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What Is The Real Cost Of Corn Ethanol?

Ronald R. Cooke
The Cultural Economist
February 07, 2007

Corn is the most widely produced feed grain in the United States, accounting for more than 90 percent of total feed grain production. Around 80 million acres of land are planted to corn, with the majority of the crop grown in the Heartland region. Although most of the crop is used to feed livestock, corn is also processed into food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, and fuel ethanol. The United States is a major player in the world corn market. Approximately 20 percent of its corn crop is currently exported to other countries.

The United States Department of Agriculture (USDA) has announced American farmers are expected to get 55 percent more for a bushel of corn in the 2006/2007 growing season than they received in the 2005/2006 growing season. Average annual prices are expected to increase from $2.00 per bushel to about $3.10 per bushel.

Thanks to Federal mandates and subsidies, corn used for the production of corn ethanol is expected to increase from ~ 700 M Bushels in 2000/2001, to 3.2 B bushels in 2007/2008 – an increase of 357 percent. On December 11, 2006, the USDA estimated 2006-2007 U.S. ending stocks would be 935 million bushels, down from 1.97 billion bushels in 2005-2006. That decreases the ending stocks by more than 50 percent and puts the ending stocks to use ratio at 8%, - the lowest in 11 years. It should be obvious to all, we are going to need a lot more acreage and big yield improvements if corn production is going to keep up to demand. Prices could exceed $4.50 per Bu by the end of 2008. That’s a price increase of 125% over 2005/2006 season prices.

Score one for the agribusiness lobby.

Consumers Will Pay

Higher Food Prices
If corn prices increase by ~ 55 percent, year over year, then will the corn used for hog, cattle, chicken, turkey and fish feed go up 55 %? Doesn’t that increase the price of meat, poultry, fish, milk and eggs? If corn is used in corn meal, corn flakes, corn oil, and hundreds of other food items goes up 55%, doesn’t that increase the price of all these foods?  Maybe.  Since 2000, the price of beef is up 31%, eggs up 50%, corn sweeteners up 33%, wet corn milling up 39%, and corn flakes are up 10%. Chicken prices haven’t changed very much. Yet. Food producers are predicting higher prices.

The word on the street is that corn futures prices have risen because of the soaring demand for corn to produce corn ethanol. Iowa’s corn ethanol production is projected to exceed 3.6 billion gallons a year. At that rate, corn ethanol production would consume nearly 1.3 billion bushels of corn, or two thirds of the corn Iowa farmers harvested in 2006. Corn for July 2007 delivery, quoted on January 3, 2007, was $3.82 per bushel. That’s a ~ 60 percent increase over the average price for a bushel of corn from 1988 through 2006. But the net increase in the price of food is less than 60%. When processed into corn ethanol, a 56 pound bushel of corn can yield about 16 pounds of distillers grain, gluten meal, and corn oil, thus replacing some of the corn products lost to corn ethanol production. The inflationary impact of higher corn prices is also mitigated by the percentage of corn used in each item of food. The greater the percentage of corn used in the ingredients, the higher the final price paid by a consumer. Final consumer prices will also be driven by the impact of export demand, the efficiency of cultivation (including the use of fertilizers, herbicides, and insecticides), the increasing use of lower yield marginal land for corn production, corn belt weather, consumer demand, and the greed (or fear) of Futures Market speculators.

Corn prices don’t move in a vacuum. As the price of corn increases, there is a corresponding upward pressure on the price paid for other grains, such as rice and wheat. Poor growing conditions in Europe, the United States, the Ukraine, and Australia; along with low stocks of stored wheat; and an increase in production of biofuels; have combined to push international wheat prices up to levels not seen in 10 years. We can expect the price of bread, pasta, and cereals to increase in 2007.

If corn prices follow the upward trend in demand,
will the price of food double by the end of 2008?

Probably not.  But food prices are headed UP.  Families will be forced to spend a greater percentage of their budgets on groceries. Low income families face the specter of possible nutritional deficiency.

More For Fuel
Proponents argue we can “grow” our way out of our dependency on oil. E-85, a fuel blend containing 85% ethanol, along with blends of up to 10 % in other gasoline grades, and the manufacture of flex fuel vehicles that can burn any blend of ethanol with gasoline, promise to create a long term demand for fuel grade alcohol.  It will be a profitable business.

At taxpayer expense.

