GmHnQL ECQFIQMIC FEASjBILITY STUDY 

Final ~Reprrrt 

U.S. -Department of Energy nm . = 
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Distribution Category. U~6^1 

Development Planning and Research Associates, Inc. 

P. 0. Box 727, Manhattan, Kansas 66502 

GASOHOL 

ECONOMIC FEASIBILITY STUDY 

~ .- - - 

I -NOTICE 

: rcpofl as an account of work 

I rponrorcd by the united Slates Govcrnmenl. Neither he 

unitc,j stater nor the united Stater Deparlrntnt of / mew, no, any of wir employees. nor any 01 heir 

Final' Report ,onlractorr, rubcontracton, or thcb cmPloYees. makes 

any or implied, or a5umcs any led 

by liability or re$ponribility for the accuracy, cornple~n=~ ., usefulne5 of any informalion. apparatus, pmducl Or 

Mi:lrton: L.. david, proce5 dtwlorcd, or repre~n~ that its ux would not 1 infringe privately owned xi&'. 

Geneva; S-. Hammaker i__-- .- - 

- 

John P. Wagner 

Prepared for 

Energy Research and Development Center 

1JniVers)ity of Nebraska, tincol n 

In) cooperation with Nebraska 

Agriculitural Products Industrial Uti 1 ization 

Committee and the State of Nebraska 

and the U.S. Department of Energy 

Under Contract EF-77-G-03-1681 

July 1978 
TABLE OF CONTENTS 

EXECUTIVE SUMMARY 

Page 

1 

I. REPORT ORGANIZATION 

11. GASOHOL: TECHNICAL CHAZACTERISTICS AND COST OF ETHANOL 

A. Method01 ogy 

B. Value Adjustments for Gasohol Characteristics 

1. Ethanol Plus Special Base Gasoline 

2. Ethanol Plus Unleaded Gasoline 

C. Cost Adjustments for Gasohol Distribution 

1. Water Sensitivity 

2. Safety and Toxicity 

3. Impacts on Distribution Costs 

D. Price of Gasol ine 

1. Retail Price of Gasol ine 

2. Retail Gasol ine Price Projections 

3. Refinery Gate Gasoline Price 

4. Transportation and Terminal 1 i ng 

5. Dealer Margins 

6, Taxes 

E. Marketing 

F. Gasohol and Imputed Ethanol Prices 

111. ETHANOL: GENERAL CHARACTERISTICS AND PRODUCTION TECHNOLOGY 

A. Ethanol Production 

8. Prscess Operatinns and Equipment for Grains 

1. knzyme and Yeast Propagation 

2. Grlndlng and Cooking 

3. Fermentation 

4. Beer Still Distillation 

5. Liquid Concentration 

6. Drying 

7. Distillation 

8. Dehydration 

9. Denaturation 

C. Process Operations and Equi pment for Non-Grai ns 

1. Process and Equipment for Potato Fermentation 

2. Process and Equipment for Sugar Beet 

Fermentation 

3. Process and Equipment for Starch and 

Molasses Fermentation 
TABLE OF CONTENTS (Con'd) 

Page 

D. Potential Ethanol Production Technology 

1. Raw Materials 

2. Improved Micro-Organi sms 

3. Equipment and Process Developments 

IV. ETHANOL : INPUT-OUTPUT RELATIONSHIPS OF RAW 

MATERIALS AND ENERGY . . 

A. Raw Material Input and Product Output Relationships 

1. Ethanol 

2. Distil 1 ers By-product 

3. Carbon Dioxide 

4. Water 

C. Energy Input-Output Re1 ationships 

1. Plant Energy Sources 

2. Energy Balance 

V. ETHANOL: RAW MATERIAL COSTS AND BY-PRODUCT CREDITS 

A. Raw Material and By-Product Prices 

1 Raw Material Prices 

2. By-product Prices 

B. Net Raw Material Cost 

C. Price and Availability of Sample Grade Raw 

Material Grains 

1. Grains 

2. Potatoes 

VI. ETHANOL: PLANT INVESTMENT AND OPERATING COSTS 

A. Method01 ogy 

B. Estimated Plant Investment 

1. Estimated Investment for a 20 Million 

Gallon Grain Ethanol Plant 

2. Estimated Investment by Size of Grain 

Ethanol PI ant 

3. Comparison of Grain Ethanol Plant 

Investment Estimates 

4. Estimated Investment for Non-grain 

Ethanol Plants 

5. Comparison of Investment bay Type of Plant 

C. Estimated Operating Costs 

1. Estimated Operating Costs for Grain 

Ethanol Plants 

2. Estimated Operating Costs of Non-Grain 

Ethanol Plants 
TABLE OF CONTENTS (Con'd) 

I. FINANCIAL ANALYSIS OF ETHANOL PRODUCTION 

A. Method01 ogy 1. Cost of Capital 

2. Operating Cash Flow 

3. Investment 

4. Inflation 

5. Display of Results 

6. Computation 

0. Analyses Performed 

1. Plants Analyzed 

2. Bases of Analyses 

C. Base Condition Results 

1. Feasi bi 1 i ty under Base Conditions 

2. Grain Ethanol 

.3. Non-Grain Ethanol 

D. Production Cost Sensitivity 

1. Investment Cost 

2. Grain and Distillers Dried Grain Prices 

3. Direct Energy Cost 

E. Incentives for Etha'nol Production 

1. Incentives for Current Energy Development 

and Produc ti on 

2. Financing 

3. Income Tax Credits 

4. Direct Construction Grants 

5. Subsidies 

F. Feasi bi 1 i ty of Ethanol Production Under Higher 

Qasol ine Prices 

VIII. ETHANOL: PLANT SIZE. MARKET AND SITE SELECTION FACTORS 

A. Market Parameters 

1. Raw Material Production Densities 

2. Distillers Dried Grain Use Densities 

B. Plant Size 

1. Transportation Costs 

2. Conversion Costs 

3. Economies of Plant Size 

C. Plant Site Selection Criteria 

IX. COMMENTS ON IMPACTS OF REGIONAL GASOHOL PROGRAM 

A. Ethanol Requirements 

1. Historical Gasoline Use 

2. ProjectedGasolineC~nsurnption , 

3. Potential Ethanol Requirements 

VIII-1 

VIII-2 

VIII-2 

VIII-4 

VIII-4 

VIII-4 

VIII-10 

VII 1-10 

VIII-17 

1x-1 

1x-1 

1x-1 

1x-6 

1x09 
TABLE OF CONTENTS (Con'd) 

8. Agrtcul tural Impacts 

1. Land Resource Impacts 

2. Livestock Production 

3. Farm Prices 

4. Net Farm Income 

C. Impact on the Soybean Industry 

D. Other Impacts 

1. Refinery Operations 

2. Energy Requ i remen ts 

3. Consumer Prices 

4. Gasohol Program Costs 

5. Impacts on. Plant Engineering, Equipment 

Manufacturers and Construction Support 

6. Capital Markets 

7. Balance of Payments 

Page 

ix-9 

ix-9 

ix-18 ix-is 

1x119 

1x-19 

APPENDICES 
EXECUTIVE SUMMARY 

This report, "Gasohol Economic Feasi bi 1 i ty Study," was prepared by Devel opment Planning and Research Associates, Inc. under a contract with the Energy 

Research and Development Center of the University of Nebraska in cooperation 

with the Agricultural Products Industrial Uti 1 ization Comi ttee and the State 

of Nebraska. Funding for this study was provided to the Energy Research 

and Development Center by the U. S. Department of Energy and the Old West 

Regional Comission. 

The primary objective of the study was to: 

determine the fiscal and market conditions under which the 

production of gasohol would be profitable for private producers 

For purposes of this study, gasohol is a motor fuel consisting of 10 percent 

agricultural ly-derived anhydrous ethanol and 90 percent unleaded gasol ine. 

The study assumes that gasohol can be a fuel substitute for gasol ine; indeed, 

the cost of gasol ine wi 11 significantly influence that for gasohol. Gas01 ine 

prices are determined by factors external to ethanol ; thus, the economic 

feasibility study of gasohol is in large part an economic feasibil ity study 

of fuel -grade ethanol production. 

More specifically. the study examined the following: 

the technical aspects of distributing, marketing, and using 

gaso ho 1 

the costs of the distribution and marketing of ethanol and 

gasohol 

@ the energy balance of ethanol production 

the cost of producing ethanol 

the factors influencing ethanol plant size and location 

the conditions that would make ethanol economically feasible 

for private producers 
Introduction 

The report was necessarily based on a synthesis of existing data and studies 

In many cases, the requisite data and information were not available or were 

contradictory. Such limitations were noted. 

Efforts to develop new definitive data were not undertaken nor considered 

appropriate under the study's Terms of Reference. The reader of this study 

should recognize that its findings cannot be considered comprehensively 

definitive. Neither the time nor the resources allocated to the study by 

its Terms of Reference permitted the Contractor's developing the sophisticated 

and technical engineering data and econometric models needed for completeness. 

The findinss of the study, as presented, were based on the best available 

evidence and the most logical assumptions warranted by present conditions 

and implications. The frequent tentativeness of the findings described 

below were dictated by the study's limitations. 

Geoqraphic Coveraqe 

The study was confined to a seventeen state area encompassing the Cornbelt, 

Lake States, the Great Plains, and Colorado, Wyoming and Montana (Figure 1). 

Raw Materials Considered. 

The consideration of raw materials was 1 imited to major commodities comonly 

produced in the seventeen state region. Specifically , these include: 

corn 

0 grain sorghum 

wheat 

0 potatoes 

a sugar beets 

molasses 

starch 

.Limi tat i ons 

Because definitive data on ethanol and gasohol are not available and because 

existing data are frequently contradictory, certain. l imi tations to the study 

were unavoidable. The 1 imi ta ti ons i ncl uge: 

0 insufficient evidence to make cnncl~~sive cost adjustments for 

fuel economy , octane enhancement and for vapor pressure differences 

that might be associated with gasohol 

insufficient data to conclusively determine the possible costs 

of moisture-free ethanol and gasohol distribution and storage 
Figure 1. State map of study area 
unavai labi 1 i ty of a general ly accepted energy accounting procedure 

to determine conclusively the energy balance of ethanol production 

e insufficient ethanol plant investment and operating cost estimates 

for plants with greater than 20 mi1 1 ion gal Ions per year capacity. 

(The larger plant cost estimates prepared for this analysis are 

of reconnai ssance grade qua1 i ty. ) 

a insufficient available data to measure definitively the economic 

impacts resulting from the prices of the distillery by-products 

consequent to a large regional gasohol program. 11 (The product 

voltmes would be significant and could seriously depress the prices 

of high-protein animal feeds, and thus, increase ethanol production 

costs through the reduction of by-product credits. ) 

0 the unavailability of comprehensive economic and technical analyses 

measuring the impacts of a large regional ethanol industry on other 

farm crops and associated agricultural processing. (The evidence 

suggests si nificant dislocations on soybean production and 

processi ng . S 

Chapter I : Report Orqani zation 

This brief chapter describes the general organization of the report. 

Chapter 11: Gasohol: Technical Characteristics and Cost of Ethanol. .- - 

In determining the COmpetitive cost (price) of ethanol for use in gasohol, 

several technical tharacteri stics of gasohol were considered. It was not 

the purpose of this study to conduct a technical analysis of gasohol; rather 

the study sought to assess the technical state-of-the-art as it might influence the economic analysis. 

Technical Characteristics 

There are several technical characteristics of gasohol which have potential 

cost and value impacts. Major findings include the following. 

e Gasohol can be burrled in unmsdi f ied i r~terr~al combustion engines. 

All subsequent coments regarding gasohol will be made in this 

context. 

I/ The processing of grains and other commodities into ethanol yields signigf ficant quantities of distillers by-products which can be used as 

high protein animal feeds. 
A1 though the relative fuel economies of gasohol and gasol ine are 

not known conclusively, the available evidence indicates that 

(1) gasohol 'increases fuel economy (miles per gallon) in engines 

operated below ambient air temperatures of 670F, (2) that above 

that level, gasohol decreases fuel economy, and (3) that carburetion 

settings (a function of engine vintage and characteristics) influence gasohol 's potential fuel economy. Avai lab1 e data are 

1-lmited, it is the contractor's opinion that differences in fuel 

economy are negligible. 

There are no conclusive determinations regarding the octane enhancement of mixing ethanol with gasol ine. Generally the lower the 

octane of the base gasoline, the greater the octane enhancement of 

mixing ethanol. At typical gasoline octane ratinqs, road octane 

enhancement is probably in the order of one or two road octane 

numbers. If the octane enhancement could be specified , refinery 

cost savings might be realized by the processing of special base 

gasolines to be used in gasohol. Because enhancement values could 

not be determined, the study assumed that regular unleaded gasoline 

would be utilized. 

a An examination of the available literature and data indicated no 

vapor lock problems associated with gasohol ; however, no experimental establishment of the Vapor Lock Index was found. If vapor 

lock problems are encountered, minor modification (the removal of 

certain hydrocarbons) in the base gasoline would be expected to 

correct the problem. 

a The only definitive adjustment for gasohol stems from the volume 

increase of .23 percent from mixing gasohol with gasol ine. 

The use of gasohol would not eliminate the need for automotive 

catalytic converters. 

a Although the data relating to use of gasohol in automobile engines 

are not exhaustive, they support the assumption that ethanol-blended 

gasohol does not increase engine corrosion probl ems significantly. 

Long term studies of actual use, however, are needed to confirm .this 

conclusion. 

The water tolerance of gasohol is 1 imited. That for gasohol is 

temperature dependent, ranging from less than .2 percent at OOF 

to about .4 percent at 900F. These values argue that moisturefree ethanol and gasohol storage and transportation will be 

requ i red. 
Implication of Technical Characteristics 

Aval lable evidence suggests certain imp1 ications and working assumptions 

regarding gasohol and this analysis. 

a A benefit of 6.001 per gallon of gasohol ($.01 per gallon of 

ethanol) should be taken for the volume increase resulting from 

mixing ethanol and gasoline. 

a Due to the lack of definitive estimates on octane enhancement and 

Vapor Lock Index characteristics, corresponding adjustments in base 

gasoline for blending werp not estimated and it was assumed that the 

base gasoline would be regular unleaded gasoline. As additional dats 

become avdilable, their cost impact should be analyzed within appropriate refinery models. 

a The available evidence on gasohol fuel economy (vis-a-vis gasol ine) 

does not warrant assigning a positive or negative fuel economy cost 

adjustment. -Additional fuel economy tests are desirable. 

a Cost adjustments should not be credited or debited to gasohol for 

changes in emissions, corrosion, or engine wear. Again additional 

experimental and use data should be considered. 

a Due to the low water tolerance of ethanol. in gasol ine, mixing should 

.be done at refinery load-out, pipeline or bulk station terminals, 

or at retai 1 service stations. Pipe1 ine and barge transportation 

of ethanol or gasohol appear to be precluded unless technological 

developments such as emulsifying agents would permit such transportation. 

a Transportation, storage and handling, and dealer markup costs for 

ethanol and gasohol will be simi.lar to thclse for gasa! ino--wi th 

the possible exception of incremental costs for maintaining essentially 

a moisture-free ethanol and/or gasohol storage and transportation. 

These costs appear to be smal'l, but add'itional study is needed to 

validate this conclusion. 

Imputed Ethanol Cost 

Gasolfne prices will establish a base against which gasohol will compete. 

Estimated refinery gate prices for unleaded regular.gasoline were about 

b.40. (1977 do1 lars) per gallon and an additional 8.12 per gallon for distribution and daal er markup. 

'Since gasoline costs are a major determinant of gasohol costs and 

because gasohol will have to compete with gasol ine, the imputed 

competitive price of ethanol, adjusted for the volume difference, 

was estimated to be 9.41 per gallon, f.o.6. ethanol plant (excluding 

taxes). 
Possible cost benefits assigned to gasohol from changes in the 

costs for base gasoline production and added costs for moisture 

control in distribution and storage may tend to be offsetting, but 

their relative relationship could not be determined. 

Chapter 111: Ethanol: General Characteristics 

and Production Tec hnol oqy 

Ethanol i s a two carbon member of the generic family of alcohol. It may be 

produced by the fermentation of carbohydrate agricultural products or by the 

chemical synthesis of petroleum products. This study is confined to the fermentation of selected agricultural products from the seventeen state region. 

m The production technology far the fermentation and distillation 

from grains' and other raw materials such as potatoes and molasses 

is well established. 

Prior to fermentation, starch bearin.9 products (grains, potatoes, 

starch), are first hydrolyzed to convert the starches to sugar. -- 

Those agricultural products--sugar beets and molasses--yi e1d.ing 

direct sugars do not require hydro1 ysi s. 

For fuel use fermentation ethanol is distilled to 200 proof 

(anhydrous) ethanol and then, by 1 aw, 'denatured. 

m The- high gl~uten content of wheat causes excessive foaming during 

fermentation and requires special processing equipment or the 

blending with the wheat of corn or grain sorghum up to 20 to 

25 percent. 

In addition to ethanol, the fermentation and distillation processes 

produce significant quantities of distillers by-product, carbon 

diexlde, and water. 

Future technological advancement in ethanol production will center 

principally on (1) developing its carbohydrate sources,..i.e., increasing the quantity of and the accessibility of. sugar and starch 

in raw materials and the utilizati.on of cellulose, (2) developing 

micro-organi sms with a greater ethanol to1 erance, and (3) developing 

more rapid fermentation and less energy intensive distillation processes. There are no known rev01 uti onary techno1 ogi es near commercialiraffon stages. 
Chapter IV: Ethanol: Input-Output Relationships 

of Raw Materials and Enerqy 

Crucial to the economics of ethanol production are the input-output relationships of the raw material s and energy. 

Raw Material Yields 

The fermentation of the specified raw materials produces four products--ethanol, 

carbon dioxide, di sti 1 lers by-products and water-w,i th their yield proportions 

dependent upon the initial starch or sugar contents of the materials. 

. Yields of ethanol are approximately 2.6 gallons .per bushel of corn, 

grain sorghum and wheat, 1.4 gallon per hundred weight of potatoes, 

20.3 gallon per ton of sugar beets, 0.4 gallon per gallon of molasses, 

and 0.06 gal Ion per pound of starch. 

o By-product yields are approximately 16.8 pounds per bushel of corn 

and grain sorghum, .20.7 pounds per bushel of wheat, 14.8 pounds (75 - 

percent moisture basis) per hundredweight of potatoes, 264 pounds 

per ton. of sugar beets, 15.6 pounds (75 percent moisture basis) 

per gallon of molasses, and .1 pounds per pound of starch. 

a By-product protein qua1 i ty varies wfdely. Disti 11 ers dried grains 

have a 29 to 30 percent protein content and can be used as relatively 

high-protein a-nlmal feed. Molasses stillage has a protein content 

of about 20 percent. Potato and beet sti l lage are about 10 percent 

protein. Starch stillage is essentially protein free. All protein 

contents are given on a dry weight basis. 

