Henry Ford’s first motor vehicle—the “quadricycle (1896)”—ran on ethanol, and his Model T (1908) could run on ethanol, gasoline, or a combination of the two.1 The large-scale commercial use of ethanol traces to 1973 when the US Environmental Protection Agency required the phase-out of lead as a gasoline additive due to public health concerns. Ethanol was an attractive substitute as an octane booster that improved engine performance.2
The blending of ethanol with petroleum-based motor gasoline was encouraged by decades of federal and state government support. The Energy Tax Act (1978) established the first excise tax exemption for gasoline blended with alcohol fuels (ethanol and methanol). The American Jobs Creation Act of 2004 established a tax credit of 45 cents per gallon of ethanol blended with gasoline. The tax credit expired at the end of 2011.
Government support for ethanol shifted from incentives to regulation starting with the 1990 Clean Air Act amendments that required cleaner gasoline blends to reduce air pollution. The Renewable Fuel Standard (RFS) was introduced as part of the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007. The RFS requires a minimum volume of renewable fuels, primarily ethanol, to be blended into transportation fuel. An additional boost for ethanol came when blenders began to phase out the blending of methyl tertiary butyl ether (MTBE) into motor gasoline in the early 2000s due to its discovery in urban groundwater supplies.3
Ethanol consumption expanded from 4.1 billion gallons in 2005 to 14.6 gallons in 2019. Over that same period, ethanol increased from about 2% to 10% by volume of gasoline consumed. Most motor gasoline sold in the United States is about 10% fuel ethanol by volume.
“Corn Belt” states in the Midwest account for most of the nation’s ethanol production due to its high corn production and established biorefinery infrastructure. Iowa produced about 27% of the nation’s ethanol in 2023 due to abundant corn production, strategic geographic position, favorable state renewable fuel standards, tax incentives, and infrastructure investments that encourage ethanol blending and distribution.
The demand for corn to produce ethanol is a major driver in the market for corn. In the 1990s, corn grown for ethanol accounted for about 5% of the total end use of corn. However, the renewable fuels standard and other incentives dramatically shifted market forces. By 2023, corn used in ethanol production accounted for about 37% of the market. This is a major reason why the ethanol industry has such strong social, political, and economic support in major corn-producing states.
Ethanol is a long-running debate in energy, environmental, and climate discussions. The industry has demonstrable economic benefits. According to the Renewable Fuels Association, ethanol production in 2022 accounted for nearly 79,000 direct jobs across the country, $57 billion of the gross domestic product, and $34.8 billion in household income.4 Ethanol is an effective octane booster that improves the performance of gasoline engines. As an oxygenate ethanol reduces the emission of harmful air pollutants such as carbon monoxide and volatile organic compounds.
Ethanol from corn in the United States contributes less to anthropogenic climate change than gasoline from crude oil. Current research indicates corn ethanol has 40% to 50% lower life cycle greenhouse gas emissions than gasoline.5
Domestically produced ethanol provided an energy security benefit by reducing the quantity of oil imports. But that benefit is tiny compared to the magnitude of benefits provided by the massive increase in domestic crude oil production enabled by fracking since the early 2000s. The United States was a net petroleum exporter of 1.64 million barrels per day in 2023, due largely to fracking.
The corn from which ethanol is produced is grown in an agricultural system that can have substantial environmental impacts that include habitat conversion and loss, soil erosion, water consumption, water pollution such as eutrophication, pesticides, and the loss of genetic diversity.6 These impacts can have harmful effects on human health.
The ethanol industry has received tens of billions of dollars in subsidies from the government. The wisdom of such support is the subject of debate. Ethanol supporters argue that it was a wise investment to reap the benefits of the fuel and to support rural economies. Critics argue that the benefits of the subsidies are outweighed by the environmental impacts of corn production, the minimal energy security benefits it now delivers, the mature state of the ethanol industry, market distortions that could raise corn prices, and the distribution of subsidy benefits.
Economists at Resources for the Future concluded that a large portion of the ethanol tax credit went to gasoline blenders, including major oil companies such as BP, Exxon Mobil, and Shell. A small portion of the benefit found its way to local farmers producing the corn.7
Ethanol is a major end-use for corn, so it stands to reason that changes in the demand for ethanol will affect the price of corn. Estimates of the impact span a wide range due to variations in assumptions, data, period, and type of model. A recent review of this research found that the increase in the demand for ethanol under the Renewable Fuel Standard increased corn prices from 3% to 52%, which in turn increased the price of ethanol from nil to 8%.8 Higher corn prices also cause increases in the price of food commodities.
Under certain market conditions, higher corn prices have a deleterious ecological impact. Higher prices discourage farmers from participating in the Conservation Reserve Program (CRP). The CRP pays farmers to remove environmentally sensitive land from agricultural production. When corn prices are high, farmers opt out of the CRP at a higher rate.9
1 U.S. Energy Information Administration, “Energy Timelines: Ethanol,” accessed May 3, 2024, https://www.eia.gov/kids/history-of-energy/timelines/ethanol.php
2 U.S. Environmental Protection Agency, “EPA Takes Final Step in Phaseout of Leaded Gasoline,” January 29, 1996, https://tinyurl.com/23anckke
3 Johnson, Caley, Kristi Moriarty, Teresa Alleman, and Daniolo Santini. 2021. “History of Ethanol Fuel Adoption in the United States: Policy, Economics, and Logistics.” Golden, CO, National Renewable Energy Laboratory. NREL/TP-5400-76260. https://www.nrel.gov/docs/fy22osti/76260.pdf
4 Renewable Fuels Association, “Pocket Guide to Ethanol,” 2022, https://tinyurl.com/3t4nuzfs
5 Lee, Uisung, Hoyoung Kwon, May Wu, and Michael Wang. “Retrospective Analysis of the U.S. Corn Ethanol Industry for 2005–2019: Implications for Greenhouse Gas Emission Reductions.” Biofuels, Bioproducts and Biorefining 15, no. 5 (2021): 1318–31. https://doi.org/10.1002/bbb.2225.
6 Lee, Eun Kyung, Xuesong Zhang, Paul R. Adler, Gary S. Kleppel, and Xiaobo Xue Romeiko. “Spatially and Temporally Explicit Life Cycle Global Warming, Eutrophication, and Acidification Impacts from Corn Production in the U.S. Midwest.” Journal of Cleaner Production 242 (January 1, 2020): 118465, https://doi.org/10.1016/j.jclepro.2019.118465.
7 Bielen, David A., Richard G. Newell, and William A. Pizer. “Who Did the Ethanol Tax Credit Benefit? An Event Analysis of Subsidy Incidence.” Journal of Public Economics 161 (May 1, 2018): 1–14. https://doi.org/10.1016/j.jpubeco.2018.03.005.
8 O’Malley, Jane and Stephanie Searle, “The Impact of the U.S. Renewable Fuel Standard on Food and Feed Prices.” International Council on Clean Transportation, January, 2021, Link
9 Abbott, Chuck, “High commodity prices shift conservation lands to crop fields,” Succesful Farming, May 4, 2022, Link