Congress, anxious to do something – anything – about the price of gasoline, has given the agribusiness industry a mandate it can not refuse. Corn ethanol production must rise from 4.0 billion gallons in 2006 to 7.5 billion gallons by 2012. Anxious to make sure its corn ethanol mandate gets done, Congress has also decided to take our tax money and use it to subsidize the production of ethanol. The current ethanol subsidy is a flat 51 cents per gallon of ethanol paid to the agent (usually an oil company) that blends ethanol with gasoline. Some States add other incentives, all paid by the taxpayer.

But there is more. It costs money to store, transport and blend ethanol with gasoline. Since ethanol absorbs water, and water is corrosive to pipeline components, it must be transported by tanker to the distribution point where it is blended with gasoline for delivery to your gas station. That’s expensive transportation. It costs more to make a gasoline that can be blended with ethanol. Ethanol is lost through vaporization and contamination during this process. Gasoline/ethanol fuel blends that have been contaminated with water degrade the efficiency of combustion. E-85 ethanol is corrosive to the seals and fuel systems of most of our existing engines (including boats, generators, lawn mowers, hand power tools, etc.), and can not be dispensed through existing gas station pumps.  And finally, ethanol has about 30 percent less energy per gallon than gasoline. That means the fuel economy of a vehicle running on E-85 will be about 25% less than a comparable vehicle running on gasoline.

So. How much does the consumer pay for a gallon of corn ethanol? Let’s sum it up.

Cost For A Gallon Of Corn Ethanol



Corn Ethanol Futures Market quote for January 2007 Delivery


Add cost of transporting, storing and blending corn ethanol


Added cost of making gasoline that can be blended with corn ethanol


Add cost of subsidies paid to blender


Total Direct Costs per Gallon




Added cost from waste


Added cost from damage to infrastructure and user's engine


Total Indirect Costs per Gallon




Added cost of lost energy


Added cost of food (American family of four)


Total Social Costs




Total Cost of Corn Ethanol @ 85% Blend


These numbers are estimates. We can speculate about the real cost of corn ethanol. It may cost more – or less – than $6.89 per gallon. But the real price we pay for corn ethanol is much higher than the one we see at the filling station.

Energy Boondoggle
Under optimum conditions, using the latest technology, assuming “normal” corn yields, and also assuming energy credits are allocated to the co-products of corn ethanol production, the USDA estimated in 2002 that corn ethanol can provide us with an adjusted 19,287 Btu/gal. Wait. Co products? Isn’t that the energy mostly derived from feeding corn products to animals?  What do distiller’s dried grains with solubles from dry milling, and corn oil, corn gluten meal, and corn gluten feed from wet milling have to do with motor fuel?

Nothing. Nada. The 2002 study supports a net fuel energy gain of 8.2 percent. A later 2004 study concluded the net fuel energy gain was 5.9 percent. Critics of the USDA’s methodology point out that it does not include sufficient input energy for facilities, process equipment, and farm machinery. It fails to account for corn ethanol losses during blending, distribution, and consumption. We must also consider that corn crops are very dependent on the weather. In good years, prices will be “normal”. Bad weather, on the other hand, will not only increase the price we pay for corn ethanol and food, it may also lead to fuel shortages.

Sorry.  But we Americans have been used to deriving our energy from oil, where the historical return was more like 100:1, and where the return on land extraction still exceeds 10:1. In my opinion, if we wish to build our energy reserves, a viable liquid mobile fuel production process must yield at least twice the energy it consumes. By contrast, many believe corn ethanol consumes more energy than it yields.   And I agree.  We could easily waste more than 8.2 percent of the corn ethanol we make in the distribution chain. That means the Congressional corn ethanol mandate is destructive, rather than constructive.

So. What did we accomplish with this rush to a politically expedient pop-culture solution?

The Benefits?
It can be done. We can ramp up corn ethanol production to 7.5 billion gallons per year by 2012. But if corn ethanol is not a cheap alternative to gasoline, and corn ethanol production increases the price of food, are there any offsetting benefits to make these higher costs worthwhile?

Cleaner Air
When most cars had a carburetor, adding corn ethanol to gasoline tricked the fuel system into delivering a leaner mixture to the engine. Since proponents tended to ignore the loss of fuel economy, it was assumed that all vehicles running on a 2 to 5 % mix would cause less air pollution. But that was 20 years ago. Today’s fuel injected engines self-adjust to the fuel mixture regardless of fuel composition. Sensors tell the fuel system computer if the mix needs to be rich (when the engine is warming up), or can be lean (for increased fuel efficiency and lower emissions). Corn ethanol does little, if anything, to reduce the tailpipe emissions of late model cars.