Enerqy Bal anceEnergy is required to convert raw materials into ethanol and the by-products. 

Unfortunately, there' are no general 1 y accepted energy accounting procedures 

which comprehensively show the relationships between energy Inputs and the 

energy outputs of both ethanol and distil lers by-products. Energy balances 

were estimated wi th three different approaches and none indicates a posi t.i ve 

energy, balance. 

Corn is generally assigned a caJoric content of 377,flOO Btu per 

bushel (145,000 Btu per gallon of ethanol), ethanol is 84,000 Btu 

per gallon and distl llers dried grain Is 50,000 Btu per gal Ion of 

ethanol. 

The average energy required to produce and harvest a bushel of 

corn is 106,000 Btu and includes invested energy in fertilizers 

and agricultural chemicals but excludes invested energy in durables 

such as equipment. 
Process energy for grain fermentation was estimated to be 131,000 

Btu per gallon. Approximately 52 percent of the process energy is 

used in distillation and 42 percent in stillage drying. 

0 One approach considered the caloric content of all raw material 

inputs and all the energy inputs and outputs. Under this approach 

the efficiency was 49 percent (Table 1 ). 

0 A second approach valued the corn raw material input at its producti~n 

and harvesting energy input value. Under this approach an efficiency of 78 percent was obtained. 

0 Under the allocation approach, the energy input for corn was allocated 

on the basis that distillers dried. grain has a feeding equivalent tc 

.41 bushels of corn. This. suggests that 59 percent of the corn input 

energy should be allocated to ethanol. It further assumes that certain process energy is'directly assignable to either ethanol or distillers dried grain. Shared process energy was allocated to ethanol 

at 59. percent. This method yielded an efficiency for ethanol of 

86 percent. 

0 Inclusion of agricultural production energy retained in crop residue 

in the energy balance has been proposed since these residues could 

replace fossil fuels for processing energy. However, the removal of 

crop residues would require energy for collection and handling. Also 

excessive removal could lead to soil degradation and additional ferti1 i zer energy requi rements. For these reasons, the potenti al contribution of crop residues was omitted from' the energy balance estimates. 

Enerqy Sources 

Various sources of process energy have been proposed for ethanol production, 

although most commonly coal and fuel oil are used. 

0 For this study's analysis, it was assumed that low sulfur Wyoming 

coal (10,500 Btu per pound) would be used. 

0 Solar and biomass energy sources have been proposed, but these 

sources are presently economical ly impractical. 

0 Cogeneration energy systems have a1 so been proposed. Whi 1 e theoretical ly possible, the practical use of cogeneration requires .that 

it be considered in initial plant designs. Waste steam. from most 

existing installations is of too low a quality to -be used in ethanol 

production. 
Table 1. Energy balance for corn ethanol production 

computed by three different approaches. 

Corn input 

Caloric content energy A1 located 

Input 

Corn 

'Process energy 

Total 

Output 

Ethanol '. 84 

Distillers dried grain 5 0 

Total T3T 

Energy loss 142 38 14 

Efficiency (percent) 4 9 78 86 
Chapter V: Ethanol : Raw Material Costs and By-Product Credi ts 

It was not within the scope of this study to project raw material and byproduct prices. Over the long run, however, agricultural prices tend to 

be equal to costs of production. As a basing point for the analysis, average 

prices in constant 1977 dollars were determined. 

0 The average historical price of corn has been about $2.50 per 

bushel. Grain sorghum has been slightly less, whi1.e wheat has 

averaged about $3.35 per bushel (Table 2). Other raw materi.al 

price averages are shown in Table 2. 

a Distillers dried grains have averaged about $1 10 per ton (Table 2). 

Other by-product prices are somewhat lower, reflecting lower feeding 

values. . In the case of potato and molasses stillage, the prices 

represent a 75 percent moisture product. 

Carbon dioxide was assumed to have no value. (In specific local 

areas viable markets ex.ist. ) 

e The price analysis of distillers dried grain indicates that it is 

prlce elastic, currently. The supply quantities of DDG are now 

small. If large quantities become available, a large percentage 

price decrease would be required to clear the market, i .e., it 

will become price inelastic. 

Net raw material costs are raw material costs less by-product 

credits. Grain sorghum (8.52 per gallon of ethanol) and corn 

(s.60 per gallon) are t.he low net cost materials (Table 2) Starch, 

lacking by-product credit, is the highest cost material. To place 

these net costs in perspective, it was calculated that gasohol 

would have to sell at S.41 per gallon. 'Thus, under average price 

conditions, the sell ing price would not cover net raw material costs.. 

e Sample grade grains would-be a less costly raw material; however, 

the availabll ity of sample grade graSn is too variable and geographically dispersed for it to be considered a reliable raw material. 

Chapter VI: Ethanol: Plant Investment and Operating Costs 

Investment and operating cost estimates (in 1977 dollars) were made for grain 

ethanol plants ranging from 10 to 120 million gallons per year and for nongrain ethanol plants at about 10 MGY capacity. Cost estimates were synthesized 

from pub1 ished studies and direct contacts with industry personnel . No engineering studies were available for sizes and types of plants other than 20 

Itlillion gallon grain ethanol plants. Estimates for the larger grain plants 

and non-grain plants must be considered of reconnaissance quality. Based on 

these estimates, significant economies of size are demonstrated. 
Taible 2. Net raw ,material cost in 1977 do1 Tars 

Grain Cull 'Sugar 

I tern Units Corn S~rghum Wheat Potatoes beets Starch Holasses 

Raw material price do1 1 srs 2. W/bu 2.301bu 3.35lbu 20/T 26/T .08/lb .36/gal 

Conversion gal ethanol 2.6/bu 2.6/bu 2.6/bu 28.8/T 20.3IT .06 .4/gal 

Unlt raw material cost $/gal ethanol .96 .88 1.29 .69 1.28 1.20 1.0 

By-product price do1 1 drs ElO/T 1PO/T llO/T 6/T- 93/T 0 $15/T 

Conversion lbs by-product 15. B/~J li.8/bu 20.7/bu 296/T 264lT 1 15.6/gal- 11 

Uni t by-product credit $/gal ethanol .36 -36 .44 .03 .60 0 0.12 

Net raw material cost $/gai ethanol .63 .52 .85 .66 .68 1.20 1.12 

C1 

r~ L' Potato and molasses distillers by-products @ 75 percent moisture. 

Source: DPRA estimate 
@ Investment costs (excluding working capital ) per gallon of ethanol 

capacity were estimated to be $1.91, $1.56 and S.93 for the 10, 20 

and 120 million gallon per year grain ethanol plants, respectively 

(Figure 2). Total estimated investment for a 20 MGY plant is about 

131 million. A 100 MGY plant was estimated to cost $97 million. 

@ Investment costs per gallon for non-grain plants were: 51.09 for 

starch, $1.14 for molasses, $3.80 for potato, and $3.58 for sugar 

beets. 

Total direct and indirect operating costs including fuel, labor, 

plant overhead, admini stration and marketing (but excluding income 

taxes, depreciation and interest) were b.44 and b.30 per ga1,lon of 

ethanol for the 10 and 120 million gallon per annum grain ethanol 

plant (Table 3). 

@ Similar cost values for non-grain plants were.B.48 per gallon of 

ethanol for potatoes, 8.45 for sugar beets and 5.30 for starch and 

molasses. 

Chapter VII : Financial Anal vsi s of Ethanol Production 

The financial analysis assumed that investors will base their investment 

decisions on the potentiality of their profitability., The financial ana.lysis 

employed was discounted cash flow analysis using nominal do1 lars, i .e., reflecting inflation. The nominal costs were converted back to real terms 

$$1977) and to per gallon equivalents to facilitate presentation and understanding. In addition to the costs previously presented,. working capital , sustaining capital , interest, debt repayment, cost of equity capital , and 

Income tax were included. 

Base Condition Results 

The array of plant configurations were anal.'yzed using historical raw material 

and by-product prices, 15 percent cost of equity, a 10 percent interest cost, 

30 percent leverage, and 50 percent income tax rate. . These terms were selected 

to reflect typical financing conditions. 

@ Total estimated costs of grain ethanol were estimated to range 

from $1 .50 to $1.15 per gallon (Table 4). Subject to the limitatlons of the cost estimates, definite economi.es of size are apparent, although the decline in costs from the 80 MGY to the 120 

MGY plants is quite small. Following raw materi,al costs, capital 

recovery is the largest cost factor and includes debt service, 

income taxes, and return on and of equity investment. 

@ Excepting molasses, the non-grai n plants demonstrate higher costs 

of production (Table 5). In the case of potatoes, the high capital 

recovery and low by-produet credit are significant factors. In the 
Per gallon Investment 

($/9a 1 1 

Total Investment 

(S mil) 
Table 3. Estimated operatin costs for grain ethanol 

productiori by size of p 9 ant iri 1977 do1 lars 

Plant size (mil gal per vear) 

10 2 0 40 6 0 80 100 120' . - - " 

...................... b gal -----------a---~------ 

Direct costs 

Energy .19 .19 -19 .19 . 19' -19 .19 

Labor .09 .06 .04 .04 .03 .03 .03 

Other .01 .-01 .Ol .01 .01 .01 .01 

Total TzvXX 73 2-3 

Indirect 

Plant overhead .09 .06 .05 .05 .04 .04 .04- 

Admini stration .04 .03 .02 .02 .02 .02 .02 

Marketing .02 .02 .O1 .O1 .O1 .01 .el 

Total ~~38Tbg~ 37. 37 

Total direct and 

indirect .44 .37 .32 .32 .30' .30 .308 

- -- - - 

Source: DPRA es',tima te.. . 
Table 4. Total cost of grain ethanol production by plant size 

under base conditions in 1977 do1 lars 

Cost 

Ethanol olant size (mil 1 ion qallon) 

10 2 0 4 0 6 0 8 0 100 120 

Energy .19 .19 .19 .19 .19 .19 .19 

Other direct .10 .07 .05 .05 .04 .04 .!I4 

Indirect .15 .ll .08 .08 .07 .07 .07 

Capital recovery .46 .38 .32 .29 .27 .26 .25 

Raw material .96 .95 .96 .96 .96 .96 .96 

By-product credit - -. 36 - -. 36 - -. 36 - - .36 - -.36 - -. 36 - -. 36 

Source: DPRA estimate 

Table 5. Total cost of ethanol oroduction for different raw 

materials under base conditions in 1977 dollars 

Grain Potato Sugar beet Starch tlolasses 

Cost - 11 - 2 I - 31 - 11 - 11 . - - 

..................... ( $lsarr-'L--4----- 

Energy -19 -25 ,23 .13 .13 

Other dl rect .lo .08 .08 .07 .07 

Indirect .15 .16 .15 .10 .10 

Capital recovery .46 .87 .83 .28 .28 

Raw material .96 .69 1.28 1.20 .97 

By-product credi t - -. 36 - -. 03 - -.60 - . 00 - -. 12 

?-/ 10 mi 11 ion gal 1 ons per year 

2 7..2 million gallons per year 

9.7 million gallons per year 

Souvce: DPRA estimate 
case of sugar beets, raw material costs and capital recovery are 

hlgh. Starch, while having a low capital recovery cost, faces hlgh , raw material costs with no by-product credit. A molasses plant was 

estimated to have lower costs than a comparable size grain plant.. 

Although molasses is not as abundantly available as corn, it would 

appear to offer potential relati've to the other commodities. 

4 Under these specifications and estimated costs, ethanol production 

costs are about 3 to 5 times greater than the expected competitive 

ethanol selling price of 8.41 per gallon. Substantial gasohol-user 

benefits would have to accrue to match production costs. Thus, under 

representative "busines as usual" situations, the production of fuel 

grade ethanol is not economically feasible. 

Cost Sensitivity 

Sensitivity analyses were done on investment, grain prices, distillers dried 

grajn prjces, and energy to demonstrate. their impact on production costs. 

The analyses were done for the 20 MGY and 100 MGY grain plants, the former 

representing a commonly proposed plant size and the latter a plant size that 

might emerge under an extensive regional. gasohol program. 

r A + 25 percent chan e in plant investment resulted in.a 6 percent 

chznge ($1.35 +. .08 3 . in the cost per gallon of the 20 MGY plant and 

a 4 percent (8T.16 2 $.05) change in the cost per gallon of a 100 

MGY plant. 

r A $1.00 change in the per bushel price of grain translated to a S.38 

to S.39 per gallon change in production' costs. A $20 per ton change 

in distillers dried grain price translated to about 9.06 to $.07 per 

gallon change in production costs. Changes in these costs have signlficant impact,s. It is noted that a large regional gasohol program will likely cause grain price increases and distillers dried grain 

price decrease, and their combined effect would result in a net 

increase S n ethanol production costs. 

A 5 25 percent change in processing energy costs would change 

production costs about 4 percent. This assumes all .other costs 

would remain c'onstant. However, if real energy costs. increased, 

It would be expected that other cost elements would also rise. 

Incentives for Ethanol Production 

,The preceding' analyses indicate that fuel grade ethanol production js not 

financially feasible without government incentives. Similar government 

Incentives to .stimulate energy production are used in the United. States; 

Indeed, a recent estimate placed the total federal outlays at $123 - 

$133 billion since 1918 for all forms of energy.. 
This study considered the effect of such incentives as those for financing, 

tax credits, direct construction grants and direct payments. 

Combinations of 10 percent cost of equity leverage ratios up ,to 

90 percent and interest rates down to 5 percent were analyzed. At 

a 7 percent interest rate, 93 percent leverage, and 10 percent 

cost of equity--a combination selected as typical of government 

supported financing--the estimated cost of ethanol production was. 

$1.16 and $1.03 per gallon for the 20 MGY and 100 MGY plants, respectively. This compares to the base case of $1.35 and 51.16, resoectively. From this analysis, it was concluded that such government 

financing incentives would not be sufficient to equate price and full 

costs. 

m Investment tax credits up to 50 percent of qualified investment 

and-full-income tax credit were also found to be insufficient. 

m Direct construction grants ranging up to 100 percent were analyzed. 

Even at this level, the estimated cost of production was still about 

$1.00 per gallon, nearly 2.5 times greater than the needed competitive selling price. 

These preceding analyses demonstrate that significant subsidies 

through direct payments or fuel tax exemptions would be required 

to support ethanol production. It is estimated that a 5.94 per gallon 

subsidy (8.094 per gallon of gasohol) would be required fcr a -20 MGY 

plant and 8.75 per gallon (8.075 per gallon of gasohol) for the 100 

MGY plant. This would amount to about $18.5 million annually for a 

20 MGY plant and $74 million annually for a 100 MGY plant. This 

estimate assumes that subsidies would be taxable. The estimated 

Income tax are 5-13 and f .09 per gallon for the 20 MGY and 100 

MGY plants. respectively, It is noted that these estimates make no 

at lowances for the increased grain and reduced di sti 11 ers dried 

grain prices that are expected with a large gasohol program. 

Feasi bil i ty of Ethanol Production Under Higher Gasol ine Prices 

It has been suggested that if gasoline prices were to double, ethanol production would become feasihl~. This argument implies diffcrential inflation; 

however, since energy prices tend to move together, ethanol processing energy 

would increase somewhat proportionately. Furt hcrmore, non-energy prices would 

be expected to increase with a real increase in enerqy prices. At a minimum, the iilcr.eases in non-energy iirsls would ultimately ret'lect their own energy 

costs. It seems unlikely that sustained differential inflation would occur. 

Thus, it is concluded that increases in gas01 ine will not effectively a1 ter the 

findings presented above. 
Chapter VIII: Ethanol : Plant Size, Market and Site Selection Factors 

This study also analyzed the determinants of plant size and location. This 

generalized analysis considered raw material assembly costs, ethanol production 

costs, and. the distribution costs for ethanol and disti 1 lers dried grains. 

A wfde range of supply densities and market distances were estimated. 

0 For most plausible supply and market situations, it was found that 

plant costs by size-of plant decreased faster than associated 

transportation costs increased. 

0 The least unit (per gallon) cost plant size is large, although the 

cost curve is relatively flat beyond those of the 60 million gallon annual capacity over a range of transportation condi tions. Whi 1 e 

the underlying analysis is logical, it should be recopnized that if 

specific plant construction is contemplated, more exhaustive and 

sophisticated analyses should be undertaken. 

0 Distil lers by-products wi 11 1 i kely be haul ed greater distances 

than either grain or ethanol because their markets are less concentrated. 

It was concluded that ethanol plants should be raw material 

supply ori ented . 

0 In addition to raw material supolies, large quantities of coal 

wo~lld be required (123,000 tons for a 20 MGY plant and 620,000 tons 

for a 100 MGY plant) and would argue for good rail access to 

western coal. Since the major portion of grain would be received 

by truck, a central highway network is also important. 

Chapter IX: comments on Impacts of Regional Gasohol Proqram 

The seventeen state study area currently accounts for 39 percent of the 

total U.S. gasoline consumption; thus, a gasohol program for this region 

could be sizable. Assessments of the impact of such a regional program are 

difficult to make and require determining its size and development rate. 

Additionally, such an impact analysis could not be conclusive without the prior 

development of a rigorous regional , national , and international econometric 

analysis. Major structural shifts WUU~J be expected. Within these 1 imi tatfons, pertinent coments can be offered, based on recently completed impact analyses and i ndi ca ti ve computations. 
Based on U.S. Department of Energy gas01 ine projections for the 

nation and assuming a constant market share for the seventeen 

state region, gasoline consumption was projected to increase 

from a 1975 level of 40.6 billion gallons to 65.2 billion gallons 

by 2000. Ethanol requirements under a 100 percent replacement of 

gasoline by gasohol program would be 4.4 billion gallons in 1980, 

4.8 in 1985, 5.4 in 1990, 5.9 in 1995 and 6.5 billion gallons in 

2000. Less ambitious programs would reduce this requirement. 

A 100 percent proqram would require about 25 million additional 

acres of cropland, depending on the relative quantities of grain 

used (with yield increases, the amount of land would not increase 

over time). Assuming no cropping shifts from a projected baseline, 

there would be adequate cropland resources. However, under a massive 

program, it. would be expected that much of the required land would 

be that diverted from soybean produ.ction since the latter would 

decrease as soybean prices declined. 

e The Impact on farm prices cannot be determined with certainty. 

