Competitiveness of the U.S. fuel ethanol industry

Energy Vol. 14. No. 5, PP. 259-275, 1989 Printed in Great Britain

0360-5442/89 $3.00+ 0.00 Pcrgamon Press plc

COMPETITIVENESS

S.

OF THE U.S. FUEL ETHANOL INDUSTRY

M. KANE and J. M. REILLY

Resource and Technology Division, Economic Research Service, U.S. Department of Agriculture, 1301 New York Avenue, NW, Washington, DC 20005-4788, U.S.A. (Received 7 July 1988)

Abstract-We present and analyze new data on fuel ethanol production costs in the United States. Industry expansion over the next 551Oyr and future industry competitiveness are evaluated. The economic potential of near-term and longer-term advances in production technology are assessed. Current ethanol production costs are shown to range from approximately 85 cents/gal to $1.20/gal. For ethanol to be competitive in the 1990s without the Federal subsidy, crude oil prices would have to rise to nearly $40/barrel or

more. INTRODUCTION

Increased domestic U.S. ethanol production and use potentially enhances energy security, contributes to reductions in carbon monoxide emissions, and uses surplus grains and agricultural production capacity. The past few years have seen a renewed debate concerning the merits of using public programs that subsidize ethanol production to meet these goals. The public debate has suffered from lack of a clear picture of industry production costs. Previous studies have used estimates of production costs that were made in the early 1980s before significant fuel-ethanol production experience existed.‘*2 These data have been challenged by claims of steadily improving cost performance in the industry since its inception in 1979. Other studies base cost estimates on generic engineering designs.3,4 While invaluable, costs based on engineering designs fail to represent the range of operating cost levels experienced in the industry, do not address the possibility of adapting existing industrial capacity, and are projected rather than based on actual operating experience. The future competitiveness of ethanol and expansion of the industry depend, in a large part, on production costs. As part of our investigation of the economic and policy tradeoffs associated with ethanol production,’ comprehensive data on industry operating costs in 1987 were obtained. This paper reports these data and assesses what they mean for the competitiveness of the U.S. fuel ethanol industry in the 1990s. As background, we begin with an overview of the industry, including the role of the Federal government. We then present data on net feedstock costs, cash operating expenses, and capital costs. Economies of scale and the relative economics of wet and dry mill plants are discussed. Next, we estimate costs of a state-of-the-art production facility and the cost savings associated with technologies likely to payoff in the next 3-5 yr. The focus of longer term research and development efforts is briefly reviewed. Finally, the future competitiveness and potential for industry expansion in the 1990s is assessed.

ETHANOL

INDUSTRY

OVERVIEW

The U.S. ethanol industry is composed of a diverse group of companies and production facilities. Plants in the industry vary by size, type of technology, financing, traditional grain processing experience, and diversification. A few large ethanol plants account for the bulk of ethanol production. According to Information Resources Inc.,6 nearly 75% of operating capacity in 1986 was accounted for by the eight largest plants, owned by the five largest companies. While over 150 fuel ethanol plants have been constructed in the U.S. since 1979, only 17 plants have a capacity of at least 10 million gallons per year (mgy). Most commercial plants are at least 1.0 mgy although a few on-farm plants of 0.05-0.5 mgy exist. We consider 259

S. M. KANE and J. M. REILLY

260

Table 1. Ethanol industry subsidies.

I

Investment and Depreciation Tax Write-offs?

Added :apaci ty Investmen (106 ;allons) tax credit (ITC),$106

Energy investment tax credit ( EITC),$106

Accelerate< :ost Recover) Schedule ACRS), $10’

1979 1980 1981 1982

60 120 200 215

10 20 32 34

10 20 32 34

18

1983 1984 1985 1986

105 140 40 220

17 22 6 35

17 22 6 53

31 41 12 64

35 59 63

r

Motor Fuel Excise-Tax Exemption

Domestic Production

*

1

I T

F‘ederal $106

I

itate

$106

3

‘

g

-

-

32 34 64

28 30 a2

37 134 186 307

210 284 476 480

155 199 278 280

413 568 778 912

t The following assumptions have been made in constructing this table: capital investment 80% of investment eligible for ITC and EITC; the ACRS costs of $2 per installed gallon, income tax advantage over economic depreciation is calculated as the difference in the present value of the tax treatment of depreciation assuming straight-line economic depreciation over B 30-year economic life and a 50% income tax rate.

plants of less than 10 mgy as small plants, plants in the lo-39 mgy range as medium plants and large plants as those above 40 mgy. The Federal government has had substantial involvement in the industry. The largest financial incentive has been the exemption of ethanol/gasoline blends from at least part of the excise tax on fuel (Table 1). The excise tax level and the exemption have both risen over time. Under current law, 10% ethanol blend fuels are exempt from 6 of the 9-cent tax through September of 1993. At the 10% blending rate allowed under fuel standards, the exemption is effectively a 60-cent/gal subsidy. Many states provide similar exemptions on State gasoline taxes or provide direct producer subsidies which average 20-30 cents/gal. The tax code as it affects investment and depreciation write-offs has also provided subsidies to the industry. In addition to the Accelerated Cost Recovery System (ACRS) of depreciation and the general investment tax credit (ITC) of lo%, an additional energy investment tax credit (EITC) of 10% was available from alternative energy property such as, in many cases, ethanol plants.? Together, the value of these incentives to the ethanol industry approached $1 billion in 1986. The Tax Reform Act of 1986 eliminated the ITC and the ACRS and phased the EITC out over 1 or 2 yr depending on the specific energy property. In addition to the direct production incentives in Table 1, the Federal government also has loan guarantee programs to assist with plant construction. The U.S. Departments of Agriculture (USDA) and Energy (DOE) were given responsibility for these programs. Compared to the USDA assisted ethanol facilities, DOE has assisted much larger facilities. Only two of the USDA assisted plants have annual capacities >lO million gal. All the DOE assisted plants have annual capacities >20 million gal. Even though USDA has guaranteed a greater number of loans, the value of DOE loan guarantees is twice that of USDA (Table 2). Overall, Federally financed plants constitute approximately 25% of industry capacity. Federal involvement has been greatest in plants with capacities of lo-39 million gal; in this range, over 60% of capacity in the industry was Federally guaranteed. The incentive value, if any, of loan guarantees and similar financial assistance is difficult to assess. Many of the Federally financed plants have declared bankruptcy and have been sold or dismantled. Of the 12 loans guaranteed by USDA’s Farmers Home Administration (FmHA), eight companies have been liquidated or are in bankruptcy. Of the three facilities constructed with DOE loan guarantees, only one is operating and making payments on schedule. t Plants using gas or oil as an energy source or constructed as an addition to an existing corn wet-mill were generally ruled ineligible to receive the credit.