The environmental benefits of E85 are both uncertain and confusing. Test results vary depending on water contamination, engine temperature, test vehicle fuel system design, ignition system performance, and the ideological convictions of the tester. It is likely E85, when compared with standard gasoline, will reduce tailpipe emissions from oxides of nitrogen, 1,3-butadiene, and benzene. Methane and total organic gas emissions are greater. Carbon monoxide ad CO2 results vary from reasonably good to really terrible. The real eye opener is a large increase in formaldehyde (isn’t that the stuff they use to embalm dead people?), and a huge increase in acetaldehyde emissions. A suspected neurotoxin, exposure to acetaldehyde vapor will irritate the victims eyes, skin and respiratory tract. The State of California has determined that acetaldehyde is a carcinogen.

And we should consider this concept. Do we release far more pollution into the environment during the production and processing of corn into corn ethanol than we save in act of consuming corn ethanol as a motor fuel?  Probably.  Corn is monoculture cultivation on a massive scale, requiring copious quantities of oil and natural gas for herbicides, pesticides, and fertilizers. These – along with tons of eroded soils – are deposited as a polluted waste in our rivers and oceans. If the agribusiness industry attempts to increase current levels of food production by deforestation and the use of marginal land, the net result is an acceleration of greenhouse gases and a decrease in biodiversity. Corn derived animal feeds are a potent source of methane, a greenhouse gas.

In my trusty Honda Accord, straight gasoline gave me roughly 31 MPG. When California added a low percentage of corn ethanol to the mix, my mileage dropped to 28 MPG. I had to use 9.7% more fuel to go the same distance. I just completed a like comparison in my Honda Pilot. My mileage dropped from an average of 22.5 MPG, to 20.4 MPG, a reduction of 9.3%. If the improvement in air quality is marginal (at best!), then doesn’t the energy loss of corn ethanol actually increase the release of CO2?  Perhaps it is time to challenge our obsolete assumptions. This is 2007. Does corn ethanol in the mix continue to make any sense?

That, of course, is a rhetorical question. If we evaluate corn ethanol as a fuel system, we must add the hydrocarbon and poisons produced during planting, growing, harvesting, conversion, transportation, blending, distribution, and consumption to the additional hydrocarbons released by corn ethanol waste, and the hydrocarbon penalty from energy inefficiency.

More questions.

  • Does our enthusiasm for corn ethanol actually increase global warming?
  • Have we deceived ourselves with vaporous logic?
  • Does corn ethanol reduce the production of green house gases, - or does it merely encourage the increased consumption of hydrocarbon fuels?
  • Does the federal corn ethanol program encourage the perpetuation of our energy intensive lifestyle?
  • Are we laboring under the self induced delusion we do not have to develop an energy detensive culture?
  • If we burn a hydrocarbon fuel, what difference does it make when these hydrocarbon chains were created?

Green house gas is green house gas. Every puff adds to global warming. Our pop culture romance with corn ethanol – all carefully nurtured by agribusiness interests – obscures the realities of corn ethanol combustion. It does not force us to do the one thing we must do to protect our environment – increase the efficiency of fuel consumption.

Addressing Global Warming, Air Pollution Health Damage, and Long-Term Energy Needs Simultaneously, Mark Z. Jacobson, Dept. of Civil and Environmental Engineering, Stanford University, June 6, 2006.  “Proponents of corn ethanol suggest that it is a clean and renewable fuel that will reduce air pollution and address climate change. Data, computer model results, and new emission information suggest that corn ethanol is neither clean nor has it been shown that it can slow global warming. To the contrary, its promotion will continue the public health crisis that has resulted in thousands of premature air-pollution-related deaths and millions of cases of asthma and respiratory disease each year in the U.S.” …..

So.  Does adding corn ethanol to fuel mix do anything to help in our quest for cleaner air? The ecology of our planet?  Global warming?

I could be wrong. You decide.

Makes Us Less dependent on Oil
A controversial conclusion. In the name of political expediency, Congress has failed to pursue a coherent energy policy. For example: Congress gives American auto manufacturers “excess mileage” credits for building E-85 flexible fuel vehicles, saving them $ millions in penalties they should have paid for not meeting this nation’s CAFÉ mileage standards. The result: the American auto industry builds lots of big cars, SUVs, and trucks. The net effect of Congressional policy is to increase tailpipe emissions and our nation’s dependency on foreign oil.

