Roles for Evolving Markets, Policies, and Technology Improvements in U.S. Corn Ethanol Industry Development

Paul W. Gallagher

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This article reviews changes in markets, technologies, and policies that affect corn ethanol profit - ability and industry expansion. Historically, the corn ethanol industry was stimulated by high petrofuel prices, successful corn and processing technology improvements, and government incentives, such as a blenders’ tax credit and mandated markets defined by the leaded fuel ban and reformulated fuel. Presently, the corn ethanol industry has expanded slightly beyond the point of a normal capital return, which is defined by limits on corn resource availability and ethanol marketing infrastructure. A renewable fuel standard, included in a recent energy law, may eventually define minimum consumption levels for ethanol and, implicitly, production levels for corn ethanol. Poten - tially impending marketing changes, such as voluntary E20 (20 percent ethanol) sales or expanded sales of E85-equipped automobiles, may expand ethanol markets. Potential technology advances include growth of corn yields, corn-processing improvements for lower costs or higher revenue, and development of a corn-stover (leaves and stalks)–based biomass industry. Government policies to induce biomass-fuel capacity investment are economically justified and probably necessary if biofuel industry development remains a public priority. Still, more efficient policy approaches could be developed.

Date: 2009-01-01
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