Ethanol - background and policy issues

The Congressional Research Service (CRS) released a report on ethanol last week (Mar. 3). The study focuses on ethanol made from corn, since that is the primary source in the U.S.; in other countries it is cane sugar.

According to the study, finding alternatives to petroleum is a constant in U.S. energy policy, and ethanol plays a key role. While ethanol's primary use currently is as a gasoline additive, "it has the potential to significantly displace petroleum demand." CRS traces the initial spur for ethanol production to the mid-70s, as a response to the oil embargoes of 1973 and 1979. Thereafter, the ethanol industry got a boost when the Clean Air Act Amendments of 1990 (S.1630 which became PL 101-549) created the reformulated gasoline (RFG) program. As the report explains, RFG requires oxygenates in gasoline to reduce carbon monoxide and other emissions, and ethanol is one of the two most commonly used oxygenates. The study also discusses the most recent legislation, the Energy Policy Act of 2005 (PL 109-58, pdf, 3MB, 551p., from GPO). The Act established renewable fuel standards (RFS), mandating ethanol and other renewable fuels in gasoline.

The study asserts that the ethanol market relies heavily on federal incentives such as tax credits, import tariffs, and mandates for its use, which to ethanol opponents "amount to corporate welfare for corn growers and ethanol producers." The report concludes that ethanol's benefits in terms of energy consumption and greenhouse gases are limited, but federal incentives have promoted significant growth in the industry. In requiring renewable fuels in gasoline, the Energy Policy Act of 2005 will continue to create demand for ethanol, CRS believes.

The report notes that in the current 109th Congress, H.R.4409 (pdf, 180KB, 89p., from GPO) eliminates the tariff for fuel ethanol, among other provisions.

Fuel Ethanol: Background and Public Policy Issues, CRS Report RL33290
(pdf, 116KB, 26p., from Open CRS)

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