Soybean prices would be expected to fa1 1, perhaps $1 .OO to 52.00 

per bushel. Grain prices would be expected to increase, although 

this would, to a large extent, depend on how fast a program was 

phased-in. 

e Net farm income is projected to increase only slightly under a 

national gasohol program. A regional program would be expected 

to have sirni\ar.consequences; however, extensive technical and 

economic analyses beyond the scope of this study would be required 

to demonstrate this conclusive1y. 

e The soybean crushing industry would be expected to encounter plant 

closures as a result of the competition exerted by distillers 

dried grains. A full regional gasohol program would oroduce 15.6 

mi1 1 ion tons of DDG by 1985 and 21.1 mil 1 ion tons by 2000 compared 

to the current 15 mil 1 ion tons of total U.S. soybean meal consumpt i on. 

e Pub1 ic program costs would depend on the extent of such a program. Assuming a 100 percent program and 100 MGY pl ant, annual net 

subsidies (gross subsidy less income tax) of $3.2 (1977 dollars) 

billion would be expected in 1985 and nearly $4.3 billion (1977 

dollars) by 2000. This estimate does not reflect expected increases in ethanol pr-oduction Costs stemming from increased grain 

prlces and decreased DDG prices. 
Other impacts would be expected on balance of payments, consumer 

prices, and other items. Of particular note would be the impacts felt by the engineering, equipment manufacturing, and construction 

Industries if a rapid large scale program were pursured. For example, a $4.4 bill ion do1 lar construction program would have to be 

completed to meet a 1985 goal of 100 percent replacement. Even the 

$6.5 bill ion required by 2000 would be significant. 

Sumnary of Study Findinqs 

The results of this study indicate that: 

a Gasohol can be burned in unmodified internal combustion engines. 

a Ethanol production uses more energy than it produces. The efficiency 

ranges from 49 to 86 percent, depending upon the method of calculation 

e The competitive selling price of ethanol would have to be about $.41 

per gallon in 1977 dollars. A more thorough ana1ysi.s than that permitted here may reveal additional benefits that could be definitively 

credited to gasohol ; however, such a study may a1 so indicate additional costs. 

a Estimated plant investment for grain ethanol plants range from $1.56 

per gallon for a 10 mill ion gallon per year plant down to 6.97 per gal Ion for a 100 MGY plant. 

a Estimated costs of production based on conventional financing and 

historfcal grain a.nd distillers dried grain prices are $1.35 p.er 

.gallon for a 20 MGY plant and $1 .-I6 per gallon for a 100 MGY plant. 

@ Costs of production exceed by three to five times the competitive 

selling price of ethanol, a ratio that makes ethanol economically 

infeasible without subsidies. 

a Subsidies of about $.94 per gallon of ethanol for a 20 MGY plant 

and 9.95 per gallon for a 100 MGY plant would be required as investment incentives. 

a A subsidized regional program with full 100 percent replacement of 

gasoline by gasohol for the seventeen state study area, would require 

production of 4.8 billion gallons of ethanol in 1985 and 6.5 billion 

gallons by 2000. 
A program of this magnitude would increase grain prices, decrease 

distillers dried grain prices, cause major dislocations in soybean 

production and processing, and raise ethanol production costs. 

0 Program costs for a full 100 percent replacement of gas01 ine by 

gasohol in the region would involve annual net subsidy costs of 

about $3.2 billion (1977 dollars) in 1985 and nearly $4.3 billion 

(1977 do1 lars) by 2000. 
I. REPORT ORGANIZATION 

The report is organized into nine chapters. Five chapters, Chapters I1 

through VI, develop the data required to carry out the feasibility analysis 

which Is reported in Chapter VII and establish the plant size-locatton 

crlterla for Chapter VIII. Chapter IX sumrizes various available information on the impacts of developing a gasohol industry. 

Chapter I1 deals with technical characteristics and related performance 

parameters concerning gasohol and draws conclusions regarding imputed price 

of ethanol. Chapter 111 deals ,with the general characteristics of ethanol 

and the production technology and includes some of the basic process operations and equipment required for grain and non-grain inputs. In Chapter IV, 

the physical aspects of ethanol production and the input and output of raw 

materials and of energy are discussed. Chapter V deals with the establishment of market prices for raw materials and by-products. In Chapter VI the 

cost estimates for various plant configurations regarding investment and 

armual operating cost are provided. In Chapter VII, the Financial Analysis, 

all these inputs are drawn together into a cohesive unit to examine the econanlc feasibility of gasohol under varying raw materi a1 and by-product prices, 

energy costs, financing schemes, and incentive possibilities. Chapter VIII 

deals with plant size and location issues, with a major concern being to 

establish reasonable plant size according to the characteristics of the 

relationships of the plant relative to the supplies or the markets. Finally, 

Chapter IX addresses the domestic and international impacts of a gasohol 

system vis-a-vis their variations in the extent and developmental timing of 

a gasohol program. An extensive Bibliography of related material and an 

Append1 x containing suppl ementary materia 1 s conclude the report. 
11 GASOHOL: TECHNICAL CHARACTERISTICS AN0 COST .OF ETHANOL 

For purposes of this report, gasohol is defined as a mot r fuel, consisting 

of ten percent agricultural ly derived anhydrous ethanol J P and 90 percent 

unleaded gasoline. Consideration of the use of ethanol as a motor fuel 

extender dates from the early 1900's. Surges of interest in ethanol as a 

fuel extender have occurred periodically, as, for example, during the depression of the 1930's when grains were very low priced and during World 

War I1 when disruption of petroleum suppl ies threatened the war effort. 

Today, the interest is intensified by both a surplus of low-priced grains 

and an increasing dependence on imported crude oi 1 . 

In consi.dering the use of gasohol, both the economic and technical issues involved in its use and production must be examined. A1 though the principal 

focus of this report is the economic feasibility of producing and marketing 

gasohol, certain technical aspects must be considered in the economic analysis. 

The technical feasibility of using gasohol as a motor fuel in present-day unmodified internal combustion engines is general ly -accepted, a1 though some of 

the technical issues are not fully resolved as. indicated in the following discussion; however, the purpose of this chapter is to derive the competitive 

price of ethanol. 

The cost. of gasohol is essentially the weighted average of the costs of the 

two components - ethanol and gasol ine: 

Gasohol cost per gallon = 0.10 (cost per gallon ethanol) + 

0.90 (cost per gallon of gasoline) 

However, gasohol has certain ddstinctive technical characteristics relative 

to gasol ine which must be considered in determining the value of gasohol 'to 

the consumer. These factors include: 

. fuel economy . octane number . exhaust emissions . driveability . corrosion of parts . safety and toxicity 

See Appendix 11-1 for chemical and physical properties of ethanol. 
These technical characteristics and the production aspects of ethanol contribute to distribution, marketing and user costs that are unique to gasohol. 

Thus, the general cost equation for ,gasohol shown above can be expanded 

to be: 

Gasohol ethanol rice, transportation, gas01 i ne pri ce, 

Selling = 0.10 f.o.b.pant ! + handlingand + 0.90 refinery Price dealer markup ] [Pate 

transportation , + handling and , + value adjustment factors for gasohol + fuel tax 

dealer markup 1 - 

To date there is, however, no straight forward, universal formula that can 

be used to express cost differences between the use of gasoline and the use 

of gasohol. Following is a discussion of the principal technical cost 

factors that must be considered. 

B. Value -. Adjustments>for Gas~hol. Characteristics 

A prlmary consideration which must enter into gasohol price comparisons is 

the type of gasohol that is to be used. Two basic types of gasohol are 

possible: (1 ) gasohol of the same octane number as regular no-lead gaso1 ine and (2) gasohol having an octane number greater than regular, unleaded 

gasol i ne. 

1. Ethanol Plus Special, Base Gasoline 

Gasohol having the same octane number as regular, unleaded gasol ine is produced by blending ethanol with a specially-produced low-octane gasoline. The use of ethanol as a gasoline blender would affect the costs associated 

wl th petrol eum-ref ini ng operations and the investment pattern of the refining industry. Since the gasoline used for blending would be of 10wei 

octane number than regular unleaded gasol ine, it may be anticipated that 

there would be a decrease in the cost of production; however, two QactOis 

would tend to moderate these savings. Currently this gasoline would be 

produced in small quantities for which a premi~~rn price would be required. 

Over a longer period of time, the effects on the refinery industry of pro- duclng 10 percent less gasoline would need to be considered also. 1! 

In order to quantify these effects for this study, a 1 inear programing of 

the U.S. refining industry was constructed. 21 The model was calibrated to 

forecast for the year 1985 in order to allow for investment savings which 

would accompany the use of alcohol in motor fuels in significant quantities. 

Farmland Industries, private comunications, April 1978. CL I 

Bonner & Moore Associates, Inc. A Formula for Estimating Reflning Cost 

Changes Associated with Motor Fuel Reformulation, Draft, Jan. 13, 1978.. 
Results of this 1 inear programing model., were then utilized to develop a 

set of empirical equations from which to estimate the cost effects of 

various changes which the blending of alcohol and gasoline would bring 

to the refining industry's processing requirements. 

The equations include factors expressing the operating and investment cost 

changes which would accompany: 

1) a reduced gasol ine volume. . ' . 

2) a reduced base gasol ine octane qua1 i ty (ethanol 's characteri stlcs 

would compensate for this), ,and 

(3) a requirement for reduced Vapor Lock Index (VLI) since the addition of alcohol would require the refiner's base gasoline output 

to accommodate the addition of a component which results in an 

increased vapor pressure. 

The first two factors represent savings at therefinery while the third 

represents, in general, an increase .in cost since re1 atively less expensive butanes would probably be replaced with rel.atfvely higher-priced lessvolatile components. These equations then were util ized in developing the 

cost savings at the refinery inherent in using ethanol as a blending agent. 

However, the model incorporated, a1 so, the projected refinery product di stri - 

bution and quality forecasts for 1985. Inherent in these projections is the 

assumption that the spread of 40-45 percent between crude oil and gasoline 

costs is at a peak today. By 1985, that value will probably be lowered to 

35-40 percent. Thus, a1 though the resulting equations would give results 

valid for projected 1985 refinery operations, the results would not be valid 

for 1977 conditions; therefore, no quantitative use was possible for this 

Study. The equations would be valid under the assumpti.ons only for a future 

time when lowered motor fuel octane requirements are projected. 1/ 

A refinery model which incorporates current refinery conditions would be 

needed In order to ascertain the 1977 cost savings at the refinery of producing a base gasoline especially for blending with ethanol. 

2. Ethanol Plus Unleaded Gasoline 

Gasohol produced by blending ethanol with regular unl eaded gasol ine would 

have an octane number greater than that of the base gasol ine, and the degree of its enhancement would depend on the octane number of the gasoline. 

The exact road octane number enhancement--the enhancement of concern for 

the gasohol cost adjustment--is open to question and 'will be discussed 

be1 ow. 

Experimental work of interest to this study, has been conducted using an ethanolgas01 ine motor fuel produced by blending 10 percent alcohol w.i th 90 percent 

regular gasol ine, both leaded and unleaded. . Thus, for the initial phase of 

the program, a cost of gasohol based on a 10 percent blend of ethanol in 

1/ Dlxon. J. Bonner 6 Moore Associates, Inc.. private comnunication, 

June 1978. 

11-3 
regular unleaded gasol ine seems appropriate. The discussion of the various 

technical factors and the related cost adjustment which follows is based 

on data obtained with this blend, one which has an octane number hlgher than 

that of regular unleaded gasol ine. 

The technical effects of adding ethanol to unlqaded gasoline are sumarized 

below under the assumption that gasohol would be used in unmodified automobile engines, although modifications are and have been considered. Engine 

power and economy are dependent on the characteristics of the engine used. 

The use of ethanol will increase the anti knock quality so that engines having 

higher compression ratios may be used resulting in greater engine efficiencies. 

Too, the use of alcohol may allow the use of other fuels such as jet fuels 

in spark-ignition engines. 

If EPA mandated fuel economy standards of 27.5 mpg by 1985 are to be attained, 

then major changes must occur if engines similar to the present day engines 

are to be retained. Even at best, however, the fuel economy of 5 percent that 

has been claimed for gasohol is not enough to achieve the rapid increases in 

fuel economy required in the near future. 

Although proposals have been considered that employ ethanol in diesel 

engines and as a neat (100% ethanol ) fuel, the 1 imitations of the present 

study require examination only of gasohol as a substitute motor vehicle 

fuel in unmodified engines. Section h below briefly discussed the status 

of fuel and engine modifications. 

4.' Fuel Economy 

Results of fuel economy tests associated with the use of gasohol are contradictory. In the Nebraska 2 million mile road test, average fuel economy 

of gasohol was reported to be on the order of 3-4 percent greater than that 

of gasoline, and to be temperature dependent. 1! More recently, Scheller 

reported that at temperatures be1 ow about 670F, gasohol -fueled vehicles 

obtained more miles per gallon than control vehicles using unleaded gasol ine. 

At 4S°F, for example, gasohol cars obtained about 5.3 percent greater fuel 

economy. At an ambient temperature of 670F, fuel economy miles per gallon 

was the same for gasohol and gaso'l ine and above that temperature the fuel 

economy of gasohol was less than that of gasol ine. 21 Potentially, this 

could be an important factor as currently more gasol ine is consumed in rne 

sumner than in the winter. 

In carefully controlled dynamometer tests run at the Department of Ener 's 

Bartlcsvillo Energy Research Center (BERC), at a test tefiperature of 758, no 

significant difference in fuel economy was found, either when testing cars used 

In the Nebraska test or when testing a 1975, 1976 or 1977 car. The federal 

test procedure "composite" vol umetri c (mi les per gal lon ) fuel economy showed 

no Sf gni fi cant di fference in fuel economy between gasohol wi th +(RON+MON )=91 

1/ Scheller, William A,, and Brian 3. Mohr. "Nebraska 2 Million Mile Gasohol 

Road Test Program -- Progress Reports, Apr. 2, 1975, July 2, 1975; Oct. 2, 

1975; Jan. 31, 1977. 

Scheller, William A. "Texts on Unleaded Gasoline Containing 10% Ethanol-- 

Nebraska ' s Gasohol ," Presented at the International S:rmpr?si um on A1 coho1 

Fuel. Techno1 ogy--Methanol and Ethanol , Wol fsburg , Federal Rcpubl ! c of 

Genany, November 12-14, 1977. 

11-4 
and the base fuel with +(RON+MON)=87.5; however, highway fuel economy 

suggested a slight decrease of approximately 2 percent in fuel economy 

associated with gasohol compared to the base fuel. 

In add1 tion, BERC reported that the fuel energy economy data (miles per 

100,000 BTU) suggested a slight improv,ement in fuel energy economy associated wl th gasohol compared to base fuel.. The improvement in fuel energy 

econoqy associated with gasohol appeared to be consistent in each phase of 

the test cycle; however, the differences are generally only 2-3 percent. 

Previous data generated at BERC using a control vehicle suggested that 

for triplicate tests from a single vehicle fuel economy differences less 

than 2 5 ~ercent are not statistically significant. 

It should be emphasired.that in tests performed to date, the unequal octane 

character of gasohol compared to that of the unleaded fuel which was used 

both for testing and mixing has not been considered; however, it is recognized that (1 ) an increase in fuel economy is likely using gasohol if changes 

in engine parameters are made to take advantage of higher octane qua'l i ty of 

gasohol compared to that of the base fuel or (2) a decrease in refinery 

costs for base fuels may result with gasohol due to the fact that new 

base fuels of- lower octane quality than present base fuels could be 

required. 

The change ih fuel economy associated with the addition of alcohol to 

gasoline is reported to be dependent on the original carburetor setting 

since alcohol, which contains oxygen, has the effect of leaning out the 

mixture. a Differences then in fuel economy were explained as being 

due to differences in the initial carburetor setting: if the initial 

setting is rich (as was the case for pre-1969 cars) the fuel economy is 

indeed improved; if less rich, fuel economy is about the same; if set 

lean, then the mixture becomes too lean and misfiring occurs. So in order 

to have optimum fuel economy, proper adjustment of the carburetor specific 

to the fuel being burned is needed. This information points out inherent 

difficulties in comparing the results of performance experiments run at 

different times on different engines, with uhknown carburetor settings. 

Test conditions are critical. 

Due to the nature of the available fuel economy data, discussed above, it 

was determined that no definitive fuel economy adjustment could be made 

to the cost of gasohol. 

I/ U.S. Department of Energy, Bartl.esville Energy Research Center. 

Interim Report "Gasohol " Test Vehicles, August 1977, and more 

recent BERC test emission/fuel economy data, communication from . . 

Jerry R. All sup, BERC, ~anuar-y 1978. - 

Brinkman, N'. D., N. E. Gallopoulos and M. W. ~ack'son. "Exhaust 

Em1 ssions , Fuel Economy, and D,ri veabi 1 i ty of Vehicles Fueled with 

A.1~0hol -Gas01 ine Bl ends," Paper 750120, Society ,of Automotive 

Engineqrs, February 1975. 
b. Exhaust Emissions 

The exhaust emissions of gasoline-powered motor vehicles containing unburned 

and partially burned hydrocarbons, other organic compounds such as aldehydes, 

carbon monoxide, nitrogen oxides and cmpounds of lead and other elements that 

are contained in the fuels, additives and lubricating oils, have been of environmental concern for a number of years. 11 The concentrations of hydrocarbons, carbon monoxide and nitrogen oxides in the emissions of newer automobiles have been subjected to EPA regulations. Exhaust emissions have been 

reduced in automobiles manufactured since 1975 with changes in design, use 

of unleaded gas01 ine, and the addition of catalytic convertors. 

For cars using gasohol, the vehicle exhaust emissions of unburned hydrocarbons and nitorgen oxides are essentlslly the same for cats using gasoline. With gasohol, carbon monoxide emissions are reduced by as much as 

30 percent. Aldehyde emissions would increase, but the amounts are expected 

to be small and readily handled by the catalytic converter. A small amount 

of unburned ethanol would be expected but this too should be handled by the 

catalytic converter. Cars burning gasohol, then, would still require catalytic 

converters in order to meet federal emission standards. 2/ Since it is apparent that gasohol use would not eliminate the catalytic converter, no gasohol cost adjustment could be made on the basis of fi possible decrease in 

exhaust emission. 

c. Octane Number 

Ga~ol ine is sold in several dl fferent qua1 i ty levels of grades--regular 

and premium 1 eaded, and regular and premi um unl eaded--defined primari ly 

in terms of octane number and specifically for certain types of engines 

and emission controls. The Anti knock Index, the sum of the research 

octane number plus the motor octane number div5ded by two, +(R+M) averaged 

as follows for rummar 1976: J/ 

Regular , 1 eaded 88.2 

Premi um, 1 eaded 95.2 

Regular, unleaded 89.6 

Premium, unleaded 93.0 

heri can Chemical Society. Cleaninq Our Environment, The ,Chemical Basis 

for Action, 1969. 

A1 lsup, Dr. J., DOE-BERC, Bartlesvi 1 le, OK, personal comunication, 

March 1978. 

3J National Petroleum News Factbook Issue, McGraw Hi 11'. New York, 1977. 
Small adjustments in octane number are made for season of year and geographic 

locations by adjusting the mixture of the hydrocarbons in the gasoline. In 

addition to the gasol ines of the above octane numbers, the development of 

the blending pump allowed gasoline having intermediate octane numbers to be 

sold economical 1 y, a1 though this practice has decreased greatly. 