Competitiveness

261

of the U.S. fuel ethanol industry

Table 2. Federal ethanol production loan guarantees (first quarter of 1988).

Company

Location

DOE loan guarantees New Energy Co.t South Bend, IN Ten"01 Inc. Jasper, TN Agrifuels Refining Corp. New Iberia, IA Total DOE

cooperative agreements* Kentucky Ag. Energy Co. South Point Ethanol

Franklin, KY South Point, OH

Total USDA loan guarantees Clinton-Southeast JV Idaho Fuels Farm Fuel Production Kentucky Ag. Energy Co. Amer. Fuel Technologies ADC-1 Ltd. Boucher Rural Products Alchem, Limited Dawn Enterprises South Point Ethanol Carolina Alcohol Coburn Enterprices Sepco, Inc. Total

Douglas, GA Boise, ID Storm Lake, IA Franklin, KY Federalsburg, MI Hastings, NE Ravenna. NE Grafton, ND Walhalla, ND South Point, OH Kingstree, SC Sherman, SD Scotland, SD

Rated Plant LOa" timount, Capacity (106 $106 gallons I ,er year)

127.0 65.5 78.9

50.0 25.0 35.0

271.4

110.0

9.8

24.5

21.0 60.0

34.3

81.0

1.9 0.5 3.8 35.2 2.5 20.0 0.3 8.4 20.0 32.0 0.5 0.8 0.8

3.0 0.4 2.3 21.0 3.4 10.0 0.2 4.0 10.0 60.0 0.5 1.0 1.0

126.7

116.8

status

Operating Shut-down Defaulted

Making payments Making payments

Bankrupt Liquidated Liquidated Making payments Loan repaid Making payments Liquidated Making payments Loan closed Making payments Liquidated Liquidated Liquidated

T New Energy also received a DOE feasibility study grant of $1.7 million. New Energy is the only plant out of 47 for which a study grant and a loan guarantee were awarded. Repayment of a DOE study grant is only necessary if a plant also receives a loan guarantee. ' DOE cooperative agreements are direct loans to facilities that have USDA loan guarantees. The repayment schedule is generous: repayment does not begin until 10 years after plant start-up and is extended over a 10 year horizon.

A variety of factors have been cited for the high failure rate among Federally guaranteed plants. Requirements of the Federal loan guarantee programs placed additional restrictions on the borrowers resulting in higher capital costs and longer planning and construction periods. Many companies were deterred from applying for guarantees because of the restrictions. Large companies with access to capital markets and internal financing capabilities, in particular, opted for private financing. Their large technical and engineering staffs, industrial production experience particularly in grain purchasing and processing, and their ability to take advantage of marketing and legal overhead provided advantages over other producers not only in obtaining financing but also in solving the technical and operational problems of producing ethanol. All of the Federally financed plants were stand alone facilities without these advantages. Federal loan guarantees also were exclusively made for dry-milling plants. Dry-milling is, in some respects, a newer technology. Although dry-milling plants are less complex, significantly more experience existed in large-scale wet milling, particularly as applied in the production of high fructose corn syrup. The benefits of the loan guarantees did not sufficiently outweigh the constraints of complying with the requirements to induce those producers who eventually proved most successful to take advantage of the program. Any loan guarantee program is likely to offer the largest advantage

S. M. KANE and J. M. REILLY

262

to small enterprises which have unproven records and are unable to obtain private financing at competitive rates. Thus, the high failure rate among Federally guaranteed plants is not surprising and can be considered to be part of the cost of trying to meet the varied objectives of the programs. While there is a tendency to take the failures as an indication that the industry has not been viable even with subsidies, a high failure rate for a newly established industry is not unusual. Both publicly and privately financed companies, inexperienced and ill-equipped to solve the technical and marketing problems, were attracted to the industry by rising energy prices resulting from the energy crisis. The subsequent drop in crude oil prices caused a shake-out in the industry. That the largest share of capacity remains profitable is an indication that the industry is viable under current conditions. The following sections describe these conditions in greater detail.

CURRENT

PRODUCTION

COSTS

In this paper, production costs are categorized as net feedstock costs (grain costs minus the value of by-products), cash operating costs, or capital costs. Net feed stock costs were derived from published prices of corn and by-products, given unit corn requirements and by-product output. Data on cash operating costs were obtained from a confidential survey of producers. Data on capital costs were obtained through discussions with the industry and through confidentially supplied cost data on specific engineering plans. Data were verified through extensive plant visits and phone follow-up where necessary. For the operating cost survey, firms in the industry were asked to provide confidential production costs for their currently operating plants.? All 11 firms contacted provided complete and comparable information to the extent possible given the diversity of plants. The 11 firms included the top six producers, accounting for 77% of operating capacity in 1986, and 88% of the 106.2 million bushels of corn processed under the 1986 Commodity Credit Corp. program that disbursed surplus government corn to the industry. The remaining five firms included two midsized plants with annual capacities of lo-30 mgy and three small (
costs

The net corn cost is the cost of corn per gallon of ethanol produced left after the prices received for by-products have been subtracted. The net corn cost is the most variable cost factor. It has ranged from nearly 79 cents/gal of ethanol produced to ~10 cents for a short period during early 1987 (Table 3). Over the past 7 yr, corn prices have varied from $1.41 to $3.16/bushel. For the most part, corn prices fell consistently over those 7 yr. By-product values also varied but not nearly as much as corn prices. In recent years, by-product prices have risen and corn prices declined.

t Cost estimates were derived from confidential data provided by the ethanol producers. We contracted with W. R. Schwandt, former manager of A. E. Staley’s Refined Oil Division to select firms in the industry. To assure confidentiality, only the costs for five cost categories were given. Responses were obtained through completed questionnaires and telephone follow-up to assure that assignment of costs across categories was as complete and comparable across responses as possible. Firms with multiple plants reported averages across plants.

Competitiveness

of the U.S.

fuel ethanol industry

263

Table 3. Net corn costs of wet and dry milling.

T

Wet Milling+ Byproduct value, $/bushel

Dry Milling*

Byproduct Net value, corn cost, cost, $/bushel $/bushel $/gallon Net corn

1.42 1.38 1.50 1.37

1.74 1.10 1.62 1.74

0.70 0.44 0.65 0.70

1.30 1.29 1.40 1.06

1.14 1.16 1.26

1.37 0.79 0.15

0.55 0.32 0.06

0.86 1.07 1.11

'CO2 recovery not included. gallons/bushel of corn.