More controversy.  Best case, it takes almost as much energy to make corn ethanol as we get from the resulting corn ethanol fuel. Deduct waste and energy consumed in the supply chain, along with a sharp decrease in fuel efficiency, and what do you get? At best, if we reach the goals set by Congress, corn ethanol will make America less than 1 percent less dependent on oil as a fuel resource.

I remain skeptical.

Unintended Consequences
I read somewhere that 80 million humans starved to death in the 20th century. That number seems low. Only 2 percent out of an average population of 4 billion humans.
Are body counts a State secret?

In any event, famines occurred throughout the 20th century: The Allied blockade of Germany from 1915 – 1918; Armenia 1915 – 1917; The Soviet Famine of 1932 – 1934; Poland 1940 – 1942; Leningrad 1941 to 1944; India 1943 – 1944; China 1928, 1942, 1958 - 1962; Biafra in the late 1960s; Cambodia in the 1970s; and more recently the famines in North Korea, Sub-Saharan Africa, South Asia and parts of Latin America. Pockets of starvation and malnutrition happened all over the globe. We can blame them on crop failure, drought, and pestilence. But most were either created or exacerbated by man. Hatred, war, genocide, lousy economic policy. Hunger has been politicized and globalized. Famine is invariably attended by disease, malnutrition, poverty, inflated food prices, declining education, disrupted medical systems, social disintegration, and – bloody senseless conflict. Most of the dead are little children and old people. More men than women. Millions suffer from severe malnutrition – the bride of crippling disease. And things are getting worse. We humans are destroying our arable land. The cost of the amendments and chemicals that spurred the green revolution are becoming prohibitively expensive. By the end of the 2oth century, the basic infrastructure of food production was breaking down in many parts of the world. In Brazil, for example, the replacement of small farms with vast seas of industrialized sugarcane monoculture has led to a decrease in biodiversity, the conversion of more forests to farmland, increased food prices, and rising social problems from vandalism, unemployment, political unrest and violence. Food production has declined at many subsistence farms in Africa, Asia, Mexico, and elsewhere. Although the demand for corn promises to increase the income of poor farmers in Mexico, they will have to chose between planting crops for food or crops for fuel.

Will the quest to “grow our way out of our dependency on oil” lead to greater hunger?
Is that the real cost of corn ethanol?

A study of third world cultural economics suggests millions of Third world farmers face increased deprivation. If impoverished farmers are forced to raise fuel crops because they increase the wealth of those in power, the farmers will starve because they did not grow enough food. Sadly. The prerequisite pattern of oppression has already been established in Third World countries. Inorganic fertilizers, herbicides and pesticides are already too expensive. So farmers plant the land without them until it is exhausted.   Useless.

Current corn ethanol production plans will take most of America’s corn crop off the world market. Corn and grain crop prices paid by millions of people in multiple nations will go up. For some, there is not enough money to pay these inflated prices.

Given the desperation of existing worldwide malnutrition and hunger, and knowing corn ethanol production will increase the price of almost everything we eat,
is it ethical to use arable land to produce ethanol?

You decide.

There Are Better Alternatives.
I will admit to angst.  Frustration.  Disgust.  Many, many very bright people are working on the energy solutions.  Wind, solar, biomass, coal, nuclear, oil, natural gas, currents – the list is very long.  The Department of Energy has launched a number of constructive programs and projects. The work being done by the DOE’s Argonne National Laboratory, National Renewable Energy Laboratory, National Energy Technology Laboratory, Oak Ridge National Laboratory, and other organizations in basic science, fuel technology, fuel resources, and energy efficiency are highly commendable.  But all to often the objectives are as much driven by political considerations as by practical program management. We can fault Congress for the misuse of wonderfully talented people.  If we expect these programs to produce credible, viable results, they must be pursued without regard to pop culture or political influence.  A good energy program is a well managed product development program.  Goals.  Objectives.  Time lines.  Decisions based on real benefits.

  • We would get a far better return on our investment if we took all the money Congress is spending on corn ethanol subsidies and spent it on automotive and industrial fuel efficiency. The benefits are immediate and quantifiable. Increased fuel efficiency reduces oil consumption, eases the problem of our dependence on foreign oil, and reduces the emission of green house gases.
  • We could do a far better job of building our energy stocks and reducing global warming if we found a way to use dirty natural gas – the gas flared during the production and refining process - as a fuel .
  • Biodiesel and cellulosic Butanol appear promising. It would appear that the wide variety of feedstocks, the possible production of electricity from the combustion of lignin, and the higher net gain in energy all work to make cellulosic Butanol far more attractive as an energy solution than corn ethanol.