The increase in octane number of blended ethanol and gasoline has received 

much attention. However, the determination of road octane number in the 

vehicle is not as straightforward as some published results would seem to 

indicate. 

Data published in 1971 reported that for 10 percent ethanol in regular 

leaded gasoline, the increase in research octane number was 3.9, the increase in motor octane number was 1.9, and the increase in road octane 

number was 1.4 at moderate speeds and 0.2 at hiqh speed (greater than 60 mph) 2/ 

Other results indicate a larger research octane number increase of 3 to 8 

depending on the octane number of the base gasol ine. 3 

It has been pointed out that recent model-year cars require fuels of high 

motor octane number rather than high research octane number. Thus, the. 

road octane number of gasohol would be only slightly higher than that of the 

base gasoline. 51 

The question of the extent to which road octane number enhancement would 

affect gasohol costs remains to be determined quantitatively. The potential 

driveabil i ty, power, and fuel economy of a given engine is realized only when 

its gasoline antiknock qua1 i ty is adequate. - 5/ 

d. Vapor Pressure 

Adding ethanol to a hydrocarbon such as gasoline causes an increase in 

vapor pressure and depresses the boiling temperature over the range of 6 / approximately 110-210oF, with the greater difference being near 1500F. - 

Studies with gasoline have shown that both the vapor pressure and the fraction distilled below about 1600F govern the tendency to vapor lock. Addition of ethanol to gasoline, then, would probably increase vapor locking. L/ 

Allvine, Fred C., and James M. Patterson. The Marketinq of Gasoline, 

Bloomington: Indiana University Press, 1972. 

American Petroleum Institute. "Are There Substitutes for Lead Anti knocks," 

San Francisco, 1971. 

Dimitroff, Ed, Southwest Research Institute, Consultant to DPRA, Mar. 2, 1978. 

Brinkman et a1 . , x. - ci t. 

American Society for Testing and Materials. Significance of Tests for 

Petroleum Products, Tallahassee, Fla.: American Society for Testing and 

Materials, January 1977. 

Brinkman, -- et 91.. a, - cit, Table 2. 

I/ American Petroleum Insti tute. A1 coho1 s, A Technical Assessment of Their 

Appl icati-on,a~- Fuels, Pub1 ication No. 4261, July 1916. 
No increased tendency for vapor lock, however, was reported by Schel let in 

the Nebraska road test. I/ One method of adjusting the base gas01 ine so 

that the resulting gasohol has the same vapor-locking tendency would be to 

reduce selectivity ofhydrocarbons, e.g. butanes or pentanes, of the gasolfne. 

If this is done, ethanol could be considered in part as a subst4tute for 

light hydrocarbon components rather than an extender of gasoline. 2/ 

e. Corrosion 

Corroslon and engine degradation problems are of concern in vehicles using 

alcohol-gasoline blends. For example, copper and brass corrosion and 

plastics gauge float degradation have been reported in cars using methanolgasoline fuels. 3/ 

Llttle evidence of corrosion due to a 10 percent methanol in gasoline blends 

was found in the high mileage-short time test conducted by Mobile Research 

and Development Company; however, there is concern about possible corrosion 

in a family auto where mileage is accumulated over a 10 year or so period. 9 

Any problems associated with the use of ethanol-gas01 ine blends would be 

expected to .be less severe than those found for methanol-.gas01 ine fuels. 

No corrosion attributable to the use of gasohol was identified in the 

Nebras.ka Road.Test. Thus, no adjustment to. the cost of gasohol for corrosion 

appear to be warranted, although longer run tests should be done to conclusively resolve this issue. 

f. Driveabillty 

Driveabil i t y i s commonly rated at idle during acceleration and under cruise 

conditions as a car is driven through a prescribed cycle which is repeated 

several times until the performance of the car stabilizes. Demerits for 

such malfunctions as hesitation, stumble, surge, idle roughness and backfire 

in any phase of the cycle are assigned. The final driveability rating is a 

composite of a1 1 the assigned demerits, weighted for importance. 

Brinkman -- et al., 51 and others 6/ working primarily with methanol-gasoline 

blends have concluded that deterioration in driveabil i ty may be attributed 

to the leaning effect of the alcohol. 

Scheller, E. - cit.

Wise, John J. Statement by Vice President for Planning of Mobil Research 

and Development Corporation before the Senate Appropriations Comi ttee, 

United States Senate, Jan. 31, 1978. 

a American Petroleum Institute. OJ. a. 

Kaehl . Dr. W. Mobile Research and Development Corp., private comfnunication, 

Jan. 18, 1978. L 

Brinhan 9 a., z. - clt.

Amerlcan Petroleum Institute, OJ. e. 
Similar deteriorations are found whether the leaning is caused by the addition of alcohol to the gasoline or by mechanical adjustment of the carburetor. 

Thus, if gasohol is to be used in unmodified engines, it would be anticipated 

that any deterioration in driveability would be dependent on initial carburetor setting. If the carburetor is calibrated for lean operation, then, at 

intermediate temperatures, driveability would deteriorate; on the other hand, 

cars with carburetors calibrated rich--pre-emission control cars--would not 

show a significant deterioration in driveability. 

No problems with starting, hesitation, stall ing or backfiring were reported 

in the Nebraska 2 Million Mile Road Test. 11 The effects of gasohol on 

driveability at various temperatures has not received sufficient quantitative 

attenti0.n to date. No adjustment to the cost of gasohol will, therefore, 

be made for driveability factors. 

g. Volume Increase 

A volume increase, over and above that of the sum of the volume of the 

two components, results when gasoline and ethanol are mixed. For gasohol, 

the volume change is 100.23 percent. Even though this volume change is 

small, it is significant as gasol ine is sold by volume not weight and 

refineries keep track of thousandths of a cent per gallon since the volume 

of sales is so large. 

For the prices of gasol ine and ethanol encountered in this study, this 

savings amounts to $0.001 per gallon of gasohol. 

h. Fuel and Enqine Modifications 

Possibilities have been proposed which would include changes in fuel used, 

engine changes and the use of 100 percent alcohol fuel (neat). 

The most promising engine currently being investigated which could' achieve 

the mandated fuel eeenomy is the dicsel ; thus, a major shift to diesel 

power may be anticipated. Ethanol can be used in diesel engines if 

separate injections are employed. From work done by Volvo on operating 

ethanol in diesel engines and diesel fuel injectors, it aopesrs that the 

relative amounts of alcohol and diesel fuel depend on speed and load r,equirements. g. Some questions sti 11 must be answered before diesel engines 

D Scheller. x. - cit.

Panchapakesan, N. R., K. V. Gopalakrishnan, and B. S. Murthy. "Factors 

That Improve the Performance of an Ethanol -Diesel Oil Dual-Fuel Engine," 

Proceedi nsls of International Sym~osiurn on A1 coho1 Fuel Technolosv-- 

Methanol and Ethanol, Wolfsburg, Germany, Nov. 21 -23, 1977. 
can be recommended for genera l use, nowever. Current EPA emissions regulations can be met reasonably well ; however, there are no standards currently 

for particulate matter, definitely a problem with diesels. Also, if diesel 

powered cars and trucks become a reality, they would necessitate major refining changes. With present stock and refinery methods, 30 percent of 

crude oi 1 can be converted to diesel fuel ; if a higher percentage of diesel 

Is obtai ned, efficiency i s 1 owered. 

Another proposal would modify engines to accomodate such fuels as .neat 

alcohol. If this were done, the advantageous properties of fuel alcohol 

could be real i zed. A1 though the heat content per volume is lower for 

alcohol than for gasolines, thermal efficiency is potentially better 

with alcohols because higher compression engines may be used L/. Other 

engines being discussed include gas turbine, and the rotary engine. 

1. Impqcts on Gasohol Value 

The lack of conclusive (both contradictory evidence and absence of data) 

technical data on gasohol performance .l imi ts precise estimates of the value 

of gasohol relative to gasoline. 

In view of the available technical evidence, the following conclusions were 

reached with respect to the economics of gasohol use and value impacts when 

gasohol is used in unmodified engines: 

. gasohol would not eliminate the need for emission control systems 

being used for gasol ine powered engines 

. There is insufficient evidence to allow definitive cost adjustments 

for fuel .economy, octane enhancement, and vapor lock. 

. there is a vnlum increase of 0.23 percent upon mixing ethanol with 

gasol i ne. 

The result of these conclusions is that the volume increase is the only cost 

impact (8.001 per gallon of gasohol), which can be rncluded with certainty. 

The subsequent analysis was based on the assumption that regular unleaded 

gasoline would be used as a base. As previously indicated, changes in the 

base gasoline with reference to octane quality, vapor lock index, and initially for the production of a small quantity of specialized product, may 

reflect some incremental cost impacts, Additional investigation (fuel 

performance research and refinery model) should be undertaken to determine 

cost differences between gasohol and gasol ine. It is the contractor's 

tentative observation that the adjustment, primarily based on the octane 

enhancing qualities of ethanol, may be in the range of S.015 per gallon of 

gasohol. 

However, this estimate 1s considered to be tenuous and thus insufficient on 

which to conduct the subsequent financial analysis, except in terms of a 

sensitivity impact. 

I/ American Petroleum Institute, 2. a. 

11-10 
C. Cost Adjustments for Gasohol Distribution 

Since ethanol and gasohol have properties such as vapor pressure, density 

and flammability which are similar to those of gasoline, the distribution 

of gasohol could at some point merge into the existing gasoline distribution system. 1/ There are certain problems associated with the storage and 

transportation of ethanol and gasohol stemni ng from technical characteri stics regarding water sensitivity, safety and toxicity. 

1. Water Sensitivity , 

Anhydrous ethanol is miscible in all proportions with all but a very few 

gasol ines; however, ethanol is hydroscopic, and the mi sci bi 1 i ty of aqueous 

ethanol in fuels is limited. A small amount of water can cause a separation 

of ethanol-gasoline blends into two layers, a water-alcohol phase and a 

gasoline phase. Water tolerance in the mixture is temperature dependent; 

the water tolerance level of a 10 percent ethanol blend is less than 0.2 

percent at OoF and increases to approximately 0.4 percent at 900F. 3 

Thus, if separation of gasohol is to be prevented, the water level must 

not exceed about 0.4 percent. As the water level in existing pipelines 

and barges exceeds this on occasion, the use of these facilities for transporting anhydrous ethanol and gasohol is general ly precluded. Various 

emu1 sifying agents are known which improve the water to1 erance somewhat and, 

indeed, some of the ethanol denaturants (e.g. isopropyl alcohol ) may serve 

to make the system more water tolerant, thus permitting the use of pipelines and barges as transportation modes. Additional work is required to 

determine the extent to which pipe1 ines and barges could be used for gasohol 

transportation. 

For this reason, it is concluded that particularly during the initial stages 

of a gasohol program that the points within the ditribution system of gasoline where the ethanol could be blended with the base gasoline include: 

(1) the refinery as trucks are being loaded; (2) the pipeline terminal or 

bulk blending facility as trucks are being loaded; and (3) the retail station by means of a blending pump. 

In each of the above cases, ethanol storage facilities would be required 

at the blending site. The estimated cost for a storage tank varying in 

size from a minimum of 20,000 to 100,000 barrels is $6 per barrel, or $. 143 

per gallon, which includes site preparation, the tank and the needed lines. 

Routine maintenance for one more tank at a pipe1 ine teminal is minimal --an 

occasional painting. The life of the tank is long. Tanks put in place in 

the 1930's are still in use. 3/ These facilities would need to incorporate 

some system such as special vents for keeping the ethanol dry. 

- 11 See Appendix 11-2 for a discussion of the gasol ine refinery distribution 

system. 

American Petroleum Institute, x. - cit. 

Hennerrey, John. Williams Pipeline to., Tulsa, Oklahoma, private communication, May 1978. 

11-11 
In addition to the ethanol storage tank, gasohol storage tanks would need 

to be dry and kept essentially free of moisture by some mechanism such as 

the use of special vents. The cost of this requirement is expected to be 

minimal. 

2. Safety and Toxici ty 

Both gasoline and ethanol are highly flamable and the sale and handling 

of each requires adherence to statutory safety regulations. The toxicity 

hazards for ethanol and gasoline are similar. (See Appendix 11-3) 

In general, ethanol and gasoline require similar precautions as far as 

flannabi 1 i ty is concerned; however, ethanol presents a more serious explosion 

hazard when flamnability limits and vapor pressures are considered. The 

flamnabll i ty 1 Smi ts are 4.3-19 volume percent, which corresponds to a temperature range of somewhat greater than lOoC (SO0F) to somewhat less than 

SOOC (12z°F). 1/ Gasol ine vapors, on the other hand, are too rich to 

ignite, having concentration in saturated air at 68oF of 25-50 volume percent, well outside the flammability limits of 1.4-7.6 volume percent. 

While a potential safety problem is present for ethanol, no conclusive evidence was found to support an estimate of an additional storage cost allowance for safety features. This issue has not received much attention to 

date and is considered to be an unresolved issue. 

3. Impacts on Distrlbutlon Costs 

The transportation, storage, hand1 ing and deal er markup costs for gas01 ine, 

ethanol and gasohol , due to their properties, would be similar - with the 

exception of the additional cost for maintaining essentially moisture-free 

ethanol and/or gasohol storage. The incremental distribution costs associated with gasohol appear to be small under the distribution system considered 

herein. It should be noted that th4s area of the economics of gasohol has 

received little attention, with the result that firm cost estimates are not 

avaflable, and additional work should be done in this area to confirm the 

conclusion. 

D. Price of Gasol ine .- -~--.- 

Since the cost of gasohol is determined.primarily by. the price of gasoline, 

the price of gasoline is an important. considaration in dssessing the comparative market potential of the motor vehicle fuels. 

1/ See Appendix 11-1. 
1. Retail Price of Gasoline 

The retail price of gasol ine varies by grade of gasol ine and by the type 

of service station (Table 11-1). In December, 1977, the average sell ing 

price of regular gasol ine at ful 1-service major- brand stations, including 

an average tax of 8.125 per gallon, was b.644 per gallon; at independent 

stations the price was 5.584 per gallon. The variation in price between 

the four grades is not uniform among the types of stations; however, in all 

cases the price roughly parallels the octane number of the gasoline. 

The annual average retail price of regular motor gasoline for 1967-76 in 

both current and constant dollars is shown in Figure 11-1. 11 In current 

dollars, the orice of gasoline rose from 5.332 per gallon in 1967 to 5.587 

per gallon in 1976. If these prices are deflated by the inflation rate 

experienced in the United States during these years (as measured by the 

Bureau of Labor Statistics' Consumer Price Index), the price of gasoline 

(In constant 1967 dollars) was 8.332 per gallon in 1967, rose to a peak of 

$.358 per gallon in 1974 at the .time of the oil embargo, and dropped to 5.349 

In 1975 and b.344 in 1976. The constant dollar price of gasol ine has remained fairly steady. In 1976, the retail price of regular gasoline was only 

b.012 cents per gallon higher than in 1967, in constant 1967 dollars. 

2. Retail Gasoline Price Projections 

The forecast for domestic petroleum liquids supply and price made by the 

Energy Information Administration of DOE 2/ was based on numerous assumptions. The most critical of these were t5e assumed path of future world 

of1 prices 3nd its effect on domestic price regulations and other government policies, the extent and quality of the domestic resource base, and 

the forecast of growth of the U.S. economy. Six scenarios were developed: 

five assumed world oil prices constant in real terms -- i.e., imported oil 

prices would just keep pace with domestic inflation; one assumed a high 

prfce of imported fuel. 

These estimates assumed that the composite price controls schedul ed under 

the Energy Policy and' Conservation Act would be extended throughout the 

forecast period . 

The projected real gasol ine price made under the six scenarios for 1985 

vary from 8.714 to 8.722 under the assumption of a constant real price of 

crude oil in 1985 (Table 1.1-2). If a high import price of crude is assumed, 

the projected price is 8.787 per gallon (including excise tax). By conparison, in 1975, the retail price was b.675 per gallon. In 1990, the retail 

price of gasoline is projected to vary from 5.723 to .743 per gallon with 

a jump to 8.912 with high import prices of crude, in 1977 dollars. 

I Table 11-3 presents numerical retail price series. It ts from a difr) l 

ferent source and varies s1,ightly from Figure 11-1. 

5' U.S. Department of Energy. "Projections of Energy Suoply and Demand and 

Thei r Impacts," Annual Report to Congress, Yo1 . I I, ~ul~ 1977. 
Table 11-1. Average gasoline selling prices and margins for major and 

indenendent retail dealers, Including tax - December, 1977 

Full Servlce Self Servlce 

Natlonal Na t lonal 

Major 1 ndependen t average Major l ndependent average 

.................... (cents per gallon, Including tax) ..................... 

Regular 

Sel ling price 

Margin 

Premi urn 

Sell ing price 

Margin 

W 

7 Unleaded (regular) w 

P Selling price Margin 

Unleaded (premium) 

Selling pric.e 

Ma rg 1 n 

Source: Lundberg Survey, Inc., as reprinted in U.S. Department of Energy, EIA, Monthly Energy 

Review, March 1978. 
Year 

.80 - 

Figure 11-1. Retail price of motor gasoline in current and constant 

do1 1 ars. 

.60- 

Source: Federal Energy Administration, Office of Energy Information 

and Analysis, Monthly Energy Review, July 1977. 

Current 

.4& 

0-- - -- -- 0 

0 --- --- ---/ Constant 

do1 1 ars 
Table 11-2. Projected retail gas01 ine prices including taxes, 

1985 and 1990 (1977 dollars) 

Scenario A B C D E F 

Demand High High Med LOW Low High Crude oi 1 

Supply of domestic import oil and gas High Low Med High Low price 

$/gal .716 .722 .717 .714 .719 .787 

Annual price growth 

rates , percent 1.0 1.1 1.0 0.9 1.0 . 1.. 9 

$/gal ,732 ,743 .739 .723 .738 .912 

Annual price growth 

rates , percent 0.4 0.6 0.7 0.3 0.5 3.0 

Source: Derived from U .S. Department of Energy, Energy Information Administration, "Projections of Energy Supply and Demand and Their Impacts," Annual Report to Congress, Vol . 11, 1977. - 
The retail price of gasoline is in essence composed of the sum of refinery 

gate price of gasol ine, plus transportation and terminal 1 ing, dealer markup 

and fuel taxes. 

3. Reflnery Gate Gasoline Price 

The refinery gate price for gasol ine has, in general, paralled the price 

of crude oil. 11 In 1965, the average refinery gate price of gasoline was 

$.I152 per galTon (Table 11-3). This price gradually increased (about $.03 

per gallon of gasoline) through 1973. In 1974, when the Arab Oil Embargo 

occurred, prices of both crude oil and the.refinery gate price of gasoline 

nearly doubled. By 1976, the average refinery gate price of gasoline 

reached 8.3382 per gal lon (Table 11-3). 

