E85: Children of the Corn?

Mark Hasty
by Mark Hasty
e85 children of the corn
Should America be fuelling its vehicles with corn-based E85? Now there’s a question worthy of public debate. Meanwhile, the question’s been settled. E85 is coming to a pump near you, whether you like it— or use it— or not. The political momentum behind the fuel is enormous, including huge CAFE (Corporate Average Fuel Economy) credits for manufacturers that build vehicles that will never see a drop of corn juice. In fact, the production and distribution of E85 involves a strange mix of politics and economics which could well lead to a dead end. Following the money may make your head spin, but it's high time to separate E85 facts from the politically correct fug of obfuscation.

First of all, corn farmers aren’t getting rich off of E85. America produces 11 billion bushels of the yellow foodstuff every year. More than half of the US corn crop goes to feed animals, mostly cattle and pigs. Much of the rest is used for corn syrup, oil, plastics and even heat. What’s left gets exported. The US ethanol industry’s growing appetite for corn has reduced our exports somewhat, but there’s still plenty left over after we’ve exhausted every possible domestic use. So corn prices remain low.

Or high. Despite the over-abundance of American corn, the US federal government subsidizes the price— paying farmers the difference between the crop’s fair market value and $2.50 a bushel. This price support ensures that corn farming remains profitable, so the US doesn’t have to buy corn on the global market. You might think the federal subsidy would assure profits for farmers and low input costs for ethanol producers, but you’d be wrong. Enter the middleman…

Unlike sugar cane (the source for Brazil’s ethanol), corn is a seasonal crop. Corn is also expensive to transport, making it difficult for farmers to sell directly to distant buyers. At the same time, most corn farmers lack the storage capacity needed to stockpile their Biblically bounteous harvest. No surprise then, that there’s an entire industry devoted to buying grain from farmers, storing it and shipping it to other buyers.

Obviously, there’s a nice little price bump involved. Grain middlemen seldom pay more than about $2 per bushel to buy corn; they can then get $2.50 to $3 for that same bushel on a futures contract. Ethanol plants are even willing to pay a little more, since they know they’ll sell every drop of fuel they produce. The upshot of all this agricultural to-ing and fro-ing: ethanol producers are stuck with a raw material cost that rarely drops below $2.50 a bushel, no matter how much corn is grown, stored or shipped.

Thus, a gallon of ethanol requires roughly $.75 of corn. That may seem like a compelling cost structure for an alternative fuel– especially when compared to this week’s crude oil price of $1.40 per gallon. But E85’s ancillary costs are far higher. First, ethanol is more expensive to produce than gasoline (i.e. it takes more energy to make fuel from corn than oil, and energy ain’t cheap). Second, thanks to the phaseout of octane-enhancing MBTE gasoline additive, demand for ethanol far exceeds supply. Third, ethanol’s transportation costs are astronomical.

Unlike petroleum-based gasoline, ethanol is too corrosive for existing pipelines. That means E85 has to be transported by truck or train. Unfortunately, America’s trains are busy hauling billions of tons of coal from mines to power plants. The railroads are adding locomotives as fast as manufacturers can build them (bet GM’s sorry they sold their locomotive business), but they’re all dedicated to moving a material that provides a larger, steadier business that's less hazards than schlepping ethanol. So, for now, E85 distribution is pretty much restricted to trucks.

The bottom line is clear: E85 production is dependent on a crop whose costs are more or less fixed at a permanently high level. E85 may be eco-sexy and an all-American source of fuel (provided you discount the petrochemical products used to fertilize and insect-proof the corn crop and power the vehicles that harvest, process and haul the corn around), but its current production costs make it an economically dubious alternative to “cheap” gas. And that’s without considering the fact that E85 yields about 20% less “bang for the buck” than gas. Unless the price of gas soars another dollar or so, or increased supply drops the price of ethanol by a like amount, E85 will struggle to provide a cost-effective alternative to its imported competition.

The fundamental economics of the E85 business ensure that the fuel is– and will remain– a product whose future depends more on politics than the “free market.” Of course, there’s nothing inherently wrong with that. If we’re serious about energy independence, the US government could intervene to make E85 more viable. Uncle Sam could build a national network of E85-compatible pipelines, or remove taxes from E85, or add taxes to gas, or end corn subsidies, or, well, lots of things. Meanwhile, the people who’ll benefit most from E85 are the people who move the raw materials to the ethanol plants and the finished product to the consumer.