Ethanol yield is assumed to be 2.5

*Dry-mill by-products are evaluated at 125% of value of corn gluten feed, and yield is assumed to be 18 pounds/bushel; ethanol yield is assumed to be 2.6 gallons/bushel of feedstock.

Operating costs

Operating costs are less variable than the net cost of corn. We obtained information on cash operating costs for energy, ingredients (enzymes, chemicals, yeasts, and miscellaneous material costs), personnel and maintenance, management and administration, and insurance and taxes. Among the large plants, total cash operating expenses are about 40-59 cents/gal. In comparison, small and medium plants have total cash operating expenses ranging between 32 and 66 cents/gal. Energy costs for the large plants tend to be the largest cash operating cost component, averaging 11-24 cents/gal or 36% of cash operating costs (Table 4). Energy costs depend on whether the plant uses coal, gas, or oil and whether it purchases or cogenerates its own electricity. Based on discussions with plant managers, cogeneration with coal is the cheapest energy source. In areas where inexpensive high sulfur coal is available, fluidized bed combustors are economical and allow the plant to meet air quality standards while using the cheaper coal. The ingredients and personnel and maintenance categories are the next largest cash operating cost components, averaging 22 and 29% of cash operating costs. The final categories, management and administration and insurance and taxes averaged 9 and 5% of cash operating costs. Much of the variability in cash operating costs is due to the energy cost component. Local fuel prices and other conditions vary, but high energy costs are primarily associated with plants that have not fully taken advantage the most efficient energy use plant configurations available. New plants, benefitting from industry experience to date, should easily operate with energy costs of 11-15 cents/gal. The plant with the highest total cash operating costs had reasonably low energy costs but the highest personnel, maintenance, management, and administration costs. Three plants had reasonably low costs in all categories. Table 4. Operating costs excluding net corn costs in 1987: large plants. Average

Cost Item

Dollars per Gallon of Anhydrous Ethanol Costs in for 6 Plants $/gallon

Energy Ingredients Personnel and maintenance Management, administration, insurance, and taxes

0.12 0.06 0.14

0.16 0.11 0.23

0.14 0.14 0.10

0.24 0.07 0.14

0.16 0.09 0.14

0.21 0.15 0.08

0.17 0.10 0.14

0.08

0.09

0.04

0.07

0.07

0.04

0.06

Total

0.40

0.59

0.42

0.52

0.46

0.48

0.47

S. M. KANE and J. M REILLY

264

Table 5. Operating costs excluding net corn costs in 1987: small and medium plants.

Cost Item

Surveyed Plant and Size, $/gallon of Anhydrous Ethanol Small

Small

Average Costs in -$/gallon

Medium Medium Medium

Energy Ingredients Personnel and maintenance Management, administration, insurance, and taxes

0.22 0.10 0.16

0.05 0.07 0.16

0.20 0.07 0.18

0.25 0.13 0.23

0.22 0.06 0.20

0.185 0.083 0.186

0.04

0.04

0.05

0.05

0.08

0.051

Total

0.52

0.32

0.50

0.66

0.55

0.505

Cash operating costs for the small and midsized plants varied more than the larger plants (Table 5). Except for one plant, cash operating costs for small and midsized plants tend to be higher than for large plants by S-10 cents/gal. Both energy and personnel costs tend to be higher. Small plants may be less able to take advantage of coal boiler cogeneration applications. Economies of scale exist in meeting environmental regulations associated with coal use. Managers of small plants indicated that plant capacity could be increased, in many cases, by 50% without adding personnel suggesting considerable economies of scale in labor use. The management, administration, insurance, and tax cost category is 3-4 cents lower for the small plants. Some of these differences may be attributable to differences in accounting for management personnel and general personnel, with the small and midsized plants allocating less of the payroll to management overhead. One plant reported exceptionally low energy costs, contributing to the lowest cash operating costs among those plants providing information. The low energy costs are attributable to a setup that allows distillers grains to be used without drying and provides an example of the cost competitiveness of small plants in specialized situations. Investment cost per annual gallon of installed capacity

Reported levels of investment per gallon of installed capacity for existing facilities range from well below $1 to near $3. This range is misleading, however, because of differences in construction and accounting among firms. Some firms originally over designed plant components and have since boosted production above original rated capacity with minimal additional investment. Other firms originally under designed plants and have spent additional resources to bring the plant to its planned capacity and to further improve the cost efficiency of the plant. Installation of components that, in operation, proved ineffective and were later replaced boosted the cost of many plants. These mistakes are unlikely to be repeated in future construction. Our capital cost summary, based partly on findings of actual investment costs, attempts to provide a picture of the cost of replacing existing plants given the experience gained to date (Table 6). Signi ficant variation in investment costs remain depending on whether ethanol production is added to an existing wet mill, an idle industrial plant is adapted for ethanol production, or a totally new facility is constructed. Staley and Archer Daniels Midland have demonstrated the feasibility of adding ethanol capacity to operating wet mills. Modifying idle facilities to produce ethanol has also been demonstrated. Pekin Energy has modified an abandoned corn wet-mill plant, South Point Ethanol has modified an abandoned chemical plant site, and Shepherd Oil has modified an abandoned oil refinery. In fact, few of the most successful existing plants have been constructed as totally new facilities. Construction of either a new dry mill with an annual capacity of 40 million gal or a new wet mill with an annual capacity of 100 million gal will cost $2.00-$2.50 per annual gallon. Fermenter/distiller additions to existing wet-mill sites cost about $l.OO-$1.50 per annual gallon. The $l.OO-$1.50 represents the full additional capital cost of ethanol production for an operating facility with cyclical excess capacity to grind corn and with minimal requirements to boost grind capacity to efficiently produce ethanol and corn sweetener products. The best of

Competitiveness

265

of the U.S. fuel ethanol industry

Table 6. Capacity addition: investment costs and capital charges. Capacity

Investment cost per Annual Gallon

addition

Incremental addition operating wet-mill

apital Gallon

Charge per Produced-t

to

Adaption of abandoned oil refinery distillation capacity or wet-mill capacity New plant

i

$1.00

- 1.50

$0.19

- 0.29

1.75

- 2.00

0.33

- 0.38

2.00

2.50

0.38

- 0.48

tA capital charge of 19 c/$ invested was computed as a capital rental rate using the following assumptions: (1) Tax Reform Act of 1986 (E-year tax life for equipment, no investment tax credit or energy investment tax credit, 38% income tax rate), (2) nominal, pretax equity return of 15%, (3) nominal interest on loan of 8.5 percent, (4) a debt/equity ratio equal to 78/22, (5) an annual inflation rate of 4%, and (6) an actual asset life of 30 years.

the idle industrial sites will require an investment of about $1.75 per installed gallon to acquire and upgrade. Capital charges per gallon produced