And on and on.  There are multiple ways to reduce global warming.  So.  By comparison, what did this burst of enthusiasm for corn ethanol accomplish?

The Real Cost
Congress has decided to use our tax payer dollars to raise the price of food, increase the cost of motor fuels, and promote global warming. One could make the case Congressional action has also increased malnutrition, hunger, and disease. And why did Congress fund this immoral program? Because our politicians leaders are locked in a nasty battle for political power. It was a politically expedient decision. A pop-culture solution.

Is this what we want?

The marginal benefits of cleaner air will be offset by increased pollution in the corn ethanol supply chain. On a net energy basis, one can make the case corn ethanol increases America’s consumption of natural gas and oil. We have been warned by academics, staff at the United Nations, and many, many of others: The specter of famine promises to accelerate exponentially in the 21st century. Every acre converted to the production of fuel is an acre that will not be used for food. And finally, there are alternative energy solutions available to us that would be far more effective if we really want to do something constructive about global warming.

And despite all this – Congress wants to use crop land to grow fuel?  Has motor fuel become more important than eating? Why has Congress chosen to ignore the impact their program will have on the price of food?  And why corn ethanol?  Is it because corn is a crop Iowa farmers know how to grow?  Is campaign financing and the 2008 election cycle more important than constructive strategic planning?  Was corn ethanol an overly simplistic response to our looming energy shortages?  Has most of the campaign for corn ethanol been financed by agribusiness interests?  Do they have a financial interest in the outcome?  Has the environmentalist community been hoodwinked? Was the claim that animal feed is energy deceptive?

You decide.

By all means, we should explore the development, production, and distribution of biomass fuels. Many are working diligently on the conversion of plant wastes and other organic materials into motor fuels. My son and I have talked frequently about alternative fuels. With great patience he has sketched out the chemical reactions needed to get from raw material to motor fuel.  Pieces of paper scattered about the kitchen table. Each promises a potential solution.  All need work.  He has his own ideas about the conversion of agricultural, commercial, industrial, and municipal wastes into useful fuels.  We agree on the objective (you can read about it at ).

What ever we do, let’s base our alternative fuel decisions on good science, cultural economics, and a consideration for the use of these fuels within the context of our environmental goals. Pop culture solutions forced on us by the selfish-best-interest political power of the proponents is a trap we shall regret.

That’s the way I feel. How about you?

Ronald R. Cooke
February 07, 2007
The Cultural Economist

1I encourage you to do your own homework. Analyze the best data you can find. Then plug your findings into the above Table. Just remember. Every box has a data point.

2The Energy Balance of Corn ethanol: An Update. By Hosein Shapouri, James A. Duffield, and Michael Wang. U.S. Department of Agriculture, Office of the Chief Economist, Office of Energy Policy and New Uses. Agricultural Economic Report No. 814. July, 2002.

3Apparently, when Brazil tried using agricultural crops other than sugar cane for ethanol, it achieved only a 1:1.20 energy conversion rate.  It wasn’t worth the effort.

4I encourage you to look up the evaluation done by David Pimentel (Cornell) and Tad Patzek (U. C. Berkeley). They believe it takes more energy to make ethanol than we get from ethanol.

5The same technique can not be used to mix ethanol with diesel fuel.

6If we are willing to ignore the environmental impacts, it would take ~ 6 units of energy to get ~ 1 unit of net new energy – best case – or a mere 60 gallons of net gain per acre of corn. If we think we can grow our way out of oil dependency, we had better plan on consuming corn at a rate of 77 acres per second!

7Despite working toward energy independence since the 1970s, in 2000 Brazil found out that a bad crop year was as devastating as a reduction of imported oil. It was forced to import corn ethanol from the Archer Daniels Midland Co.

8See “The Federal Energy Policy Act of 2005” at

9See “Dirty Natural Gas” at

10Iowa is a critical “must win” State for America’s politicians. Serious candidates do everything they can to please Iowa’s voters. Is the use of taxpayer money to subsidize corn and ethanol production a form of bribery?

11And with great patience, he has explained most of these alternative energy solutions were well known when he received his Masters Degree in Chemical Engineering at U. C. Davis – over 20 years ago.

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