, data from a range of sources (including reports prepared for governments and conference proceedings) were compiled on the basis of 2003 costings as a baseline for future cost modeling.32 Ethanol produced from sugar, starch (grain), and lignocellulosic sources covered production cost estimates from less than $1/gallon to more than $4/gallon (table 5.15). Even with the lower production costs for lignocellulosic ethanol in the United States, taking into account financial outlays and risks ($260 million for a 50-million-gallon annual production plant), an ethanol price of $2.75/gallon would be more realistic.33

The International Energy Agency’s most recent assessment of sugar — and starch- derived ethanol (2005 reference basis) is that Brazil enjoys the lowest unit costs ($0.20/l, or $0.76/gallon), starch-based ethanol in the United States costs (after pro­duction subsidies) an average of around $0.30/l (or $1.14/gallon), and a European cost (including all subsidies) is $0.55/l (or $2.08/gallon).34 Brazilian production costs for fuel alcohol, close to $100/barrel in 1980, decreased rapidly in the 1980s, and then more slowly, but only a severe shortage of sugarcane or a marked rise in sugar prices would interrupt the downward trend in production costs.35,36

With due allowance of the lower fuel value of ethanol, therefore, the historical trend of fuel ethanol production costs versus refinery gate price[50] of gasoline is show­ing some degree of convergence (figure 5.5). In particular, the real production costs of both sugar — and corn-derived ethanol have fallen so that the production costs (with all tax incentives in place, where appropriate) now is probably competitive with the production cost of gasoline, as predicted for biomass ethanol in 1999.37 Critics of the corn ethanol program have, however, argued that the price of fuel ethanol is arti­ficially low because total subsidies amount to $0.79/gallon for production costs of $1.21/gallon, that is, some $3 billion are expended in subsidizing the substitution of only 1% of the total oil use in the United States.38 Although incentives for domestic
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ethanol use in Brazil were discontinued by 1999 (except as part of development poli­cies in the northeast region), a cross-subsidy was created during the 1990s to subsi­dize ethanol production through taxation on gasoline and diesel; this was operated via a tight government control of the sales prices of gasoline, diesel, and ethanol, and the monopoly represented in the country by PETROBRAS.36

Brazilian sugarcane ethanol has reached the stage of being an importable com­modity to the United States, promoting the development of shipping, port handling, and distribution network infrastructures. In Europe, grain alcohol might be cost — competitive — with the much higher tax rates prevailing in Europe, the scope for regulating the end user price is much higher. In contrast, the economics of lignocel — lulosic ethanol remain problematic, although it is possible that in the United States, at least, production costs may become competitive with gasoline within the next five to ten years unless, that is, crude oil prices decrease significantly again.