4. Transportation and Terminallinq 

The wholesale prices of gasoline, as represented by the dealer tank wagon 

price or dealer purchase price, parallel the prices of gasoline at the 

refinery gate. Transportation and other costs associated with moving the 

gasol ine from the refinery gate to the retai 1 dealer may be estimated by 

the difference between the two prices. This difference is approximately 

8.05 per gallon and has varied little in the period from 1950 to the present 

(Tal be 11-3). 

5. Dealer Marqins 

Various data series and dealer configurations yield slightly different dealer 

margins, although on the average, the dealer markup i.s about 9.08 to 8.09 

per gallon (Table 11-3). The dealer margins at major brand stations and 

independent stations were, $. 093 and $. 070, respectively in December 1977 

(Table 11-1.); The marg.ins at self-service stations were considerably lower 

at 8.041 for the major and 5.045 per gallon for the independent. Dealer 

margins on regular gasoline at full service stations have varied l i t t l e i n 

the period from 1974 to 1977 as shown in the data below. - 2/ 

Average 

deal er 

- Year 

1' See Appendix 11-4 for brief background on crude oil prices. 

3 

Lundberg Survey, Inc. as reprinted in U.S. Department of Energy. EIA. 

Monthly Enerqy Review, March 1978. ~ ... -- .. . 
Table 11-3. Average prices, and imputed margins for regular grade gasoline 

in the United States, 1965 to 1976. 

Gasol i ne Dealer Service station Transporref1 ner.y tank Without With fuel tation and Dealer Fuel 

Year gate 1/ wagon fuel tax tax terminal 1 ing margin taxes 

lJ Average of 8 refinery markets. 

Source: Natl onal Petroleum News Factbook Issue, McGraw Hi 11 , New York, 1977. 
1n fact, for some time the dealer margin has remained eisential ly unchanged. 

For examole, in 1969, Platt's Oilgram Price.Service reported an average 

dealer margin of $0.08 per gallon for full service stations. 

6. Taxes 

Taxes specific to gasoline are collected at the time of retail sale. ~efunds 

and tax credits, however, for non-highway use was authorized by the "Excise 

Tax Reduction Act of 1965." . .. . 

In 1977, rates varied from S.05 to .095 cents per gallon for the High Plains 

and Midwestern states speci fical ly included (see Table 11-4) in the. present 

study. In addition,, the federal motor fuel tax is 4 cents per gallon. 

Nationally, the current fuel tax averages b.125 per gallon. 

. .. 

The motor fuel taxes constitute quite vari id proprotions of the total state 

tax revenues in the states included in this study. In South Dakota, these . 

taxes were 19 percent of the total tax revenues, in, Nebraska,. 27 percent and 

in Wisconsin, only 7 percent. Most of these 17 states (except Nebraska, 

Oklahoma, Wisconsin, I1 1 inois and Indiana) constitutional ly prohibit diversion of the motor fuel tax to non-highway uses. 

E: Marketing . . 

Gasohol is being sold as a motor fuel in a few areas today utilizing the 

familiar type of service stations. Gasohol has been marketed in I1 li~ois 

since November 21, 1977. Currently, there are 33 stations throughout the 

state selling gasohol at the same sell ing price as premium no-lead. 'A 

total of 300,000 gallons of gasohol were sold by the end of the first, six 

months of operation. - 2/ 

Gasohol has been so1.d in Nebraska on a regular basis since February 21; 

1978. 3/ At the present time, there are four service stations selling 

gasohoT, two of which sell it on. a regular basis. The other two, lucated 

in central Nebraska, are involved in-a 90-day test sale. For the. period 

- -- 

Lundberg Survey Inc., as reported in the U.S. Department of Energy, EIA 

Monthly Energy Review, March 1978, reported the average fuel tax as follows: 

- Year 

1974 

Mavi s , A1 , conservation coordi nator, I1 1 i noi s Department of ~gri cul ture, 

private communication, Jan. 20, 1978. 

- 31 Fricke, C. K., Administrator, Nebraska Gasohol Committee, blncoln. 

Nebraska, private communication, July 1978, 
Table 11-4. State fuel tax rates and revenues 

Motor fuel 

1977 1976 state taxes as percent 

gas01 i ne motor fuel of total tax 

State tax rate tax revenues revenues in 1976 

($/gal 1 ( so00 1 

Colorado 

Illinois 

Indiana 

Iowa 

Kansas 

Michigan 

Minnesota 

Missouri 

Montana* 

Nebraska* 

North Dakota* 

Ohio 

Oklahoma 

South Dakota 

Texas 

Wisconsin 

Wyomi ng 

Source: 1977 National Petroleum News Factbook Issue, Mc Graw Hi1 1, New York. 
.from March through June, 36,000 gallon of gasohol were sold at three outlets. The first 20 million gallons of gasohol sold each year in Nebraska is 

exempt from five cents per gallon of the excise tax. 

To date no extensive consumer acceptance studies have been comple.ted, but 

consumer acceptance is assumed to be a function of both performance and 

selling price. In an effort to learn if gasohol is popular enough to 

sustain a permanent market, the Iowa Development Commission is coordinating 

an in-depth market research project which began June 15, 1978. 1/ Based 

on the premise that when testing a new product, it must be .comp~titively 

prlced with similar products on the market or consumers will not purchase 

it at all, gasohol is being sold at five Iowa towns at a price comparable 

to gasoline (Based on current market prices, the IDC concluded that gasohol 

should sell about 10-12 cents per gallon higher than no-lead fuels). 

Current marketing information would indicate that purchasers of motor vehicle 

fuel are (I) will ing to serve themselves and forego some of the services 

normally accorded them at full service stations provided the price is lower, 

(2) willing to pay more for a higher octane motor fuel if their vehicles 

perform better--as evidenced by increased sal es of premi um no-1 ead, and 

(3) will ing to support brand loyalty. 

If these and other features which entice consumers to a specific brand of 

motor fuel or to a specific retail outlet can be exploited, the market 

potential for gasohol as a motor vehicie fuel could be compatible with the 

present day market for motor fuel. 

Reffnttive data on octane number and other performance properties 0.f gasohol 

would be required by the intelligent purchasers, but if the consumers feel 

they are obtaining proper value. for the price, the average consumer is 

probably 1 i ttle concerned about the originaT source of the fuel. The key 

question rev01 ves around performance and the consumer's perception of 

performance. At present, the answers are not clear-cut. 

F. Gasohol and Imputed Ethanol Prices 

This chapter's preceding discussions .of the. unique characteristics of 

gasohol 's nature, distribution, marketing, and pricing were presented as 

considerations which are germane to this study's estimates of gasohol costs, 

for if gasohol is to be competitive with gasoline as a motor fuel, its 

retail rice including. cost adjustment factors should be equivalent to that 

of gas0 P ine to complete the analysis of gasohol price, the price (cost) of 

ethanol must be considered. From the preceding discussion, it- is clear that 

gas01 ine price is an important cost component of gasohol. Furthermore, it 

-?/ "Iowa to Sell Gasohol to Consumers in Research Test," Feedstuffs, 

June 12, ,1978. 
can be assumed, excepting institutional constraints, that gasol ine orices 

(costs) will be determined by factors external to an ethano1,industry. 

Given the working conclusions and assumptions, the required ethanol price 

(cost) can be obtained by rearranging the formula given at the beginning 

of the chapter as follows: 

Ethanol price gasohol gas01 ine price, transportation, \ 

f.o.b.plant selling - .90 refinerygate + terminallingandl 

price dealer markup / 

ethanol transportation, gasohol value 

and handling cost and + adjustment - fuel taxes 

dealer markup 1 . . 

The retail price of regular unleaded gasoline is about $.52 per gallon 

exclusive of. fuel tax in ,1977 dollars. This is a refinery gate price 

of b.40 per. gallon pius 'S.05 per gallon for transportation and terminal 1 ing 

and 8.07 per gallon dealer margin. It was concluded that the transportation, 

handling and dealer margin for ethanol would be similar to gasoline, i.e. 

about $.I2 per gallon. A value adjustment of b.001 per gallon of gasohol 

was esti'mated for the volume increase. 

Exc1,uding fuel taxes and substituting into the equation a required f.0.b. 

plant price for ethanol of S.41 11 per gallon is obtained. Assuming different refinery gate prices and hlding other costs constant, a range cf 

required ethanol prices can be obtained as snown in Table 11-5. When refinery gate asoline prices very from 6.35 to I. fin per gallon, ethanol 

prices vary I rom 8.36 to $1.01 per gallon. Considering the gasoline price 

projections shown in Table 11-2, the refinery gate price under the constant 

dollar world crude price scenarios would be in the order of b.45 per gallon 

In 1985 and 8.47 per gallon in 1990 which would make ethanol equivalent to 

S.46 and $.48 per gallon, respectively. Under a scenario that constant 

dollar world crude prices will increase, the refinery gate price of gasol ine 

would be about 8.50 in 1985 and 8.60 in 1990. The equivalent ethanol price 

would be 9.51 and 9.61 respectively. These values (1977 dollars) must be 

considerbed as rough approximations since the transportation and dealer margins may increase from recent relationships. 

The fact that no adjustment was made for nctane number enhancement merits 

further explanation. The exact val ue of the octane number enhancement 

depends on the octane number of the blending gasolf ne. Gasohol with an 

octane number greater than the regular no-lead produced by blending ethanol 

with regular no-lead gasoline, might command a price greater than of regular 

no-lead gasoline, if the consumer desires a gasoline with that octane rating. 
Table 11-5. Required ethanol price (cost), f.0.b. plant as 

a function of refinery gate gasoline price. 

Gasoline price Ethanol price ref i nery gate f.0.b. olant 

($/gal 1 ($/gal ) 

Source: DPRA estimate 
Price differences between the two qualities of unleaded fuel vary, but 

not directly with the octane number difference. For example, at one 

full-service station, premium no-lead with a minimum octane number of 

94 sells for S.739 while regular no-lead with a minimum octane number of 

88 sells for 9.709 or 6.005 per octane number. At another full-service 

station, the difference in cost of the two grades is 9.04 per gallon 

while the difference in octane number is 5, giv'ing 9.008 per octane number. Ethanol does increase the octane number of the fuel and the associated value would be in the range of the difference in price between 

regular no-lead and premi urn no-1 ead. For example, if experimental ly, 

the octane number increase were shown to be two then the cost adjustment 

would be on the order of 5.016 to 5.010 per gal lon of gasohol or $.I6 to 

$.lo per gallon of ethanol. No adjustment, however, was made in these 

gasohol costs for octane enhancement as no definitive data on either the 

octane enhancement or the value of an octane number were available. 

In the initial phases of gasohol production, the slightly higher cost of 

the currently mass-produced, unleaded gas01 ine must be weighted carefully 

against that for the special ly-blended base with less expensive components 

produced as a special batch in small quantities. Whether, indeed, a higher 

price for gasohol would be justified awaits both consumer acceptance and 

the results of carefully controlled experiments to determine the actual road 

octane number enhancement, driveability in the particular climatic conditions, 

corrosion over the long term, and other questions related' to the particular 

characteristics and consumer acceptance of gasohol. 
I I I. ETHANOL : GENERAL CHARACTERISTICS AND PRODUCTION TECHNOLOGY 

This chapter presents a general discussion of ethanol production technology 

as a background to the study's primary concern--di scussing the economic 

feasibility of ethanol production and gasohol uti 1 ization. The current 

technology of the fermentation process using grains and other raw materials 

i s we1 1 -known and understood. 

Later sections of the chapter briefly discusses the potential technological developments germane to ethanol production. 

A.. Ethanol Production 

Ethanol is but one form of generic a1 cohol , a family of compounds 'that are 

the hydroxol derivatives of hydrocarbons.. Each a1 cohol is di sti ngui shed 

by ts carbi no1 group, and ethanol -- (C2~5?~) -- j a two-carbon member of 

the generic family of alcohols. Ethanol is used in some forms as an industrial solvent and in others as the alcoholic basis of a variety of beverages 

and foodstuffs. 

In its most familiar use, beverage. alcohol is a form of ethanol with flavors 

and colorations that are actually impurities from the grain and fermentation 

pvocess, and are' enhanced by aging. Whiskey is an exampl e of this beverage form. Neutral spirits, ethanol with a1 1 impurities removed %except water, 

is a chemically pure form familiar as beverage vodka. 

Ethanol is also frequently used as an industrial solvent and is a constituent 

of paints, shellacs, lacquers, various medical compounds, tinctures, and 

toilet preparations. Among the various chemicals that can be derived using ethanol are: anesthetic and glycol ethers, various esters, acetates, and 

chlorethane. 

The other use of ethanol, and the chief concern of this study, is as a 

constituent of gasohol for use in internal combustion engines. 

Ethanol may be produced from agricul tural products (any carbohydrate) through 

fermentation or from petroleum products through chemical synthesis. This 

investigation is confined to ethanol derived from agricultural products. 
Ethanol derived from starch-bearing feedstocks (grains, starch, potatoes) 

is produced in essentially a two-stage process. In the first, starch is 

converted through hydrolysis to sugar enzymatically by diastase in sprouting 

grain (malt) or with fungal amylase. - 11 

Starch + water Enzyme Sugar 

(C6H1005)n + nH20 --------> nc6H1206 

In the second stage, the resultant sugar composition is converted to ethanol 

and carbon dioxide through fermentation. 

Sugar Yeast Ethanol Carbon bi oxi de 

For those agricul tural products (sugar beets, sugar cane, molasses). yielding 

the necessary sugars directly, the first stage is unnecessary. -. 

Sugar may also be a conversion product of cellulose, the bulp of all biomass 

(e.g., corn stalks, wheat, straw, wood). Technically, the cellulose of 

biomass may be converted into sugars by acid or enzymatic hydrolysis and 

could, thus, make available an additional source of the sugars necessary for 

fermentation; however, such resources are not commercial ly attractive at 

the present time. 2/ 

Because ethanol is soluble in both water and gas01 ine, ethanol must be processed and distilled to remove the water when ethanol is used to produce 

gasohol. The distil lation process, possible because ethanol and water 

have differing boiling points, is achieved through a two-stage process. 

The first results in 95 percent ethyl alcohol and 5 percent water (190 proof 

alcohol ). The second disti 1 lation produces the 200 proof anhydrous ethanol 

required for gasohol . 

To assure compl iance with revenue 1 eviei (taxes) and consumer use, ethanol 

used for other than beverage purposes is denatured through the addition of 

various and, comnonly, toxic substances. 

Scheller, W. A. "The Production of Ethanol by the Fermentation of Grain," 

Presented at the International Symposi um on A1 coho1 Fuel Technology, 

Wolfsb!~ry, Federal Republ ic of Gerinany, Nov. 12-4, 197.7. 

sored by ERDA, Dect 
B. Process Operations and Equipment for Grains 

An ethanol plant's operations and equipment will vary for the different 

raw matertals to be processed. Those converting the starches and sugars 

from grains are generally compatible and are schematically presented in 

Figure 111-1. An important exception is wheat. Due to the high gluten 

content, the processing of straight wheat produces excessive foaming 

which requires certain process modifications. However, wheat can be 

blended with corn or grain sorghum up to 20 to 25 percent, without special 

foaming problems. Thus, the reference to grain used below assumes that 

wheat is blended into corn or grain sorghum. The process now in use and 

described belob is a batch process. 

1. Enzyme and Yeast Pro~agation 

Each processing plant must develop and maintain adequate stores of uncontaminated fungal amylase and yeasts. The plant must provide devel opment , growing, and control 1 ed maintenance areas for such cultures sufficient to 

the-plant's economically viable fermentation production. . - 

2. Grinding and Cookinq 

Conveyors, grinders, and properly-sized holding tanks are necessary to 

move and grind processing grains. The grains are ground to expose their 

starch molecules, mixed with water (30-40 gal 1 ons per bushel ) and cooked 

to convert their starch to sugar through hydrolysis. The pH and the temperature of the mixture must be control 1 ed, 

3. Fermentation 

The fermentation reaction, a 48-hour process, takes place in individual 

tanks arranged in batteries. The number of tanks required. depend upon a 

plant's designed production capacity, but obviously they must be sufficient 

to maintain the 48-hour operation and to allow stand-down ca?acity for tank 

loading, unloading, cleaning, and sterilization necessary for continuous and 

cyclical processing operations. 

AS the mash Is charged into a fermentation tank, the yeast is added to cow 

mence the fermentation process. The process heat must be drawn off to maintain the mash temperature at the 320 C required for yeast operations. The 

carbon dioxide produced during fermentation may be discharged into the atomsphere or dried and compressed into marketable forms when feasible. 
l a. Enzyme/Yeast 

Propoga t i on 

> 

g. Distillation 

)I Section + i - 

d. Beer 

Sti 11 

\ 

* . h. Dehydration 

Section 

i d 

I 

9 

e. ~iquid 

Concentration 

Flgure 111-1. Block flow diagram grain fermentation process. 

b.. Grinding 

and 

Cooki ng 

C b 

Source: Scheller, W. A. "The Production of Ethanol by the Fermentation of 

Craln ," Presented at the International Symposi urn on Alcohol Fuel 

Technology, Wolfsburg, Federal Republ ic of Germany, Nov. 12-4, 1977. 

, 

\ 

c. Fermentation 

Section 

t 
4. Beer Still Distillation 

The fermented mash, containing about 12 percent alcohol in water and the 

spent grain are charged into the beer still where initial distillation 

takes place. The alcohol , now concentrated to 50 percent in water vapors, boils off the top and is condensed, while the spent grains consisting of 

both dissolved and undissolved solids of protein, fiber, yeast, and water 

are discharged at the bottom of the still and ,centrifugally separated. into 

liquids and sol Ids. 

5. Llqufd Concentration 

The centrifuge-solubles are reduced in volume about 50 percent in multiple effect evaporators. They are then pumped to the driers and remixed with ' ' the centrifuge-discharged solids for drying. 

6. Drying 

In order for a plant to produce, store, and ship a uniform product of distillers dried grain, driers reduce the moisture ,conten.t of the mixture of. 

sol id spent-grain and concentrated solubl es to 10 percent. The resultant 

product with a specified analysis is marketed as high protein feed additiv,es. 

7. Distlllation 

The beer-still distillates of condensed vapors of 50 percent (100 proof) alcohol in water, are introduced into one or more distillation columns to 

remove the aldehydes and fusil oil and to concentrate the alcohol to 95 

percent (190 proof). 11 The aldehydes and fuse1 oil can be stored for 

possible sale or may 6e used as process boi 1 er fuel. 

