U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
April 26, 2000

Long-Term Outlook for Biomass-Based Ethanol Depends on Technology, Tax
Incentives, and Environmental Regulations

Continued development of the technology to produce ethanol from plants other than corn could significantly reduce the cost of production and lead to an increase in ethanol production of between 40 percent and 160 percent by 2020. In addition to the advances in technology, projected ethanol production levels depend heavily on whether current Federal ethanol incentives are extended, according to "Outlook for Biomass Ethanol Production and Demand," a paper released today by the Energy Information Administration (EIA).

Ethanol production in the United States grew from 175 million gallons in 1980 to 1.4 billion gallons in 1998, with support from Federal and State ethanol tax incentives. Ethanol has also enjoyed some success as a gasoline volume extender, an oxygenate in high-oxygen and reformulated gasoline (RFG) in some markets, and an octane-enhancer. However, the current production of ethanol from corn is a mature technology that is not likely to see significant reductions in production costs.

Substantial reductions in ethanol production costs may be made possible by replacing corn with less expensive cellulose-based feedstocks. Cellulosic feedstocks include agricultural wastes, grasses and woods, and other low-value biomass such as municipal waste. Although cellulosic feedstock materials are less expensive than corn, today they are more costly to convert to ethanol because of the extensive processing required. Currently, the cost of producing ethanol from cellulose is estimated to be between $1.15 and $1.43 per gallon in 1998 dollars, compared to $1.10 per gallon for ethanol produced from corn and to today's wholesale price for gasoline of between $0.80 and $0.90 per gallon. Advances in feedstocks processing and biotechnology could, over the next two decades, reduce cellulose-based ethanol costs to between $0.69 and $0.98 per gallon, partly by using genetically engineered bacteria in the fermentation process.

If the 54-cent per gallon Federal subsidy for ethanol is extended beyond its current 2007 expiration date through 2020, the reference case projects an increase in total corn and cellulose ethanol production of 73 percent from the 1.6 billion gallons expected in 2000 to 2.8 billion gallons in 2020. In the low-technology development case, production rises to 2.3 billion gallons through the end of the forecast period. The high-technology development case projects ethanol to become economically competitive with gasoline and production rises to 4.2 billion gallons in 2020. Biomass ethanol production alone in 2020 is projected to be 850 million gallons in the reference case (See Figure).

EIA used the National Energy Modeling System (NEMS) to analyze the potential for cellulose-based ethanol production under various technological scenarios. The analysis suggests that ethanol could compete favorably with other gasoline additives if advances in biotechnology lower processing costs. However, significant barriers to the success of cellulose-derived ethanol remain. For example, it may be difficult to create strains of genetically engineered yeast that are hardy enough to be used for ethanol production on a commercial scale. In addition, genetically modified organisms may have to be strictly contained. Other issues include the cost and mechanical difficulties associated with processing the large amounts of wet solids associated with cellulosic ethanol production.

Another factor that could increase demand for ethanol would be the elimination of methyl tertiary butyl ether (MTBE) from gasoline. In March 1999, Governor Gray Davis announced a phaseout of the use of MTBE in gasoline by 2002 in California. Ultimately, ethanol's future in reformulated gasoline could depend on whether Congress modifies the Clean Air Act Amendments of 1990 to reduce or eliminate the minimum oxygenate requirement for RFG. Without the minimum oxygen requirement, refiners would have more flexibility to meet RFG specifications with blending alternatives, such as alkylates, depending on an individual refinery's configuration and market conditions. Ethanol would still be valuable as an octane booster, however, and could make up for some of the lost volume of MTBE.

"Outlook for Biomass Ethanol Production and Demand" is available on EIA's Internet Website at: http://www.eia.doe.gov/oiaf/analysispaper/index.html .

EIA Program Contact: James Kendell, 202/586-2308
EIA Press Contact: National Energy Information Center, 202/586-8800

EIA-2000-10

Contact:

National Energy Information Center

Infoctr@eia.doe.gov

Phone:(202) 586-8800

FAX:(202) 586-0727

URL: http://www.eia.doe.gov/neic/press/press156.html

If you are having technical problems with this site please contact the EIA Webmaster at mailto:wmaster@eia.doe.gov