Ethanol in Nebraska

Dr. Deb BridgesDr. Deb Bridges
associate professor of economics

Ethanol has been an alternative fuel source since the 1800’s when it competed with oil as a source of lamp fuel. Henry Ford produced cars designed to run on ethanol, and both the German and U.S. armies used ethanol during World War II. The oil crisis of the early 1970s, Hurricane Katrina and Rita’s disruption of oil refinery operations in 2005, and America’s desire to gain energy independence have heightened interest in ethanol.

There is no doubt that ethanol is important in Nebraska. Indicators of ethanol’s importance are reflected in the recent media stories focusing on the construction boom in Nebraska ethanol plants, the federal government’s push to increase U.S. independence from foreign oil and concerns of livestock producers over rising corn prices.

Most of us purchase ethanol without realizing it as it is blended with gasoline and referred to as “E-10” or “super unleaded” at the pump. As a fuel additive, ethanol helps reduce carbon monoxide and vehicle emissions, because it burns more efficiently and completely. Ethanol also improves octane or gasoline’s ability to defend against engine knock. As a fuel source, ethanol provides a viable alternative to petroleum-based gasoline.

Although the construction of ethanol plants is booming, it has not been able to keep pace with the demand for ethanol. Demand for ethanol has increased rapidly in the last two years, primarily due to the ban on the fuel additive MTBE and federal mandates stipulated in the Energy Policy Act of 2005. Major oil companies stopped producing the MTBE in early 2006 and switched to ethanol for blending reformulated gasoline, which increased the demand for ethanol by an extra 3 – 3.5 billion gallons annually. Oil refineries currently receive a subsidy of $0.51/gallon of ethanol used in blending reformulated gasoline, and there is a $0.54/gallon import tariff on ethanol. Although the ban on MTBE, combined with subsidization, has encouraged the use of ethanol, it still represents a small fraction, less than 2 percent, of the energy used in U.S. gas tanks.

Ethanol is an alternative energy source derived from plants with high starch content such as corn and sugar cane (Brazil). Two types of milling processes use corn in the production of ethanol: wet milling and dry milling, both of which also yield by-products such as oil, steep liquor, gluten meal and gluten feed (used as livestock feed). Nebraska currently has two wet milling plants, 10 operating dry milling plants, another nine dry milling facilities currently under construction, and many more in the planning stage.

The wet-milling process involves mixing the milled corn with water and sulfur dioxide to loosen the germ and hull fiber from grain and separate the starches to produce ethanol. The wet-milling process provides more flexibility in that plants have three possible products it can switch between: ethanol or corn sweetener or corn starch. One bushel of corn (56 pounds) produces 2.5 gallons of ethanol or 33 pounds of sweetener or 31.5 pounds of starch. In addition, 12.4 pounds of 21 percent protein livestock feed, three pounds of 60 percent gluten meal, 1.5 percent of corn oil and 17 pounds of carbon dioxide are produced

The dry milling process begins with milling the corn into a fine powder which is then liquefied, cooked into a mash, fermented and then distilled to remove the alcohol. The alcohol then goes through a dehydration process to remove the excess water, and denatured, which involves the addition of a small amount of gasoline to make the ethanol unfit for human consumption. One bushel of corn (56 pounds) produces 2.7 gallons of ethanol, 22 pounds of hominy (cattle feed), approximately 0.7 pounds of corn oil, 17 pounds of carbon dioxide, 10 one-pound boxes of breakfast cereal, 15 pounds of brewer grits, 10 eight-ounce packages of cheese curls and one pound of pancake mix.

While the use of ethanol as a fuel source is gaining popularity, and construction of ethanol plants in Nebraska is booming, what about corn and livestock producers in the state?

Increased ethanol production has resulted in higher corn prices (from $1.95/bushel in 2005 to more than $3/bushel in 2006). Since ethanol production uses corn, it benefits farmers by providing another outlet for their production. On the other hand, these higher prices are the result of increased competition for corn, which is also the primary feed used for cattle, and represents an increase in production costs for the livestock producer.While the by-products from ethanol production can be used in livestock rations, it takes time for this transition to occur due to changes in feed handling systems and rations.

Ethanol production will provide benefits to Nebraska. Ethanol plants bring additional jobs and increased opportunities for economic development, provide additional market outlets for corn producers, and the by-products serve as a low-cost alternative in livestock feed rations.