8. Dehydration 

To produce anhydrous' ethanol,. 200 proof, requires the removal of the. remafning water by an extractive distillation process. Benzene or other 

suitable material is added to the 190 proof .81cohol to form a ternary mixture that will break the azeotrope of ethanol and water and allow the 

anhydrous ethanol to be separated for storage. The benzene is then recycled into the dehydration process. 

9. Denaturation 

The ethanol produced for industrial consumption, including fuel s, must be 

denatured to assure camp1 iance with ' the regulations of the Bureau of Alcohol , Tobacco, and Firearms. One such formula is: "To every 100 gallons of ethyl 

Industry contacts suggest that aldehydes and fusil oils should be removed 

from fuel grade ethanol. However, the need for removal. is questioned 

by some researchers. Thus, this issue is unresolved. 
alcohol (ethanol) of not less than 160° proof add: 4.0 gallons of methyl 

isobutyl ketone; and 1.0 gallon of either kerosene, deodorized kerosene, 

or gas01 lne. " L/ 

C. Process Operations and Equipment for Non-Grains 

The processes required for production of ethanol from non-grain raw 

materials vary from the grain process.. The major difference relates to 

the front-end preparation of these material s. Rather than describe the 

complete processes and' equipment, the differences from the basic grain 

process will be high1 ighted for each non-grain raw material in the following discussion. 

1. Process and Equipment for Potato Fermentation 

Rather than describe the complete process and equipment used in a plant that 

wuld process potatoes as a starch source instead of grain, highlighted only 

are those aspects that are different from those of a grain fermentation plant. 

The major difference is the storage. Potatoes are stored in a controlled 

environment -- "potato cellar" (cool and dark); grain is stored in steel 

bins or p.11 ed on ,the ground. The grinding and cooking processes preparatory 

to 'fermentation. vary only slightly from those for grain processing because 

the size and moisture content of the potato. 

The fermentatlon and disti 1 lati on operations and equipment are the same 

for both plants with but one exception. The yield of alcohol from fermentation will be about 7 percent maximum and, thus, there will be more water to 

remove by distillation. 

The recovery of potato pulp is simpler than the recovery of distillers dried 

grain; however, since the protein content of potato pulp is too low to 

justify expensive drying operations, potato pulp is processed and sold to 

area feedlots i n i t s wet form. 

2. Process and Equioment for Sugar Beet Fermentation 

Sugar beets processing Is a combined beqt sugar and fermentation process. 

All of the operations that are characteristic af a beet sugar plant except 

for the crystallation of sugar are found in the beet sugar fermentation 

plant, The equipment and proeess,ing necessary to the storing, sl icing, 

defusion and concentration of raw juice to thick juice are necessary, and 

beet pulp recovery and drying operations and equipment are required. In 

addition, a1 1 the processing and equipment required for fermentatjon, distfllation, dehydrati'on and denaturation are needed. . :. 

1/ Bureau of ~lcohol, Tobacco and Firearms. Formulas for Denatured Alcohol 

and Rum, Section 212, Title 27, April 1977, TD 6634, 28 FR1038. 
3. Process and Equipment for Starch and Molasses Fermentation 

Starch and molasses fermentation processing is simpler than that for all 

other products discussed. Storage is simplified because both starch and 

molasses are concentrated. Since pulp and f i berous material are separated 

in a prior process, the need for grinding is eliminated and the preparation 

for starch fermentation requires only the hydrolysis.and heating operation. 

Molasses needs only dilution with water before its charging into the fermentation. Vats from the fermentation step on the starch and molasses 

plants are s.imilar to grain plants with the exception of the process 

pulp recovery. In the case of starch, there is only a small volume of 

effluent from the beer still to be treated -- no drying of stillage 

and no recovery of saleable protein feed. 

D. Potential Ethanol Production Techno1 oqy 

Since this study examines ethanol production under current technologies, 

the future economics of the industry which will doubtless reflect the 

effects of sti 11 -to-be-determined technologies are not considered. This 

section, then, but briefly catalogues potential technological innovations 

in ethanol production. 

Future technological advancements wi 11 center principal ly on raw material 

source and treatment developments, improved micro organisms, and more 

efficient processing techniques and equipment. The first is the most 

significant. 

1. Raw Materials 

As noted earl,ier, ethanol production relies upon the conversion of starches 

and sugars into ethanol. Future developments will concern materials with 

increased starch yi ol'ds , with more directly accessi bl e sugars, and with 

varied sugar sources. Research directed toward genetic improvements in 

vegetable, grain, and sugar beet varieties to increase their potential starch 

and sugar yields may be expected to promote efficiencies. 

A most promising development in the search for new materials is that reflected In the work of Dr. George T. Tsao of Purdue University 1/ which 

centers principally upon his attempts to break down the cellulo?'e waste 

in such diverse sources as corn stalks, sugar cane bagasse, sawmil 1 residues, 

small tree trunks, and industrial wastes and urban trash. A cost will be 

reel lzed In the gathering of such materials. but' their obvious availability 

and their potential low-cost for gl ucose sugar recovery makes their potential use of Interest. 

Tsao, George T. "Utlliration of Grain and Crop Residues for the 6koduction of Fuel and Chemicals," Purdue Universi t$ , West Lafayette, Ind., 

undated . 111-7 
2. Improved Micro-Organisms 

A technically limiting factor in ethanol production is the inability of 

currently-used yeasts to sustain fermentation in mash concentrations of 

greater than 12 percent alcohol content. New strains may be capable of 

propogation with greater a1 cohol to1 erance. Their introduction would 

allow a more efficient production process with higher alcohol yields and 

correspondingly 1 ess water removal requi rements i n the di sti 1 lation process. 

Published data on new strain developments are not available. There are 

reports of proprietary research in this area, but there is no conclusive 

evidence available regarding the 1 i ke1 i hood of a breakthrough. 

3. Equipment and Process Developments 

a, .~. Continuous Formenration 

The most widely di,scussed development in equipment techno1 ogy concerns 

that for developing continuous fermentation. The process has been used 

to ferment wine grapes and sugar syrups and molasses, but there are no 

documented data of its application in grain fermentation. At best, the 

development would reduce fermentation from approximately 48 hours to as 

few as seven or eight hours and would result in lower inventory of materials 

and fermentation equipment capital investment costs. The process, however, 

would not greatly reduce energy consumption or other operating costs. What 

gains are possib'e with continuous fermentation may come at the expense 

of somewhat lower a1 cohol yields than attained with batch fermentation. 

Two European firms, Vogelbush of Austria 11 and BMA 21 of Germany claim to 

have fermentation processes and equi pment-which resurt in significant 

savings in energy and operating costs, but these a.re proprietary and no 

published cost data supporting these contentions are available. Each firm 

designed and built installations in many parts of the world and these 

plants produce from 1 to 15 million gallons of ethanol per year. 

b. Vacuum Fermentation 

A promising development being investigated is vacuum fermentation. 31 This 

process requires the co-development of continuous fermentation under vacuum 

and a mutation of the temperature-i nsensi ti ve microorganisms to a1 1 ow the 

resultant alcohol vapors to be drawn off the fermentators continuously. 

The process would replace the mash column with a fractionation column, a 

potential energy savings advancement. 

Vogel busch Gesell schaft mbH Vienna, Austria, reoresented in the United 

States by Bohler Bros of America, 1625 W. Be1 t North,Houston, TX 77043. 

persona1 communication, 1978. 

3 Braunschwei gi sche Maschenembauanstal r(BHA) Braunschweig, West Germdny, 

represented in U.S. by Silver Engineering Works, Inc., 3309 Bal ke St., 

Denver. Colorado 80205. ~ersonal communication. 1978. 
c. Dehydration Operations 

Several investigations are being conducted that involve the concentration 

of ethanol through dehydration processes. Such sti 11 requi re considerabl e 

further work before they are cost effective. A number of these are 1 i sted 

be1 ow. 

The solvent extraction of ethanol is being investigated as a new technique. lJ 

Alcohol in aqueous solution is fed into a column with a counter current of 

gasoline. The process depends upon the solubility of alcohol and gasoline 

and the insolubility of water in gasoline to draw off a product containing 

only gasoline and alcohol. This procedure, if successful at a high transfer 

rate, would eliminate the need for distillation columns and their high 

energy requ i remen ts . 

Crystal 1 ization extraction is a technique which uti 1 izes the fact that. the 

latent energy of freezing water is less than the latent heat of vaporization. The controlled freezing of the alcohol-water solution may be a m?re 

energy efficient method of concentrating the alcohol product than is disti 1 lation. 

The fluidized rectification of alcohol reported in a recent Russian work 21 

indicates that a two-fold productivity increase may be realized with fl uiaizedbed columns as compared to conventional fixed-pl ate columns with bubbl e-cap 

tra.vs o.r columns with fixed packings. 

The use ,of molecular sieves or reverse osmosis to separate alcohol from 

water is under investigation a1 so. Currently, the 1 ow production rate 

and. high pressures required for the process are 1 imi ting factors. A 

similar technique using an ion exchange with a zeol.ite process is described 

within another Russian work. 3J 

U Colorado Gasohol Task Force. Production and Marketinq of Alcohol Motor 

Fuels from Colorado Aqricultural Commodities: A Tentative Description, 

.)I 

USDA, Jan. 31, 1978, 

Gelperin, N. I., -- et al., "Rectifying capacity of columns with fluidized 

packing," Khim, Prom. (Moscow), v. 47, no. 1, 1971. 

~ndronikashvili, T. G. -- et al., "1966 Preparation of..~bsolu~~ Ethyl 

Alcohol by Zeolite," Lavod. Lab, V. 32, No. 10, p. 1211, as reported by 

the Colorado Gasohol Task Force in Production and Marketing of Alcohol 

Motor Fuels from Colorado Agricultural Comrnodi ties: A Tentative 

Description, Jan. 31, 1978. 
One cbnsequential aspect of ethanol production is the relationships between 

its production inputs and the mass and energy-content of the products of 

that production. This chapter estimates these relationships. 

A. Raw Material Input and product Output elations ships 

As pr6vi ously indicated, thi s study f&usei on those majdr Crops and food 

processing by-products that are produced 'i n ..a ..sev.en teen state Cornbel t 

and. Great Plains area and used as raw materi 1 as in the producti'on of ethanol . Four primary items are produced from the fermentation of these raw materials: 

ethanol, distillers by-p.roduct, carbon dioxide, and water.. 

Table IV-1 summarizes the input-outpit :relationships for each of the raw materrals. .Differences in unit measurements of and the water, starch, and 

sugar contents of the raw materials result in a wide range of output yields. 

Corn, grain sorghum, :and wheat yield 2.6 gal l'ons of ethanol per bushel. Due 

to the difference in its .nominal weight per bus,hel , the percentage yield of 

wheat is slightly less--28.7 percent--than the 30.7 percent for corn and grain sorghum. .The percent yield of ethanol from potatoes and sugar beets, high 

water content products, is quite .low at 9.4 and 6.7 percent respectively. Molasses yields 22.6 percent of its .weigh't. in ethanol and starch has the 

highest yield at 39.6 percent; 

Precise estimates of the impact of raw material quality differences on ethanol 

yield are not available. Industry consultants suggest that sample grade and 

damaged grains have marginally lower ethanol yields. Doubtless, -their specific 

yields, because they depend on the degree and kind of grain damage, would be 

batch specific. 

2. Distillers By-product 

The percentage yield of di sti 1 lers by-product from corn and grain sorghum is, 

at 30 percent, similar to their ethanol yield. Wheat yields a higher percent of disti 1 lers by-product than it does ethanol--34 percent to 28.7 percent: 

Sugar beets and starch have relatively low yields at 13.2 and 14 percent respectlvely. Bi stil lers by-product from molasses and potatoes are assumed to 

be sold in the local area only, at 75 percent moisture. 
Table IV-1. Input-output relationships forconverting selected raw materials to ethanol. 

Grain Sugar 

Item Corn sorghum Wheat Potatoes beets' hlasses Starch 

Input . . 

Unit bu bu b u cwt ton ga 1 lb 

Norminal wieght per unit 56 56 60 100 2,000 11.7 1.0 

Moisture content in percent 13 13 13 78 7 5 23 10 

Output (yield) per nominal unit 

in percent 

Ethanol 

Distillers by-product 

Carbon dioxide 

Water 

Total 

< & output (yield) per nominal unit 

in nominal weight (lbs) 

Ethanol! 

Disti 1 liers by-product (10 

percent rnoi sture) 

Carbon dioxide 

Water 

Total 

30.7 

30.0 

29.3 

ao. 0 

100.0 

17.2 

16.8 

16.4 

5.6 

56.0 

Output (yield) per :nominal! unit 

in gallons 

Ethanol 2.6 2.6 2.6 1.4 20.3 .4 .06 I 

- 11 75% moisture 

21 75% moisture includes water added during ~rocessing . - 

Source: DPRA estimate derived from: 

Battel le-Columbus Laboratories. Systems Study of Fuels from Sugar Cane, Sweet Sorghum, and Sugar Beets, 

Volume 111, Columbus, Ohio, December 1976. 

Reilly, Peter J. "Report on Corn Alcohol as a Fuel Additive," Iowa Farm Bureau Federatlon Energy Confe.rence, Des' Moines, Iowa, Oct . 20, 1977. 

National Academy of Science, Nutrient Requirements of Beef Cattle, No. 4, 5tH revised edi lion, 1975. 
3. Carbon Dioxide 

Carbon dioxide yields are approximately equal to the product's ethanol yields . The grain products yield just about 30 percent; starch yields 37.8 percent; 

potatoes and sugar beets yield.8.9 and 6.4 percent respectively. 

4. Water 

Water represents the fourth item of output. All products yield roughly 10 

percentwater, except potatoes and sugar beets which yield approximately 

70 percent. 

0. Output Quality 

The ethanol, carbon dioxide, and water outputs are approximately the sane 

for each raw material. However, the quality of the distillers by-products 

varies widely and depends on the raw material and on'the processing steps 

employed. Because of their protein content, .di sti 1 lers by-products are 

used primarily as a high protein.livestock feed, and their protein content 

is a primary indication of their quality (they also have a net ener y 

content). Distillers dried grain have a 29 to 30 .(dry weight basis 3 

percentage of total protein. . Thei di.gestible protein content is about 

23 percent (moi sture-free basis,). F 

Potato and sugar beet stillages have a total protein content of about 10 

percent (4.5 percent digestible) on a dry weight basis. The total protein' 

content of molasses stillage is about 20 percent (12.0 percent digestible 

dry weight basis). Starch stillage has essentially no protein content. 

Because of their relatively high protein content, the distil lers by-products 

from grains are considered competitive, as a high protein feedstuff, 

to soybean meal which has a 44 percent digestible protein content (dry weight 

basis); 

C. Energy Input-Output Relationships 

The energy re1 ati onshi ps considered here for an ethanol productSon facf 1 i ty 

have been considered in terms of the energy in, plant energy requirements and 

the caloric content of raw materials, and energy out, the caloric content 

of the products. Even with this narrow definition, several possible methods 

for determining the energy re1 ationshi p are. possible. A more. extensi ve energy 

relationship may be determined,, but in every case, the system under consideration must be very carefully defined.. 

1/ National Academy of Sdences, x. a. 

IV-3 
1. Plant Energy Sources 

The ethanol production plants were projected to depend upon coal as their 

energy source. As could be expected, various other sources (briefly described below) of energy are feasible, but such sources are not to be expected in the near future as major energy sources. 

Midwest coal supplies are located in Kansas, Missouri, I1 1 inois, and Wyoming. 

Since coal transportation is costly, plant operating costs will be reflective 

of such expenses and will vary by location. In North Dakota and Montana, 

lignite coals are available. These coals have caloric contents of 7,000 - 

8,000 Btu/lb. Costs are related to the caloric and the sulfur content of 

each coal type. Thls study's cost Chlculations were based on those for 

low sulfur Wyoming ("cowboy") coals having a heat content of 10,500 Btu per 

pound. 

b. Other Enerqy Sources 

As energy sources, solar and biomass are still considered inapplicable for 

general use. However, one "solar-assist" (as opposed to a total solar energy 

input) designl/ for ethanol production proposed in Colorado, features a variety 

of innovations. According to this report, when applied to small plants, solar 

energy for beer still dilute alcohol evaporation and spent grain drying seems 

feasible. No proposed designs, however, offer technological and costing data 

applicable to this study's purposes. 

In biomass source energy appl i cation, agricultural products and cropping 

residues themselves are uti 1 i zed for process boiler energy. Eventual ly , it 

Is believed, both the economic incentive (ds fossil fuel prices Increase) 

and the necessary technology will be available to allow the collection, compaction, and transportation of crop field residues--straw, stover, celluose 

waste, etc.--at an economically acceptable level. Such residues frequently 

contain about 7,000 Btu per pound dry matter and resently are estimated 

to cost approximately $35 to $45 per ton dried, 29 ($2.50 - $3.00 per 

million Btu) or about double the current price of coal. 

c. Coqenerati on Energy 

A third possible energy source is ~rovided by cogeneration energy systems. 

In practice steam cncrgy gcncrated to operate one plant unit, is conserved 

and reapplied to operate another unit in the manufgcturing process, The 

system is employed in electric utility operations, in sugar refineries, and 

In wet corn mi 11 ing processing plants. The system, however, requi res specific 

plant design characteristics and to be feasible the system necessitates 

exacting planning and it must be incorporated into initial plant designs. 

Domestic Technology Institute. Executive Summary and Support' Materials of 

the Inteqra'ted Solar Food and Ethanol Fuel Production System, U.S. Department of Commerce, 1977. 

1/ Battelle Columbus Laboratories, Systems Studies of Fuels from Sugar Cane, 

Sweet Sorqhum, Sugar Beets, and Corn. Volume IV, Columbus, Ohio, 

March 1977. 
2. Energy Balance 

This study's determination of the energy balance for ethanol production was 

estimated in a number of different ways. Unfortunately, no general ly accepted 

energy accounting scheme has evolved to account for both the energy and feed 

value consequent to the production of ethanol. Two primary approaches are 

presented below. One is based on the heat content of the inputs and outputs, 

and the second is based on the energy.inputs and the heat content of the 

outputs. A third alternative, an allocated input energy approach, is also 

discussed. A1 1 energy values are reported in terms of energy per gallon of 

ethanol produced. 

a. Heat Content of Inputs and Outputs Approach 

Thls approach assigns caloric values to the raw material input, the direct 

process energy, and the ethanol and di sti 1 lers by-product outputs. 

1. Caloric content of corn, ethanol and distillers by-products - There is 

general agreement11 concerning the caloric content of corn, ethanol , and 

di sti 1 lers dried grain (DDG) . Speci fi cal ly these contents are as fol lows : 

Btu per qallon of ethanol 

Corn (337,000 Btu/bu) 145,000 

Ethanol 84,000 

DDG 50,000 

2. Process energy - The process energy value required for a fermentati'on 

ethanol plant was estimated from various published data21 and then judged 

reasonable by industry consultants. Further, this value for process energy is currently being attained in one, perhaps, exemplary plant. The total 

process energy of 131,000 Btu per gallon of ethanol produced for a plant producing both ethanol and distillers.dried grain with 10 percent moisture 

may be allocated as follows: 

lJ Sources include: 

Cray, Cloud L., Jr., Midwest Solvents Corporation, Gasohol Seminar, Rio De 

Janerio, Brazi 1 , September 1977. 