Estimating ethanol production costs requires that capital charges be allocated to production across the lifetime of the producing investment. The capital charges depend on the cost, investment life, tax treatment of investment, interest rate on debt financing, desired return on the equity, and inflation rate. Capital charges were estimated using a model developed by Jeremias’ that allows details of the tax system to be included in the estimates of an implicit rental rate of capital. Based on the Jorgenson’s formulation,8 Hrubovcak’ writes the equilibrium condition between the purchase price of the asset (q) and tax-adjusted returns over the life of the asset with a constant implicit rental rate (u) as q = (1 - T)uA + Cq + TBq,

(1)

where T is the marginal tax rate of the firm (assumed constant over the asset life), u is the constant rental rate, (1 - T)uA is discounted returns, Cq is the discounted value of the investment tax credit rate, and TBq is the present value of tax savings produced by tax depreciation reductions. The A, B, and C components of Eq. (1) are further defined as A = i

a(t)/(l

+ r)‘,

t=1

where r is the discount rate or real after tax rate of return required measure of output in year t; B = 2

b(t)/(l

+ r)‘(l +p)‘,

t=1

where A4 is the scheduled percentage in year f, and

(2) by the firm and a(t) is a

(3)

tax life of the asset, p the inflation rate, b(t) the depreciation C = c/(1 + r)(l + p),

(4)

investment was put in place. With a known asset price, Eq. (1) can be solved for u as u = q(l-

C - TB)/A(l

- T),

(5)

where u is the implicit rental rate the firm must earn to obtain the required rate of return. The rental rate u in Eq. (5) is the basic capital charge per dollar of investment. The Jeremias model provides somewhat more detail and allows separate rates of return for investment and equity.

S. M. KANE and .I.M. REILLY

266

Total production cost (Dollars per gallon) 2 lo -7I I

Ethand cost for specified year

180

060

35% byproduct credt

I

I

1987

1.50

2.M

2.50

3.00

Corn price (Dollars per bushel) Fig. 1. Total production

costs for corn with by-product

credits.

Based on the assumptions spelled out in Table 6, the implicit rental rate per dollar of investment was calculated as 19 cents. Estimates of total investment per gallon of annual capacity for the different types of capacity additions were obtained through meetings with plant managers, The costs are representative of the level of investment required. Capital charges per gallon of ethanol produced ranged from 19 to 48 cents. The charges are calculated under tax rates established by the Tax Reform Act of 1986. By way of comparison, under previous law the implicit rental rate per dollar invested was estimated as 16 cents. Total production costs

The range in total costs displayed in Fig. 1 emphasizes the effect of the variability in net corn costs on ethanol production costs. Approximate average industry costs are plotted for 1980-1987.t The full cost of production from an efficient stand-alone plant has ranged from as low as 85 cents/gal with the unusually high by-product and low corn prices of early 1987 to the $1.40-$1.50 range during 1981, 1983, and 1984. An ethanol plant addition to an existing wet mill could achieve costs as much as 20 cents/gal lower due to capital cost could achieve costs as much as 20 cents/gallon lower due to capital cost savings.

ADDITIONAL

PRODUCTION

COST

CONSIDERATIONS

Two additional production cost related questions have been of interest in public policy issues. First, the extent to which economies of scale exist is relevant to questions concerning the role and viability of small scale producers; small scale producers have been a concern of public policy. Evaluation of economies of scale is made difficult because of the wide range of conditions and costs under which small plants operate. Many of these conditions are unique to the existing plants and form a poor basis for extrapolating the relative costs of small scale vs large scale plants to future plant construction Second, the relative economics of wet vs dry mill technology has been discussed extensively.‘“~L’ Wet and dry mills have a different mix of by-products and, therefore, affect livestock feed and vegetable oil markets differently. t The calculations

assume

that corn and by-product

price variation

are the only source

of variability

over time.

Competitiveness

of the U.S. fuel ethanol industry

267

Economies of scale

Our discussions with plant managers suggested that investment costs per gallon were generally similar between large and small plants per gallon of installed capacity. Engineering designs have indicated the existence of economies of scale in investment costs.” These two results may not, however, be contradictory. Yet, engineering design cost comparisons are typically made for comparable plant designs. Rather than suffer high capital costs, many smaller plants may reduce initial investment costs per gallon of installed capacity to levels comparable with large plants by altering plant design. Savings in initial investment, however, translate into higher operating costs because of lower energy efficiency, less computer control, lower yields, and higher labor requirements. While investment costs may be similar between large and small plants, capital charges per gallon produced are considerably higher for small plants, if the lower operating levels they frequently experience are taken into account. A plant able to operate at 75% of capacity on average faces capital charges 33% higher than if operating at 100% capacity. With an investment of $2/gal of capacity and under the assumptions in Table 6, capital charges increase 13 cents if the expected operation level drops from 100 to 75% of rated capacity. Large plants have achieved consistent records of producing at or above rated capacity. Many midsized and small plants have been unable to operate continuously due to difficulty in finding markets for ethanol or by-products, difficulty in maintenance and repairs, and problems of fermenter contamination. Operating experiences, as with other costs, vary significantly among small plants; a few have consistent operating records but many have failed completely or have been shut down for extended periods of time. Operation levels of 75% of rated capacity for small plants is considerably better than actual experience given the large number of plant closings. Using a conservative estimate of 75% for small plant operating levels, we calculate ethanol production costs for small plants to be 18-23 cents/gal higher than the costs achieved by large plants. This average, however, conceals a tremendous amount of variability which in turn produces a wide range of overlap between small and large plants. In part, the overlap maybe due to three limited circumstances that provide cost advantages to small producers, offsetting basic economies of scale in production. First, whereas the largest firms have complex grain procurement and product distribution systems enabling them to effectively compete in national and international markets, the smallest firms can take advantage of limited, local feedstock supplies. Grain prices can be 20 or 30 cents/bushel lower away from the major transportation hubs but the level of grain production in these areas could not support a large ethanol producer. Second, ethanol production from low-cost or no-cost wastes such as fruit and potato or from whey can reduce feedstock costs. The size of the plant is then limited by the size of the waste stream. Existing plants taking advantage of such waste streams are <5 mgy. Third, major savings in energy costs can be achieved if the distillers grains produced as a by-product of ethanol production can be used locally without drying. Co-location of a plant with a feedlot is the most practical approach to assuring a local use of distillers grains. Combining a feedlot with a large dry-mill has been considered but the size of the required feedlot would be impractically large. The role of medium-sized plants is more tenuous. Medium sized plants may be at a significant cost disadvantage relative to large plants; while experience is limited, most large plant operators believed that their plants did not fully exhaust economies of scale. Most operators, even among the operators of 60 mgy and larger plants, indicated that if they decided to construct another plant it would be 20 or 30 mgy per year larger. Medium-sized plants most likely represent an early phase of industry expansion, when many companies explored the commercial viability of ethanol but wanted to limit the level of finanical commitment or were limited by lenders due to the riskiness of the enterprise. While the medium-sized plants are too small to exhaust economies of scale, they are frequently too large to effectively exploit the factors that can make small plants competitive. If significant expansion of the industry occurs, large plants will account for the predominant share of capacity. Plants sizes of 100mgy or larger are likely to be common whereas currently

