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The oil shock in the early 1970’s initiated government support for the ethanol industry. Initially, Federal support was primarily in the form of fuel tax exemptions that gave gasoline blenders incentives to blend ethanol with their gasoline blends. As world oil prices began to rise in 2002, governmental support for ethanol began to rise, as did popular demand and industry production. Simultaneously, fear grew amongst gasoline blenders regarding any liability for MTBE pollution. A growing number of studies have detected MTBE in ground water throughout the country. Even low levels of MTBE can make drinking water supplies undrinkable due to offensive taste and odor. This concern culminated in the Renewable Fuels Standard of 2005. EPA’s Office of Water has concluded that available data is not adequate to estimate the potential health risks of MTBE in low levels of drinking water, but the data does support the conclusion that MTBE is a potential carcinogen in high doses. Recent work by the EPA and other researchers is expected to help determine more precisely the potential health effects from MTBE in drinking water.
The confluence of high oil prices, fuel tax credits, replacement of MTBE and passage of the Renewable Fuels Standard (RFS) encouraged a positive investment climate for new ethanol plants. The Renewable Fuels Standard was required by the Energy Act of 2005 (Section 1501). This requires growing renewable use from 4.0 billion gallons per year beginning in 2006 to 7.5 billion gallons by year 2012. Actual production is significantly ahead of the current mandate. As of September 28, 2007, there were 136 ethanol plants, with annual production capacity exceeding 7.0 billion gallons. An additional 89 plants were under construction. U.S. Ethanol production capacity is expanding rapidly and is currently expected to produce 12.9 billion gallons annually by 2009/10. Corn used for ethanol production is expected to expand from 2.125 billion bushels or 20.0% of annual corn production in 2006/07 to 4.3 billion bushels during the 2009/10 marketing year, approximately 30.0% of annual corn production at current acreage and yield levels. In the 2007 State of the Union Address, the president announced his goal to expand consumption of alternative fuels, inclusive of biofuels, to 35 billion gallons in 2017. Twenty percent of projected gasoline use is to be replaced by renewable or alternative fuels in ten years. Thus, the slogan “20.0% in 10” represents the likely guidance for ethanol and biofuel growth in the U.S.