Stone and Webster Engineering Corporation. "Prel iminary Economic Evaluation of 

Nrbraska Grain Alcohol Plant," Agricultural Products Industrial Utilization 

.ommittee, State of Nebraska, December 1976. 

torcoran. W.P., A.T. Brackett and F; Lindsey. Indiana rain Fermentation Alcohol - - PI ant, 1 ndi anapol i s Center for Advanced Research,-1976. 

Sources .Include: 

Stone and Webs ter Engi neeri ng Corporati on, 9. 3. 

Reilly, Peter J. "Report on Corn Alcohol as a Fuel Additive," Iowa Farm Bureau 

Federation Energy Conference, Des Moines, Iowa, Oct. 20, 1977. 

Ctay, Cloud L., Jr., s. G. 

Corcoran, W.P., E. - cit. 
Energy 

11,000 Btu/gal ethanol ) 

Cooking 9 

Fermentation 0 

Distillation 52 

Feed recovery 42 

Mi scel 1 aneous 23 

Electricity 5 

rn 

3. Enerqy Balance. - Under the heat content approach, then, an energy loss 

of 142,000 Btu per gallon of ethanol is calculated as shown below: 

- - 

Inputs 

Corn 145 

Process energy 

Total 

Outputs Ethanol 

Distillers dried grain 50" 

Total TljV. 

Energy loss . 142 

b. Energy Inputs Approach 

The second approach for. esti'mating the energy balance is to compare the 

energy inputs for the production, the harvesting, and the tran'sporting of 

corn and for pr0ces.s energy to the value of the energy output. 

1. Corn input energy - The total direct energy inouts required to produce, harvest, and transport corn to the country elevator and to produce the requi red agricultural chemicals for corn production is estimated to average 

106,000 Btu in the United States (Table IV-2). This varies by location: 

the Illinois estimate is 94,000 Btu per bushel; the Nebraska estimate is 

176,000 Btu. 

The above estimate excludes invested energy in durable production i tems such 

as farm equipment and farm structures and the energy retained by crop residues. 

While it. is clear that the latter could ,be utilized as a process energy fuel 

the collecting and transporting of the residues require additional direct energy input as well as the equipment's invested energy. In addition, the removal of 

the. crop residues, particularly on a continuous basis, would also involve the 

removal of plant nutrients from the' soil and these would have to be replaced by Invested ferti 1 i zer energy. Potential changes in soi 1 structure and economic 

rates could be expected to affect energy rates as well. 

Obviouslu, the exclusion of crop residue energy value from this analysis is 

not intended 'to suggest that' crop residues cannot be used as an energy source; 

rather, the1 r exclusion suggests that careful and extensive accounting and 

research--beyond the scope of this study--on the long term effects of crop residue removal is. needed 'before .confidently including these .values in the 

energy ba 1 ance. 

IV-6 
Table 1V-2. Estlrda ted energy used In corn. production, selected states, 1971 

Energy used for Energy used per 

DIesel Fuel LP Natural Invested Crop yleld ton of crop bushel of 'crop 

State ksoldne fuel oil gas gas Electric1 ty energy Tota 1 per acre field nelght fleld weight 

............................ 1000 Otu's per acre ................................. (tons) (1000 Btu) (1000 mu) 

Corn Graln 

Ill l no1 s 1.432 549 -- 997 14 142 4.509 7,734 2.32 3.334 94 

Iowa 1.385 670 1 732 20 120 3.878 6,806 2.24 3.038 85 

Nebraska 975 2.401 -- 1,667 753 1,293 4.845 ' 11,933 1.90 6,281 176 

Texas 1.176 1,259 -- 398 5,d65 1.456 3.845 13,999 2.58 5,426 152 

United States Ave. 1.2G9 946 22 782 390 320 3.935 7,604 2.00 3.802 106 

l1 15.5% moisture 

Source: Battelle Columbus Laboratories, w. - cit. 
Similarly, the accounting for the energy invested in durable production goods does represent an energy requirement; however, if this line of reasoning is 

pursued, energy accounting for a1 1 energy sources and processes shoul d include 

indirect .invested energy so that comparable measures are developed. 

For these reasons, the contractor has chosen to exclude these items from the 

input energy balance. 

2. Energy balance - Utilizing the process energy developed above, an energy 

balance may be determined as follows: 

Energy 

(1.QQO Btu/gal ethanol ) 

Inputs 

Corn production 

process energy 

Total 

Outputs Ethanol 84 

Distillers dried grain 50 

Total I3 

Energy loss 38 

c. A1 located Input Enerqy Approach 

An .alternative approach would be to allocate the input energy to the produced 

ethanol and distil'iers by-product. The energy required for distillation .is 

charged to ethanol, and the energy required for drying is considered a DDG 

input. The remainder of the Input energy would be allocated on the basis of 

the relative DDG to corn value11 of .41 a value, which takes into consideration the net energy, the digesTible protein content; and the fact that only 

the starch portion of the grain is utilized in ethanol production. This 

value suggests that, on a dry weight basis, an allocation of 41 percent of 

the corn production energy and the remainder of the process energy should be 

allocated to DOG and 59 percent should be allocated to ethanol. 

The energy balance, the,n, based on the values obtained above, are as follows: 

Ethanol DDG 

1,000 Btu/ (1,000 Btu/ 

:a1 ethanol) gal ethanol ) 

Corn production and harvesting 24 - 

Process energy Total 

Outputs 

Ethanol 

DDG 

. Total 

Energy loss 

lJ Se'e Appendix IV-1 
D. Efficiency of Ethanol Production 

A measure of the energy efficiency of ethanol production may be obtained by 

calculating the ratio of the output energy to that of the input energy, i.e., 

Out ut Ener y x,lOO Efficiency = InpEt Energ; 

Utilizing the heat content approach in which output energy was determined 

'to be 134,000 Btu and input energy, 276,000 Btu, yields an efficiency of 

49 percent. An energy efficiency of 78 percent. was calculated for the 

energy inputs approach from the values of 134,000 Btu for outputs and 172,000 

Btu for inputs. An energy efficiency for both ethanol and distillers dried 

grai-ns my be calculated from the energy values obtained by the allocated 

input energy approach. Efficiencies of 86 percent (84/98) were calculated 

for ethanol and 68 percent (50/74) for distillers dried grains. 

Under all three approaches, then, the conversion of process and corn grain 

energies into ethanol and lower-hydrocarbon livestock feed results in a 

net energy loss. A1 though the calculations depicted corn grain conversion 

specifically, an energy loss would be 'consequent to the use of other raw 

materials as we1 1. 
V. ETHANOL: RAW MATERIAL COSTS AND BY-PRODUCT CREDITS 

Raw materials considered for ethanol production in this study include corn, 

grain sorghum, wheat, sugar beets, beet mot asses and starch. The by-products 

resulting from ethanol production from these raw materials include atmospheric 

carbon dioxide and, respectively, corn d i s t i i l e r s dried grain, sorghum dis-, 

tillers dried grain, wheat distillers dried grain, potato di sti 1 lers by-product, 

sugar beet disti 1 lers by-product, molasses sti 1 lage, and starch sti 1 lage. 

A. Raw Material and By-Product Prices 

The raw material and by-product prices paid and received by ethanol producers 

can. be expected to vary considerably over an expected plant life of twenty 

or more years, for reasons summarized by Heady (1976) : " . . . U. S. agriculture 

may be faced with considerable instability. In years of large world crop 

shortfalls, as in 1972 and 1975, demand for U.S. exports may 'leap-frog' .with 

sharp rises in farm comodi ty and food prices. In normal world supply conditions, our own (U.S. ) supply capaci.ty may dampen farm.prices and incomes for 

domestic producers. "l/ Indeed, 1977 and 1978 are examples of years in which 

depressed grain ~rl ces and incomes for domestic producers fol lowed the surge 

of high prices just two to three years earlier. 

It was not the purpose of this study to forecast raw material and by-product 

prices. (Price sensi ti vi ty analyses were conducted and are reported in Chapter 

VII.) This study does, however, estimate a reasonable base or average price 

level for raw materials and by-products around which the fluctuations in price 

can be expected. To do this, 'the contractor analyzed raw material and byproduct prices at various U.S. locations for the last ten to fifteen years, 

and cash prices from 'leading U;S. grain-be1 t grain and by-product markets, 

representing exchanges among volume comodi ty traders for domestic as well 

as foreign use, were tabulated. Each consequent price serles was converted 

to 1977 do1 lars based on, the GNP imp1 ici t price deflator (1977 = loo), . and 

the average price over the period in terms of 1977 dollars was computed. 

Given the excess supply capacity of U.S. grain producers, the average real price 

represents a cost of production estimate below which supply will normally decrease and above which supply will normally increase. Average prices in terms 

of 1977 dollars provide a point estimate of future commodity prices in real tens, 

free of inflation and cyclical price movements. 

Heady, Earl 0.. "U.S. Supply Situation for Food and Fiber and the Role 

of Irrigated Agriculture," in The TAMU Centennial Year Water for Texas 

Conference: Water for Food and Fiber Production, Texas Water Resources 

Institute, Texas A&M University, Col lege Station, 1976. 
Leading grain-be1 t grain market prices are a reasonably good indicator of 

delivered raw material costs to grain ethanol producers, and since grain 

ethanol plants are expected to be raw material oriented, the grain-belt 

market prices are a close proxy for basing raw material prices. The relationshi p cannot be exact, however, because difference between leading market 

destination and ethanol plant destination prices among producing areas often 

do not reflect merely freight differentials, but rather they result from a 

complex of local demand and day-to-day ooerating conditions , freight costs, 

and other items.l/ Secondary price data for local markets are not routinely 

published, but local prices will generally be slightly lower than leading 

markets. 

1. Raw Material Prices (See Table V-1) 

This study's base corn price of $2.50 oer bushel reflects the per bushel #2 

yellow corn average prices at Kansas City, Chicago and Omaha cash markets 

which have averaged 52.46, $2.48 and $2.45, respectively. Number 3 ye1 low 

corn averaged $2.38 and $2.33 per bushel at Chicago and Mi nneapol is. 

The base grain sorghum price of $2.30 per bushel ($4.11/cwt) was based on 

12 yellow sorghum prices at Kansas City and Fort Worth which averaged 92.30 

- and $2.59 per bushel ($4.11 and $4.62 per cwt), respectively. 

The base wheat price of $3.35 per bushel is based on average cash prices for 

Kansas 'City hard red winter, Chicago soft red winter, and St. Louis soft 

red winter -- $3.35, 53.08 and $3.03, respectively. 

The study's base potato prices reflect the New York market, season average 

prices received by farmers and the judgements of potato market consul tants. 

In terms of 1977 do1 lars, the average New York market price, over the period 

1964 to 1976, was $6.22 per cwt. Comparable prices received by farmers in 

the U.S. averaged $4.13 per cwt. Potato industry contacts reported that In 

1977, cull potatoes were readily available at $1.00 per cwt delivered to 

potato proeezsing plants. Thus, thl s study's analyses used a del ivered price 

of $1 per cwt ($20 per ton) for cull potatoes. 

Sugar beet prices received by farmers in terms of 1977 do1 lars were found to 

average $25.72 per ton, excluding payments under the Sugar Act. Average Colorado beet molasses prices were $61.34 per ton or $0.36 per gallon in 

1977 do1 1 ars. 

Corn starch price data are not available. Previous analysesg performed by 

DPRA indicate that corn starch and corn value are interrelated: when corn 

is prlted at $2.50 per bushel, the cost of starch will be $0.08 per pound. 

1/ Da+i6, Leroy and Lowell Hall, "Spatial Price Differentials for Corn 

hng 11 1 inoi s Country Elevators," American Journal of Agricultural 

fconomi CSL V01. 5, No. 1, ~ebruarym 

~evklopment Planning and Research Associates, Inc. , Supplementary Economic 

Im act Analysis of the Wet Corn Mlll ing Industry, U.S. Environmental 

1 , October 1977. 
Table V-1. Base raw material and by-product prices in 1977 do1 lars. 

- Item - Prt ce 

Raw materi a1 

Corn 

Grain Sorghum 

Wheat 

Potatoes 

Sugar beets 

Beet molasses 

Starch 

By-product 

Corn di sti 11 ers dried grain 

Sorghum di sti 11 ers dried grain 

Wheat distillers dried grain 

Potato dl stil lers by-product 

Sugar beet di sti 11 ers by-product 

Molasses sti 11 age 

Starch stil lage 

C02 (am) 

Source: See Appendix V-1 and V-2 for base data 
2. By-oroduct - Pr I ces 

A dlstll lers dried grain base price of $110 per ton for corn, sorghum, and 

wheaf distillers dried grain was estimated (Table V-1). This price was based 

on the average prices for corn distillers dried grains at Cincinnati which 

ranged from 589.56 to $139.22 per ton and averaged $110 per ton in terms of 

1977 do1 lars over the 1962-1976 period. Typically , di sti 1 lers dried grain 

at Cincinnati trades in the range of. 60-85 percent of soybean meal (44% protein) at Decatur. Distillers dried grains have a total protein content of 

about 27 percent which makes them a substitute high protein feed for certain 

Ilvestock, principal ly beef and dairy cattle. 

The following. dl stil lers dried grain price forecasting equation has been 

estlmsted by Wlsner and GIdel (1977)1/: 

DDG, 3.3325 - 0.022227 (DDGS) + 0.265566 (SBMp) + 0.148753 (Cp) + 0.518941) (EC,) 

where: DDG, = Distillers dried grain prlce in dollars per ton at Cincinnati 

DDG, = U.S. distillers dried grains supply in thousands of tons 

SBMp = Price of 44% protein soybean meal in dollars Der ton at Decatur 

C~ = Corn price In cents per bushel 

ECn 8 Cattle numbers in five major European proteln feed importing 

countri es 

This equatlon indicates an elastic demand for distillers dried grains: a 

given percentage increase in supply could be sold with a lesser percent decrease 

in price. The equation also shows a direct price relationship between distillers 

dried grain and 1) soybean meal, 2) corn prices, and 3) cattle numbers in five 

major European protein feed importing countries. It is important to note that 

the abovea statlstlcally estimated price forecasting equatlon Is based On hlst~fft 

data wlth distillers dried grain representing but a small fraction (less than 2 

percent) of the high proteln feed sources available in the U.S. If distillers 

drled product1 on increased so that i t represented a significant proport I on of 

total hi'gh protein feeds avai lable, then the demand-price relationship would 

become price inelastic: a large percentage price decrease would be required 

to clear the market. Under such conditions by-product credits to net ethanol 

production costs would decrease and the price and production of substitute feeds 

such as soybean meal would also decrease. The price impact of increased distllle~s dried grain production would depend largely on the extent and timing 

sf en ethanol industry growth, The larger the industry, the greater the related 

price Impacts. Price data were not found specifically for wheat and grain sorghum distillers dried grains. It may be possible that slight price differences 

can result when nutrient contents vary among the by-products of different raw 

material grains. 

I/ Wlsne'r, R.N. and 3.0. Gidel , "Economic Aspects of Using Grain Alcohol as 

a Motor Fuel , With Emphasi s on By-product Feed Markets. " Iowa State 

Unlversltv, Economic Report Series No. 9, Appendix IV, June 1977. 
A dlstlllers beet pulp or sugar beet distillers by-product price base of $93 

per ton was estimated. Price determinations for beet pulp (molasses) were 

based on Los Angeles cash market prices and on informal interviews with sugar 

beet industry consultants. It is assumed that distillers and sugar processors 

beet pul~ are of equal dollar value. Industry contacts suggest that 

Midwest sugar processor's beet pulp is contracted between beet processors and 

feeders. Prices received by processors are establ i shed at about 80-90 percent 

of the value of #2 corn or at about 100 percent of the value of grain sorghum. 

In tens of 1977. prices, this would range from about $4.3.5 to $4.75 per cwt 

or $85 to $95 per ton. Los Angeles beet pulp (molasses) ranged from $74 to 

$118 per ton and averaged $93 per ton over the period 1965-1975 (in 1977 dollars). 

Major market potato pulp prlce quotes are not available. Processors interviewed indicated that prices in the neighborhood of $5 to $7 per ton (in terms 

of 1977 dollars) for 75 percent moisture potato pulp were reasonable. The 

lower protein content and higher moisture content of potato pulp cause itc 

price per ton to be much lower than that for corn, wheat, sorghum distillers 

drled grains, or distillers sugar beet pulp. 

Molasses stillage is not currently produced in the United States. However, 

in Europe,' wet (75 percent moisture) molasses stillage is sold on a very locali'zed basis (as is potato pulp), Based on protein content, molasses stillage, 

might have a value in the vicinity of $15 to $20 per ton if produced. 

Starch stillage was judged to be a plant effluent with no markets. Thus the 

by-product price for starch stillage was estimated to be zero. .Exception.. may 

exist where local specialized demands for starch stillage constituents (e.g., 

spent yeast and unused sugar) exist. 

Low pressure carbon dioxide was also determined to have no or very low va.lue. 

Compressed carbon dioxide is of value as a gas in fire extinguishers and .as a 

sol Id for dry ice. This value for dry ice wi 11 depend on special local conditlons. Furthermore the val ue .of C02 is marginal compared to compression costs. 

No by-product credit for carbon dioxide, is, therefore, used in this study's 

analyses. 

8. Net Raw Material Cost 

Raw material costs and by-product credits for ethanol production resulting from 

the use of corn, wheat, graln sorghum, cull potatoes, sugar beets, starch and 

molasses were computed in terms of ,1977 dollars. These estimates are based on 

(1) the raw material and by-product prices discussed above and (2) the conversion factors for ethanol production from these raw materials presented.previously in Chapter IV. These data are summarized in Table 1-2. 

AS shown In Table V-2 raw material costs per 'gallon of ethanol for the various 

~cources are: corn, 8.96; grain sorghum, S.88; wheat, $1.29; cull potatoes, 

$069; sugar beets, $1.28; starch, $1.20; and molasses, $1.00. 
Table V-2. Net raw material cost in 1977 dollars 

Gra l n Cull Sugar 

Unf ts Corn Sorghum Yheat Potatoes beets starch llolasses 

Raw material prlce do1 lars 2.501bu 2.30/bu 3.35/bu 20/T 26/T .08/1 .36/gal 

Conversion galethanol . L.6/6u 2.6/bu 2.6/bu 28.8/T 20.3/T .06 .4/gal 

! ' . Unit raw material cost $/gal ethanol .96. -88 1.29 .69 1.28 1.20 1.00 

By-product price do1 1 ars . . 110/T lPO/T llO/T 6/T- 93/T 0 $15/T 

Conversion 1 bs by-product 16.8jbu 16.8/bu 20.7/bu 2961/T 264t/T 15.6/ga11/ 

Unit by-product credl t ethanol .36 .36 .44 .03 .60 0 0.12 

Net raw material cost $/gal ethanol .60 .52 .85 .66 .68 1.20 1.12 

- - - -- -- 

< 

I 

Q, 1' Potato and potrtb distillers by-product @ 75 pen 2nt moisture. 