S. M. KANE andJ.

268

M. REILLY

Total production cost (Dollars per gallon) 1.6

Wet-mladvantage

Byproduct value difference: wet-mill versus dry-mill (Dollarsper gallon) Fig. 2. Relative costs of dry-mill vs wet-mill technology.

only one plant above 1OOmgy exists. Small plants, while not significant in terms output, could become a more important process for adding value to waste or streams from other industrial processes. A currently limiting factor is uncertainty in market and the lack of reliable small scale ethanol production technology. Current uniquely designed and usually require considerable testing and modification as they Once producing, small plants have sometimes had difficulty finding a market for planned local markets for by-products fail to develop as expected.

of industry by-product the ethanol plants are go on line. ethanol or

Economics of dry- us wet-milltechnologies The relative economics of wet- vs dry-mills has been a subject of considerable investigation. For example, Keim13 estimates that wet mills have a 16- to 19-cent cost advantage over dry mills even after correcting for capital cost overruns and start-up troubles experienced by large dry mills. He finds that wet mills have a 70- to 75cent advantage over small dry mills. Two basic differences in the production technology lead to cost differences. First, wet mills produce more diverse, higher valued by-products but processing of the by-products requires additional investment and some increases in operating costs. Second, wet mills have lower alcohol yields because some of the starch remains with the by-products and is not available for fermentation. In the dry-mill, the entire ground corn mash is fermented assuring that all of the starch is available for fermentation. Thus dry-mills achieve a yield advantage of about 0.1 gal/bushel.? Industry plant operators familiar with both technologies indicated that for comparable efficient plants built today, a dry-mill would cost about 10% less to build. The same operators speculated that the cost advantage could be as high as 25% but that dry-mill plant construction suffers from relative inexperience compared with large-scale, wet-mills. With a capital cost penalty but larger by-product credits for wet-milling than dry-milling, neither of the two technologies i’sclearly preferred under all sets of future prices. Figure 2 summarizes the economic tradeoffs between wet- and dry-mill technologies based on capital cost differences and historic differences in net corn costs. Figure 2 represents wet-mills that do not produce corn syrup. The net additional return to wet mills due to higher valued by-products has been as little as 1.5 cents/gal and as much as 9.2 cents/gal on the basis of national average corn and by-product prices. Somes wet millers focus on producing unusually t Saint Lawrence Reactors Ltd. has developed a process that strips all of the starch in the wet-mill process. The process has not had widespread commercial application in the U.S. to date.

Competitiveness

of the U.S. fuel ethanol industry

269

high quality by-products, obtaining prices above national price quotes. Within the historical range, dry milling tends to hold a cost advantage over wet milling. The lo-25% capital cost advantage of dry-mill facilities represented in Fig. 2 have not however, been borne out by existing plants. If the industry expands several fold as would be necessary under proposed Congressional blend fuel mandates,14 ethanol by-product prices could fall significantly. Livestock protein supplements produced by the ethanol industry could equal the current size of these markets. Corn oil production could similarly dominate vegetable oil markets. To move the resulting large volume of product would require lower prices.” As a consequence, added investment cost for wet-mill by-products would likely become less attractive since these costs could not be recovered in by-product sales. There is an additional caveat to the comparisons in Fig. 2. The figure compares stand alone facilities. In the near-term, co-location of ethanol production with existing wet-mill/corn fructose production is likely to be the most economic way for the industry to expand, however, future growth in the fructose market is limited. Thus, rapid expansion of the ethanol industry based on combined fructose/ethanol plants is unlikely.

FUTURE

ETHANOL

PRODUCTION

TECHNOLOGY

AND

COSTS

Early discussions of the economics of fuel ethanol saw little room for improvement because the basic process of fermentation of starches and sugars in fruits and grains had been the basis for beverage production for centuries. Fuel ethanol, however, is a distinct commodity from traditional beverage and industrial grade ethanol. As a result, the set of constraints applicable to fuel production differ considerably from that of traditional uses of ethanol. Production of fuel ethanol requires less attention to taste, odor, and visual purity than beverage and industrial ethanol production. The challenge faced by fuel ethanol producers from the beginning of the industry has been to build and operate facilities that are much larger than traditional ethanol facilities and much less expensive to operate. Significant achievements in this regard have accompanied the establishment and growth of the industry over the past 10 yr. The process technology and opportunities for future advances

Much of the past variability in ethanol costs and the uncertainty in future costs are due to the prices paid for corn and received for ethanol by-products. As a result, much attention has focused on cultivation and harvesting of alternative feedstocks and technologies capable of utilizing other alternative feedstocks. In the near term, however, changes in technology relevant to the U.S. relate primarily to grain-based production. The energy costs of ethanol production have been greatly reduced but energy efficiency is still a significant concern. The energy costs of producing a fermentable substrate are high and future reductions are expected to have as large an impact on production costs as they have had in the past. Overall, the industry measures significant savings in terms of cents or fractions of a cent per unit of output. The two main process configurations used for ethanol production are dry- and wet-mills. The two processes are similar. In the dry-mill process, ground corn is slurried with water and cooked. At this stage, enzymes are added to convert starch to sugar. Next, yeast is used to ferment sugars to produce an alcohol/water mixture. Dissolved solids are separated out from the mixture and dried to produce distillers dried grains, a high protein, animal feed supplement. The alcohol/water mixture is distilled and dehydrated to create fuel grade ethanol. Distillation reduces the water content to approximately 5%. Dehydration removes the remaining water, producing anhydrous ethanol. In the corn grinding stage, corn oil can be removed with additional processing but few dry mills currently choose to do so. The wet-mill process removes solids prior to the conversion of starches to sugar and produces corn gluten meal and corn gluten feed, which are used as high protein animal feed supplements. Early removal of solids results in a clarified substrate in the fermentation process, the principal difference from the dry mill process. Distillation and dehydration are identical in both dry and wet mills. The ethanol wet-mill plant is identical to corn wet mills that produce