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  • Engineer Engineer on Jul 24, 2006
    The US ethanol industry's growing appetite for corn has reduced our exports somewhat, but there's still plenty left over after we've exhausted every possible domestic use. True for now. But if you run the numbers, it becomes apparent that there simply is not enough corn to make a dent in our energy needs. For example, in 2005 14% of the US corn harvest was used to make 4 billion gallons of ethanol. Sounds like a lot, does it? After factoring in ethanol's lower energy content, that is about 1% of America's oil use. So, even if we used 100% of the corn harvest for ethanol production, we could only produce ~7% of our oil needs! Or try this simple explanation: think it makes sense to burn food as fuel? If you are out of wood for the fireplace, what would you rather burn: a piece of jerky or yesterday's paper? The government is effectively subsidizing the burning of food for fuel. As Mark suggests, this can only be because the politically connected are making nice profits. The whole ethanol debate misses the point: you can make ethanol from crude or coal. As Mark points out, there are obvious reasons not to do so. Gasoline is far superior as a fuel to ethanol. It is also true that you can convert biomass to gasoline and diesel. So again, why bother with ethanol? The key question that needs to be answered is what feedstock can we use to produce the fuels we need? How about something that we already produce in abundance, but currently have no use for? In other words, something that would require no new resources to produce, no new investment and require no sacrifice. Too good to be true? There is something better out there. According to USDA and DOE we can produce 33% of our oil needs from forestry waste and agricultural residue. Personally I suspect the 33% number is a bit positive. But it dwarfs the 7% from corn ethanol, and can be done without affecting the price of food. In fact, people typically pay you to take away there wastes. What can be done beyond the 33%? Again, logic would require that you focus on the most productive crop (ton/acre.year): Algae. According to another DOE study ( as explained) we can grow 100% of our oil needs on 15,000 square miles, using algae. While 15,000 square miles is a lot of land, it is only ~2% of the total US cropland. Bottom line: The question that needs to asked is "What could we possibly use to fuel the future?". The answer, I believe, is "Waste biomass and algae".
  • Mr. Bojangles Mr. Bojangles on Nov 21, 2006

    also Icenine and Martinjmpr back in July, Sugarcane can also be grown in Puerto Rico.

  • SCE to AUX Good summary, Matt.I like EVs, but not bans, subsidies, or carbon credits. Let them find their own level.PM Sunak has done a good thing, but I'm surprised at how sensibly early he made the call. Hopefully they'll ban the ban altogether.
  • SCE to AUX "Having spoken to plenty of suppliers over the years, many have told me they tried to adapt to EV production only to be confronted with inconsistent orders."Lofty sales predictions followed by reality.I once worked (very briefly) for a key supplier to Segway, back when "Ginger" was going to change the world. Many suppliers like us tooled up to support sales in the millions, only to sell thousands - and then went bankrupt.
  • SCE to AUX "all-electric vehicles, resulting in a scenario where automakers need fewer traditional suppliers"Is that really true? Fewer traditional suppliers, but they'll be replaced with other suppliers. You won't have the myriad of parts for an internal combustion engine and its accessories (exhaust, sensors), but you still have gear reducers (sometimes two or three), electric motors with lots of internal components, motor mounts, cooling systems, and switchgear.Battery packs aren't so simple, either, and the fire recalls show that quality control is paramount.The rest of the vehicle is pretty much the same - suspension, brakes, body, etc.
  • Theflyersfan As crazy as the NE/Mid-Atlantic I-95 corridor drivers can be, for the most part they pay attention and there aren't too many stupid games. I think at times it's just too crowded for that stuff. I've lived all over the US and the worst drivers are in parts of the Midwest. As I've mentioned before, Ohio drivers have ZERO lane discipline when it comes to cruising, merging, and exiting. And I've just seen it in this area (Louisville) where many drivers have literally no idea how to merge. I've never seen an area where drivers have no problems merging onto an interstate at 30 mph right in front of you. There are some gruesome wrecks at these merge points because it looks like drivers are just too timid to merge and speed up correctly. And the weaving and merging at cloverleaf exits (which in this day and age need to all go away) borders on comical in that no one has a bloody clue of let car merge in, you merge right to exit, and then someone repeats behind you. That way traffic moves. Not a chance here.And for all of the ragging LA drivers get, I found them just fine. It's actually kind of funny watching them rearrange themselves like after a NASCAR caution flag once traffic eases up and they line up, speed up to 80 mph for a few miles, only to come to a dead halt again. I think they are just so used to the mess of freeways and drivers that it's kind of a "we'll get there when we get there..." kind of attitude.
  • Analoggrotto I refuse to comment until Tassos comments.