Economic Issues with Ethanol
David Coltrain
Extension Assistant, Department of Agricultural Economics
Kansas Cooperative Development Center
Kansas State University
Manhattan, KS 66506
785-532-1523
email: coltrain@agecon.ksu.edu
Risk and Profit Conference
Kansas State University
Holiday Inn Holidome, Manhattan, Kansas
August 16-17, 2001
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Increased ethanol production is an important topic of discussion across the United States
and especially in the Midwest. The increased price of crude oil and the decreased price of farm
commodities are the driving forces behind this interest. Along with these two important drivers,
the proposed elimination of methyl tertiary butyl ether (MTBE), ethanol's main competition, has
increased the apparent demand for ethanol in the coming years.
The passage of the Clean Air Act amendment in 1990 promoted the use of ethanol.
Ethanol is used primarily as an oxygenate and an octane enhancer for midgrade fuel blends. It is
also used to extend the supply of gasoline refined from petroleum. Ethanol commonly is blended
at a ten percent rate with gasoline in fuel. Renewable energy sources, including ethanol, will
become vital for a fuel supply source as the worldwide petroleum supply diminishes.
A concern with ethanol production in the past has been the belief that more total energy is
used to produce ethanol than the amount of energy available in ethanol. A report from the USDA
Economic Research Service Office of Energy shows this concern is unfounded and concludes
that the net energy value of corn has a positive energy ratio of 1.24 due to technological
advances in ethanol conversion and increased efficiency in farm production (Shapouri, et.al).
Another concern is that ethanol creates problems in engines. The Clean Fuels
Development Coalition reports that all automobile manufacturers approve the use of ethanol in
gasoline blends. Nearly all small engine manufacturers also approve the use of ethanol-blended