270

S. M. KANE and J. M. REILLY

corn sweeteners (fructose) up through the starch production phase. Combining ethanol and fructose production in a wet-mill plant can have economic advantages because the cyclical nature of fructose demand can result in excess corn grind capacity during the winter months in plants producing only corn sweeteners. For the most part, reductions in ethanol production costs have occurred as a result of applying well-known technologies and process improvements from related industries rather than making revolutionary changes in the basic production process. For example, continuous processing, adapted from fructose and starch processing and broadly used in many industrial processes, has replaced batch fermentation. Initially, producers familiar with beverage alcohol production were skeptical that fermentation could be done in a continuous process without suffering frequent bacterial contamination of the fermenter. Other cost-savings have occurred as a result of incorporating technological advances that are simple and direct applications to industry in general. Computer process controls, applied in many other industries, have been profitably applied to fuel ethanol production. Improvements in cogeneration of electricity with steam production, the ability to use high sulfur coal in fluidized bed combustors, and the development of more efficient electric motors improve on energy-using plant components common to many if not most industries. Finally, ethanol producers have found significant economic potential in a variety of plant output streams including carbon dioxide, stillage, and waste heat. Use of these streams requires various additions of capital and processing costs to upgrade waste streams to marketable commodities, increase the value of traditionally marketed by-products, or to capture waste streams for internal plant use as in the case of waste heat recovery. Many plants collect carbon dioxide which is purified and sold. One novel use of waste streams is an on site production of lettuce in a greenhouse facility using both carbon dioxide and waste heat. State-of-the-art technology

In general, a state-of-the-art plant, as envisioned currently, would contain the following design features. The process, after steeping, would be continuous throughout, including the cooking, starch conversion, fermentation, and distillation processes. The state-of-the-art plant includes yeast recycle thereby saving on yeast costs. Computer process control would be used throughout. The plant would likely combine starch conversion and fermentation resulting in higher yields. When the steps are separate the enzymatic conversion process proceeds to convert some of the fermentable sugars to nonfermentable sugars. The theoretical yield gain is 5% with a likely gain, in practice, of 2%. Large plants may feature on-site production of enzymes which would save 2 cents/gal. For wet-mills, separation of fine fibers from the gluten meal and feed would be featured. The fine fibers contain starch that cannot otherwise be separated. By fermenting the fine fibers, the starch is utilized, eliminating the yield difference between dry and wet-milling. The process requires special trays in the beer columns to remove the fibers. The distillation and dehydration processes would be cascaded and would have fully instrumented systems. Alternatives to the dehydration step are the corn grits”j and the molecular sieve technologies. The sieve terminology refers to a process that removes water from alcohol. Corn grits serve the same function in removing water from alcohol vapor. Dehydration by distillation achieves the same results at economics which may be competitive if designed and instrumented to optimize the system. Eliminating the use of benzene, a known carcinogen commonly used in current plants and strictly regulated by the EPA, works in the favor of the corn grits or other dehydration systems. Further up-grading of by-products to obtain higher market value may be a component of some new plants. The barrier to new or higher value by-products is the development of markets for the products rather than the need for new technology to produce them (e.g., Gaines and Karpuk”). In addition, it is possible to upgrade the fuse1 stream to separate small amounts of other alcohols produced during fermentation. These high-valued products have uses in, for example, perfumes. Perhaps the most significant design feature of a state-of-the-art plant involves the full

Competitiveness Table

7. Average

cost Energy Ingredients,

vs state-of-the-art

operating

Current

category

271

of the U.S. fuel ethanol industry costs,

Averaget

excluding

net corn costs.

current Engineering

Low-Cost Estimates

$0.11

$0.17 personnel,

and maintenance Management, administration insurance, taxes

0.24

0.24

0.06

0.03

Total

0.47

0.38

i'The current average is the unweighted obtained from an industry survey.

average

of large plants

integration of the power plant and waste energy utilization. In general, the plant would feature cogeneration to produce electricity and steam for the plant from coal. In areas with high sulfur coal, fluidized bed combustion will be used making it possible to meet environmental standards. The most efficient plant currently operating, however, by-passes cogeneration and uses direct steam drive to replace large electric motors. In addition, extended utilization of heat exchangers would be featured throughout the plant. Table 7 contrasts the average operating costs experienced by existing plants and engineering design costs for a planned plant incorporating state-of-the-art technology. The state-of-the-art plant achieves an estimated 17% reduction in operating costs, 9-cent/gal, unevenly distributed among the cost categories.

Potential technological improvements

in the near term

Three new technologies show potential for further reducing production costs over the next 3-5 yr. These include the replacement of yeast with the Zymomonas mobilis bacteria, membrane separation of solubles, and the immobilization of enzymes and yeasts (or the 2. mobilis bacteria) in the wet-mill process. Zymomonas mobilis offers considerable promise.‘X,19 The bacteria are more temperature tolerant than those used currently. Operational flexibility in allowing higher temperatures during fermentation could translate into higher yields. Membrane separation of solubles might allow 40% of the water to be removed prior to distillation. The remaining obstacle is reducing the tendency for the membrane to become clogged with the solubles. Immobilization of yeasts and enzymes involves passing the starch or sugar solution, the clarified substrate, through a medium containing the enzyme, yeast, or bacteria. This would allow improved control of the process and would maximize the use of the yeast or bacteria and enzymes. Immobilization replaces recycling by holding the yeast in place. As a result, it will likely reduce contamination associated with yeast recycling which requires removal of the yeast from the beer and return to the fermenter. Because the process requires a clarified substrate it is only applicable to wet-milling. Beyond the specific technologies discussed above continued small gains can be expected through improvements in process control and waste heat utilization. Without predicting the specific source of cost savings, it is likely that the state-of-the-art plant of 3-5 yr in the future may achieve an additional 5 cent saving in operating costs per gallon, that is a 10% reduction over the state-of-the-art plant of today without substantial changes in capital costs. Long-term technological improvements

Technologies that may provide pay-offs in the longer term include those that use alternative crops, such as potatoes, sweet potatoes, Jerusalem artichokes, sugar beets, fodder beets, sweet sorghum, and grains other than corn not used currently.*’ Use of these crops for ethanol does not present particular technological hurdles.? Should corn prices rise, these alternative t Many countries produce ethanol from other cr”,4”, such experience producing ethanol from sugar cane.

as sugar

cane,

grapes,

and cassava.

Brazil

has extensive

272

S. M. KANE and J. M. REILLY

feedstocks may prove to be cheaper because they can be grown on marginal lands and climates not suitable for corn production. Bioengineering and traditional plant breeding technologies that increase per acre yields or increase starch and sugar contents of corn and other crops also offer the potential for lower cost ethanol through reduction in feedstock costs. Development of processes that break down various types of cellulosic biomass materials into fermentable sugars is an active research area.2*26 Ultimately, ethanol could be produced from woody plants and a broader spectrum of organic waste. Examples of cellulosic feedstocks include alfalfa, corn stover, and bagasse. Direct cost competitiveness of these technologies will be difficult to achieve if grain prices remain low. However, the by-products derived from these technologies will be considerably different than existing ethanol by-products. With some of the proposed technologies, ethanol could become a complimentary output, with demand for relatively high valued chemicals derived from the process driving the production process.27*B The best current cost estimates for producing alcohol and complimentary products from cellulose range between $1.00 and 1.20/gal.29 This estimate includes CO2 and the energy value of unconverted cellulose as co-product credits. It is difficult to make a direct comparison to a corn processing plant. Processing costs for a grain plant at current corn prices can be placed between 60 and 90 cents/gal. The large difference in production costs could decline if experimental cellulose conversion technologies show significant improvements and corn prices rise. ETHANOL

IN

THE

FUTURE

Our purpose here is to briefly sketch industry production costs likely in the 1990s. We do not attempt to address the impacts industry expansion would have on costs via increases in corn prices and decreases in by-product prices. We relate ethanol competitiveness to competitor fuels pegged to crude petroleum prices, recognizing that prices of competing blending agents have historically moved with petroleum prices and many are produced from petroleum refinery products. Industry expansion

Current industry plans are for modest capacity expansion at existing sites despite a relatively high return to ethanol production as of the first half of 1987. Subdued interest in capacity expansion has been attributed to the expiration of the motor fuel excise tax exemption in 1993 combined with the projection of only modest increases in the world petroleum prices. Should production expand significantly, use of existing corn wet-mills and adaptation of idle industrial capacity is likely to provide the bulk of expansion. There are many remaining facilities that are adaptable to producing ethanol. Abandoned corn wet mills in Morrisville, Pennsylvania, and Montezuma, New York, built in the 1970s are near the Northeast gasoline market. In addition, some 24 oil refineries in the Midwest, with a distillation capacity of 17 billion gal/yr, were abandoned during 1981-1984. By comparison, current U.S. ethanol production capacity is 1.1 billion gal/yr. The supply of idled facilities suitable for expansion of the ethanol industry is large, but only the best sites among those available will have an economic advantage over new facilities. Use of an existing facility may constrain the technology used or location of components of the plant, increasing operating costs. Moreover, the site may be poorly located in relation to either corn or ethanol markets. The least costly approach for using some sites may be to raze the entire physical structure, using only the rail siding or roadway access. An advantage to using an existing industrial site may be the speed with which approval for construction could be granted. Figure 3 displays approximate expansion potential for the industry and what it means for production costs under representative corn prices of $1.50 and $2SO/bushel. Roughly 1 billion gal of ethanol capacity are available by adding to existing wet mills that do not have ethanol production capacity and by adding incremental capacity to existing ethanol plants. With corn at $1.50/bushel, the full cost of ethanol production before subsidies would be roughly $l.OO/gal (50% by-product cost recovery). With corn at $2.50/bushel, ethanol costs would be $1.30/gal. Adapting the best of abandoned industrial sites could easily add another l-2 billion gal of

Competitiveness

273

of the U.S. fuel ethanol industry

Ethanol cost (Dcllars per gallon)

1 60

60 -

k

ot 0

1

1

1

I

1

1

2

3

4

Added capacity (Billiongallons) Fig. 3. Potential ethanol capacity expansion.

or more at ethanol production costs of $1.15-$1.40, depending on corn prices. Fully new ethanol plant construction, limited to geographic areas of strategic marketing interests, can be added with costs ranging from $1.20 to $1.45, depending on corn prices.

capacity

Cost competitiveness with petroleum

The cost competitiveness of ethanol depends partly on how it is used in blend fuels. As a fuel extender, ethanol has a lower energy content than gasoline and vehicles using ethanol may suffer reduced mileage. But, ethanol added to gasoline increases octane and therefore competes with a variety of octane-enhancing blending agents that typically sell above the price of gasoline. Ethanol’s competitive position further depends on the fuel distribution system, Federal and State subsidies, and environmental requirements. Ethanol is not directly compatible with pipeline distribution of gasoline making it difficult for ethanol blends to penetrate markets supplied primarily by pipelines. State subsidies vary considerably. Ethanol also increases fuel volatility which has been the subject of recent EPA rulemaking. Given the caveats discussed above, Fig. 4 illustrates ethanol’s competitiveness given grain prices, crude oil prices, and technology. We assume that a new state-of-the-art plant is used to produce ethanol with by-product recovery of 50% of the cost of corn. Ethanol is assumed to compete on a direct cost per gallon basis with gasoline, reflecting a middle position between decreasing the value of ethanol on the basis of its lower Btu level and increasing its value on the basis of its higher octane value. With $2.00/bushel corn and the existing Federal subsidy, ethanol is competitive when crude oil prices are above $20/barrel. Without the subsidy, crude oil prices would have to rise to at least $40/barrel. Without the subsidy, there is no corn price that would make ethanol competitive with crude oil prices below about $25/barrel as long as the by-product credit does not exceed the cost of the corn. The state-of-the-art plant represents an improvement over the average existing technology and has, therefore, enhanced the competitiveness of ethanol. With $2/bushel corn and existing Federal subsidy, ethanol produced using average existing technology is competitive with crude oil at $22-$24/barrel, compared with $20/barrel with state-of-the-art technology. Further improvements in the next 3-5 yr could make ethanol competitive at $18/barrel crude oil.

S. M. KANE and J.

274

M. REILLY

Corn price (Dollars per bushel)

_

state-d-the-art

5-

WrthLxd

Federal

4y” 3-

0

,

0

10

I

I

m

30

-1 40

50

Crude oil price (Dollars per barrel) Fig. 4. Ethanol

break-even

curves

for various

technologies

and Federal

subsidies.

CONCLUSIONS

The ethanol industry has grown quickly, from 20 million gal produced in 1979 to 800 million gal produced in 1987. Many small plants including those receiving Federal loan guarantees have closed, reorganized under bankruptcy proceedings, or defaulted, particularly in 1986 when oil prices collapsed. Federal subsidies to the industry approached $1 billion in 1986. Ethanol production costs have averaged $1.40-$lSO/gal since 1980 but there has been considerable variability among firms and over time as corn prices have changed. Conditions existing in 1987 were relatively favorable for the industry despite low crude oil prices due to low corn and by-product prices; in 1987 ethanol production costs ranged from about 85 cents to $1.20 among large producers. A variety of evidence supports existence of economies of scale in the industry. Our data shows costs for small plants are 18-23 cents above costs for large plants, but the cost ranges of small and large plants overlap considerably. Local grain markets, unique waste streams, and co-location of the plant with a feedlot can make small plants competitive. Wet and dry-milling costs are very similar for stand alone plants. Relative prices for by-products are likely to determine which process is cheaper in the future. Incremental reductions in ethanol production due to improved technology will occur but reductions that would offset the loss of the Federal tax exemption are unlikely. A state-of-the-art plant built today can achieve a 9-cent/gal saving over the average industry costs; some firms approach state-of-the-art cost levels today. It is likely that the state-of-the-art plant of 3-5 yr in the future can achieve an additional 5 cent saving in operating costs per gallon over the state-of-the-art plant. Looking ahead 5-10 yr, converting cellulose and processing other renewable resources into oxygenated fuels and chemicals will remain a major challenge to agricultural product utilization research. The time-frame depends on research and development in the cultivation, processing, and fermentation of cellulosic materials in addition to the emphasis on fundamental research in transformation of the resources into value-added products. Under favorable conditions for expansion, as much as 1 billion gal of capacity could be added for about half the cost of a new plant through incremental additions at existing ethanol facilities and at operating wet mills. Another l-2 billion gal could be added to the industry by adapting abandoned industrial oil refineries and wet mills at lo-25% less than the cost of a new plant. For the industry to expand significantly, there would have to be a reasonable likelihood that

Competitiveness

of the U.S. fuel ethanol

industry

275

favorable conditions existing in 1987 would continue to exist through the 1990s. Prospects of only modest increases in the price of crude oil well into the 1990s means that industry expansion hinges largely on extension of the Federal excise tax. For ethanol to be competitive in the 1990s without the Federal subsidy, crude oil prices would have to rise to nearly $40/barrel or more. Acknowle&ement.y-We would like to thank

W. R. Schwandt for technical advice and his help in conducting the industry survey. We would also like to gratefully acknowledge the editorial and technical review of the sections on future technology provided by M. Ladisch. Without their assistance this effort would not have been possible.

REFERENCES

1. E. E. Gavett, “Fuel Ethanol and Agriculture: An Economic Assessment,” AER-562, U.S. Dept. Agric., Office of Energy, Washington, DC (1986). 2. U. S. Congress, General Accounting Office, “Importance and Impact of Federal Alcohol Fuels Tax Incentives,” GAO/RCED-84-1, Washington, DC (1984). 3. Congressional Research Service, “Analysis of Possible Effects of H.R. 2052, Legislation Mandating Use of Ethanol in Gasoline,” CRS Report for Congress, (1 October 1987). 4. National Advisory Panel on Cost-Effectiveness of Fuel Ethanol Production, “Fuel Ethanol CostEffectiveness Study/Final Report,” Washington, DC (November 1987). 5. M. LeBlanc, J. Reilly, S. Kane, J. Hrubovcak, P. Reilly, J. Hauver, and M. Gill, “Ethanol: Economic and Policy Tradeoffs,” AER-585, Economic Research Service, USDA, Washington, DC (April 1988). . 6. Information Resources Inc. (IRI), Alcohol Outlook (August 1987). 7. R. Jeremias, “Dead-weight Loss from Tax-induced Distortion of Capita1 Mix,” Ph.D. Dissertation, Virginia Polytechnic Ins< and State Univ. (July 1979). 8. D. Jorgenson, “The Theory of Investment Behavior,” in Determinants of Investment Behavior, R. Ferber ed., National Bureau of Economic Research, New York, NY (1967). 9. J. Hrubovcak, Agric. Econ. Rex 38, 19 (Winter 1986). 10. E. E. Gavett, “Fuel Ethanol and Agriculture: An Economic Assessment,” AER-562, U.S. Dept. Agric., Office of Energy, Washington, DC (1986). 11. C. Keim, Octane Week (August 1986). 12. C. Keim, Octane Week (August 1986). 13. C. Keim, Octane Week (August 1986). Policies Affecting 14. U.S. Dept. Agric., Econ. Res. Serv., “A Survey of Resource and Environmental Agriculture,” in Agric. Outlook l39, 32 (12 March). 15. M. LeBlanc, J. Reilly, S. Kane, J. Hrubovcak, P. Riely, J. Hauver, and M. Gill, “Ethanol: Economic and Policy Tradeoffs,” AER-585, Economic Research Service, USDA, Washington, DC (April 1988). 16. M. R. Ladisch, “Corn as a Polysaccharide Adsorbent: The PolysieveR Process,” presented at the First National Corn Utilization Conference held in St. Louis, MO (11-12 June 1987). of Lignocellulosic Feedstocks: Product Markets and 17. L. L. Gaines and M. Karpuk, “Fermentation Values,” presented at the Institute of Gas Technology Conference held in Washington, DC (7-10 April 1986). 18. S. Buchnolz, M. Dooley, and D. Everleigh, Tibtech 5, 199 (1987). 19. H. Doelle and P. Greenfield, Appl. Microbial. Biotechnol. 22, 405 (1985). 20. Y. V. Wu and K. R. Sexson, JAOCS 62,92 (1985). 21. J. W. Barrier, J. L. Cabler, and J. D. Broder, “Biomass Research Programs in Agriculture ,” presented at Ninth Annual Southern Forest Biomass Workshop held in Biloxi, MS (8-11 June 1987). and Policy Issues, Paris (1984). 22. OECD, Biomass for Energy-Economic pp. 11-14, G. Grassi and H. Zibetta eds., 23. J. Coombs and F. Parisi, in Energy from Biomass-Z, Elsevier, New York, NY (1987). 24. M. R. Ladisch and G. T. Tsao, Enzyme Microbial. Technol. 8, 66 (1986). 25. K. W. Lin, M. R. Ladisch, D. M. Schaefer, C. H. Noller, V. Lechternber, and G. T. Tsao. AfChE Symp. Series 77, 102 (1981). 26. J. Wright, “Ethanol from Biomass,” Solar Energy Research Institute, unpublished draft. 27. R. Sproull, P. R. Bienkowski, and G. T. Tsao, Biotechnol. Bioengng Symp. 15, 559 (1985). 28. L. Hudson, “Fuel Ethanol: The Next Ten Years,” presented at the First National Corn Utilization Conference held in St. Louis, MO (1987 June 11-12). 29. H. Doelle and P. Greenfield, Appl. Microbial. Biotechnol. 22, 405 (1985). Protection Agency (EPA), Regulation of Fuels and Fuel Additives: Volatility 30. Environmental Regulations for Gasoline and Alcohol Blends Sold in 1989 and later Calender Years,” Notice of Proposed Rulemaking, 40 CFR 80, 86, 600 (1987).