Source: DPRA estimate 
By-product credits per gallon of ethanol are derived from the various byproduct prices and conversion rates as follows: corn, 9.36; grain sorghum, 

S.36; wheat, 5.44; cull potatoes, 9.03; sugar beets, 9.60; molasses, $12; 

and starch 90.00. 

Net raw material costs (raw material cost less by-product credit) per gallon 

of ethanol are estimated as: corn, b.60; grain sorghum, 9.52; wheat, 5.85; 

cull potatoes, 8.66; sugar beets., 5.68; .'starch, 51.20; and molasses, $1.1 2. 

Grain sorghum has the least net raw material cost among these raw materials. 

given the stated price levels and conversion ratios. In order of net raw. 

material cost these raw materials are: grain sorghum, corn, cull potatoes; 

sugar beets, wheat molasses, and starch. 

Combinations of grain types and grades . ranging in price from $2 to $4.50 

per bushel, in terms of 1977 dollars, and yielding distillers dried grains 

at approximately 16.8 pounds per bushel can be evaluated in the context of 

the net raw material cost sensitivity estimates shown i'n Table V-3. For 

example, if the cost of grain is $2.50 per bushel and the by-product price 

1s $113 per ton, then the net grain material c~st is S.60 per gallon of 

ethanol. And if, then, a mixture of grain grades were used whose average 

cost was $2 per bushel and whose ethanol and by-product yields were similar, 

the net raw material cost would decrease S.19 per gallon to S.41 per gallon 

of ethanol. Similarly, by-product price changes can be evaluated in tens.: . . of their affect on net raw material cost. By way of comparison, the value 

of ethanol for gasohol in terms of 1977 dollars was estimated to .be 5.41 

per gallon of ethanol in Chapter 11. In general, net raw material costs 

($eluding all other. plant costs) exceed 5.41 per gallon over most combinations of plausible grain and by-product prices. 

C. Price and Availabil itv of Sample Grade -Raw Material Grains 

Because lower grade, less expensive grains would improve the economic feasi bi 1 i ty 

of ethanol production, sample grade grains have been suggested as relatively inexpensive raw material source for ethanol production. This study therefore 

determlned the extent to which ethanol producers can depend on the availabil i ty 

of less expensive, low and sample grade raw materials by examining data related 

to raw material avai labi 1 i ty by grade, including two USDA survey results , one 

for grains and the other for potatoes in the Red River Valley, and by consulting 

with industry contacts. 

The results of the USDA Federal Grain Inspection Service examinations of grain 

carloads two months following harvest are summarized in Table IV-4 for corn, 

hard red winter wheat and grain sorghum. According ,to these data, sample grade 

inspections vary considerably by year ranging from 4.1 to 11.1 percent of all 

inspections of corn, 0.8 to 1.7 percent for HRW wheat, and 2.8 to 13.3 percent 

for grain sorghum for the 1974-76 crop years.y Add: tional state data are 

U.S. Department of Agriculture, Federal Grain Inspection Service, 1976 

Crop Qua1 Sty Report, 1977. 
Table V-3. Net grain cost (grain cost less by-product credit) 

per gallon of ethanol as a function of grain 

and distillers dried grain prices 

Cost of grain 

(S/bu) 

product credit ($/Ton DDG) 

- 90 - 11 0 - 130 

Based on 2.6 gallon ethanol and 16.8 1 bs. distillers dried 

grain per bushel of grain. 

Source: DPRA estimate 
contained in Appendix V-3. Review of this data reveals considerable variation by location, condition often attributed to weather influences during harvesting, especially for fa1 1 harvested corn and sorghum. 

Price data for grades below #3 corn including sample grade were not available 

but would generally be 1 ess than $2.30 per bushel . According to Dr. Floyd 

Niernberger, USDA Grain Marketing Research Center, Manhattan, Kansas, ll the 

value and disposition of sample grade depends on its location, quantiFy and 

Sample grade grain on farms .is usually dis'posed of on the farm, 

::Liyiy by bl endl ng with 1 i vestock feed, or by blending with higher qua1 i ty 

grain for the cash market. Low quality grain on farms generally results due 

to storage and in small quantities within a larger batch of grain. 

After grain has entered marketing channels, it is handled according to the 

rules of the grain market exchange. Buyers may discount the price or refuse 

to accept out-of-position grain, grain that does not meet.contract specifica- tions when delivered. Some smaller brokerage fins find buyers for out-ofposition grain. If no buyer is found the seller may have no alternati.ve other 

than to discard the grai'n. 

Generally, the availabili ty of sample grade grain is too infrequent and geographically dispersed to provide a re1 iable raw material source. Further, 

grain marketing channels tend to blend batches of highly perishable, low 

qual i ty grain with much larger volumes of higher-valued grain without losing the 1atterI.s higher. grade. Such blending increases the market value of the 

lower qual i ty grain and avoids the specia.1 separation costs in hand1 ing . The perishabi 1 i ty, randomness, and. dispersion associated with the occurrence 

of sample grade grain lots and the tendency to blend small batches of it with 

higher grades result in 1 ittle incentive to incur the special separation and 

transportation charges to channel low quaM ty grai n into ethanol production. 

2. Potatoes 

Potato stock qual i ty information presented in Table V-5 ,is based on survey wsul ts reported' by the, USDA, Economics, Statistics, and Cooperative Ser.vi ce 

in the Red River Yalley of North Dakota and Minnesota. Samples of process 

potatoes were selected in 1977-78 at harvest and again after storage. Based 

on all samples, the percent of culls at harvest ranged from 6-8 percent. 

Cull s after storage ranged from 13-21 percent. Furthermore, communication 

with Sndustry sources revealed that fields can be re-harvested for culls. at 

a delfvered price to .a local processor for about $1 per cwt. On the basis 

of this information, the cost of cull potatoes was based at $1 per hundredweight, 

Personal comuni catlon , November 1977. 

v-9 
Tab'e V-4* Percent of fnspctla receipts 2 aths following harvest, a11 fnswctias. 

U. 5. *a& Special Grades and Classes 

Sanple No1 No2 lo3 IbQ No5 grade Total Ueevlly Yellar White , Mind 

S 1976 crop year 5.6' 34.4 26.7 18.0 11.2 4.1 100.0 0.9 99.6 0.9 0.1 

S 1975 crop year 5.2 37.9 27.2 16.4 8.9 4.4 100.0 1.4 99..J 0.9 0.0 

1 1974 crop year 3.2 23.0' 27.2 21.5 14.0 11.1 100.0 1.6 99.4 0.6 0.0 

Based on saples froo Alabam, Il llnols. Indiana. Iowa, Kansas. Kentucky. Maryland, Minnesota, Mlssourl. Nebraska. Ohio. 

Pennsylvanfa. Sooth Carol IM, Tennessee, Vlrglnla ad .ldisconsln. 

HAW) RE0 WINTER WHEAT 

U. 5. Grades Special Grades 

No 1 No 2 No 3 Sample 

heavy ;k 1 heavy No 2 heavy No 3 No 4 No 5 grade Total Tough Weevily Garllcky 

% 1976 crop year 25.3 29.3. C.'7 26.3 1.1 6.6 1.9 1.3 1.7 100.0 13.0 0.2 0.0 - - 

< 

t 11975cropyear 28.4 39.6 4.7 19.7 0.8 4.0 1.3 0.7 0.8 100.0 11.1 0.1 0.0 c.. 

0 % 1974 crop year 26.3 L8.8 12.7 29.7 1.5 ?.l 2.0 0.9 1.0 100.0 3.6 0.1 0.0 

Subclasses 

Dark Vel low 

hard Hard hard 

winter wlnter wlnttr 

Based on samples fraa Callfornfa. Colorado, Idaho, 3lllnols, Kamsas, Missouri, Montana, Nebraska, Oklahoma, Oregon, Tenas, Utah 

and Washlng.ton. 

SORGHUn 

U.S. Grade Special Grades and Classes 

Sanpl e 

No 1 No 2 Ho 3 lo 4 grade Total Weevl 1 y. Vel low White other - -- -- - - --- -- - 

L 1976 crop year 10.0 51.6 23.1 12.5 2.8 100.0 99.8 0; 0 0.2 

% 1975 crop year 9.5 55.3 21.7 30.6 2.9 100.0 C.Q 99.9 0.0 0.1 

% 1974 crop year 2.6 30.3 26.7 27. D 13.3 100.0 1.4 100.6 0.0 0.0 

Based on samples from Califarnia, Colorado, Kansas. Nissouri. Nebraska, Oklahoma, and Texas. 

- - - - - - - 

Source: USDA Federal Grain Inspection Service, 1976 Cr- 1972. 
Table V-5. Potato stocks quality survey, Red River Valley, 1977-78 

average grade of potatoes 

including B's No 2 Cull s NO 1 8's 

At After At After At After after . , Welght 

JYP!L harvest storage harvest storage harvest storaqe storag& lois 

~amil es recovered before Apri 1 1, 197a 

Whi te 87 75 7 11 6 14 6 5 

Russet 86 7 6 6 11 8 13 7 4 

Samp1.e~ recovered before April 1, 1977 ?/ 

< 

I 

c. White 86 65 8 14 6 2 1 9 5 c. Russet 84 7 1 9 11 7 18 6 4 

A1 1 sampl'es 1976-77 .stonage season-final 

White 87 68 7 14 6 18 ' 9 7 

Russet 8 5 7 0 ' 8 12 7 18 6 8 

- 11 No. 1 B's arc potatoes that meet the U.S. No 1 grade but do not meet minimum size standards 

for the area: Fed and white varieties - 1% - 2% inches in diameter and russet varieties - 

under 2 inches in diameter or less than 4 ounces. 

- 2/ Flatched samples, qual i ty af harvest compared with qual i ty after storage. 

Source : .Cro,p Reporting Boa.rd , ESCS, USDA ,. Potato Stocks Ap.ri 1 11, 1978. 
VI. ETHANOL: PLANT INVESTMENT AND OPERATING COSTS 

Thi s chapter presents estimates of ethanol production plant investment, raw 

material costs and other operating costs. These estimates provide the basic 

financial Input to carry out the subsequent financial analysis of ethanol production. This chapter does not consider financial parameters such as de- . 

preclation pol lcies, income taxes, capital sources, capital costs and related 

A. Method01 osy 

In accordance with the terms of reference for this study, cost estimates were 

synthesized from previously reported cost estimates and direct contacts with 

on-going ethanol plants. Most of the cost estimates to date have been for 

grain ethanol plants producing about 20 mill ion gallons per annum; thus, the 

estimated costs for larger and smaller plants and non-grain ethanol plants 

were made with engineering estimating techniques. It should be rqcognized 

that estlmates for grain ethanol plants below and above the 20 million gallon 

slze are reconaissance grade estimates and that specific engi.neeri ng studies 

should be undertaken to validate and refine these cost estimates. Cost estimates for non-grain ethanol plants were estimated in a similar fashion and 

are, therefore, subject to the same 1 imitations. 

All cost estimates were made on the basis of December, 1977 do1 lars. 

Engineering News Record indices and the GNP Imp1 icit Deflator were used 

for converting to 1977 do1 lars. 

B. Estimated Plant Investment 

This section presents estimated investment requirements for ethanol plants. 

First, the investment and details of a 20 mill ion gallon grain ethanol 

plant, 1/ representing the most commonly quoted plant are shown and discussed. Secondly, estimates for a range of grain ethanol plant sizes (10 

million to 120 mill ion gal lons) are presented. These estimates are then 

compared with investment estimates made by other investigators. Finally, 

Investment estimates are presented for non-grain ethanol plants. 

1/ It was assumed that wheat would be restricted to 20 to 25 percent of the 

grain input due to the foaming problems associated with converting wheat 

to ethanol. 
1. Estimated Investment for a 20 Million Gallon Grain Ethanol Plant 

The Investment cost of a 20 mill ion gallon grain ethanol plant is $31.3 

mllllon or $1.56 per gallon of ethanol capacity. This estimate includes 

land, site preparation, buildings and equipment, but excludes working 

capital. Within these broad categories about 1 percent is for land, 7 

percent for site preparation, 14 percent for buildings, and 78 percent 

for equipment (see Table VI-1). Thus, equipment represents the largest 

lnvestment category for a grain ethanol plant. 

To fu, Lher illustrate the investment components of a grain ethanol plant 

the investment categories were subdivided into major components including 

plant site, office and laboratory, maintenance shop, steam plant, water 

system, alcohol plant, grain storage, feed drying and storage, and alcohol 

storage. As shown in Table VI-1, the major i~vsstment components are the 

steam plant, the alcohol plant, and the dehydra~or feed drying and storage. 

These three components account for 81 percent of total investment. 

A brief discussion of the investment components follows. 

a. Plant Site 

About 80 acres of land would be required for a 20 mil 1 ion gallon plant. 

The site would require preparation including grading, internal roads, 

railroad siding, effluent treatment ponds, lighting, fencing, and foundation grading for the buildings and equipment. Land was estimated at 53,125 

per acre. Total site development was estimated at $2,150,000. It should 

be recognized that land values and site preparation costs will be location 

dependent and could vary up or down depending on the specific location of 

a plant. 

b. Office and Laboratory 

A separate office and laboratory building would be expected. This building 

would Include the space and equipment for the administration, marketing, 

and technical functions of the company and the latter would encompass 

qua1 I ty control, safety, health and environmental regulatory monitoring 

functlons and the testing procedures imposed by the ATF Bureau of the U.S. 

Treasury. Bui 1 ding costs were estimated at $400,000 and equi pment. costs, 

at $80,000. 

A small maintenance headquarters and shop would .be necessary to house and 

maintain the rolling stock, loaders, pumps, motors, valves and other equipment of the plant. The building was estimated at $100,000 and its equipment 

at $50,000. 
Table VI-1. Estimated investment for 20 million gallon grain 

ethanol plant in 1977 dollars 

Investmeqt category 

Site 

Component Land preparation Building Equipment Total 

........................ $000 ........................ 

Plant slte 250 

Off Ice and 1 aboratory 

Maintenance shop 

Steam plant 

Water sys tem 

A1 coho1 plant 

Grain storage 

Feed drying and storage 

Alcohol storage - 

Tota 1 250 2,150 4,300 24,600 31,300 

Source: bPM estimate. 
d. Steam Plant 

The steam plant would be comprised of a boiler, cool ing tower, generator 

water process equipment, and coal storage and handling. It was assumed that 

the boiler would generate high pressure steam to drive turbines for electricity generation and that the exhaust from this generation low pressure 

steam would be used for space heating and product processing. The building 

housing the boiler and boiler controls was estimated at $130,000 .and the 

equipment at $9.2 mill ion. If a different fuel source were used and/or 

electricity were purchased rather than generated, these costs would change; 

however, such would result, a1 so, in different operating costs. Detailed 

engineeriag cost studies would be required to determine such specific costs, 

e. Water System 

The water system was assumed to include a well, pumps, motors, water tower, 

and piping to all water-use points for cooling and for processing water'as 

well as for boiler water. Structures for the water system were estimated 

to cost $250,000 and equipment, $70,000. Water requi rements were estimated 

at 2 million gallons per day. The actual investment would depend upon specific locations: for example, if water were purchased, investments would be 

reduced and operating costs would be increased. 

f. Alcohol Plant 

The producing unit's alcohol plant includes equipment for mash preparation, 

yeast propagation, fermentation, disti 1 lation, and dehydration of the alcohol. 

This component, representing one-third of total investment was estimated at 

$780,000 for the building and related items and $9,100,000 for process equipment. 

g. Grain Storage 

Equipment and space for up to th!rty days of grain storage was assumed. 

In-plant storage of two-thirds of the grain is provided; one-third is stored 

outside. The 1 oading, unloading , weighing, and conveying equipment was 

estimated at $80,000 and the structure at $400,000. 

h. Feed Dryins and Storaqe 

The drying of the dlstllled dried grains with solubles on a continuous 

basis and the storing or directly loading the production trucks or rall 

cars will r uire an estimated $6,120,000 total investment. Of this total 

$120,000 is 7 esignated for building and $6,000,000 for equipment. 

I. Alcohol Storaqe 

It was assumed that ethanol storage equal to thirty days production (approxi- 

~tely 1,667,000 gallons) would be required on the plant site. The storage 

security, and denaturing facil i ties were estimated at $2,200,000 for storage 

and buildings and $20,000 for equipment. 
2. Estimated Invesment by Size of Grain Ethanol Plant 

As previously noted, the 20 million gallon plant is the common reported size. 

To estlmatt the investment requirements for other plant sizes, the estlmatlny 

function 

Investment A = 5ize :- &- 

f nvestment B ;Size B 

was utfllzed. The important variable is the scaling factor, N, which reflects economies of size. An examination of the few investment estimates 

of plants other th 20 million gallons, direct industry contacts, and a 

llterature review , 

fl yielded a scale factor of 0.71. 

Utilizing the estimate for the 20 million gallon plant, investment estimates 

were calculated for a range of plants from 10 million gallons to 120 million 

gallons using the above expression. The estimates of investment are shown 

in Figure VI-1. A 10 million gallon plant was estimated to ,have a per gallon 

investment of $1.91. This compares wi th the $1.56 per gal lon for the 20 

million gallon plant. For the 120 million gallon size plant, a per gallon Investment of b.93 was estimated. 

Figure VI-1 demonstrates the expected economies of size reflected in the 

estimating equation; however, few engineering cost studies, particularly 

of larger plants, are available. Engineering studies should be done to 

reflne and confirm these estimates. 

3. , Comparison of Grain-Ethanol Plant I'nvestment Estimates 

Five original sources of investment estimates for grain ethanol plants are 

ava'ilable. Since they were. estimated at differing times, it was necessary 

to convert them to 1977 dollars for comparison purposes. DPRA estimates of 

Investment are lower than those made by Cray, Miller and Indiana and higher 

than those of Stone and Webster and Scheller (Table VI-2). The Stone and 

Webster report notes that its investment costs are "Order of Magnitude" 

estimates and are subject to a variation of +30 percent. None of the other 

studies specifical1.y identify an investment Fost range. 

The contractor has relied to a great degree on industry consultants who 

revlewed all of the cost studies and also on its own estimates. Furthermore, 

the DPRA estimate is reconnaissance level estimate of 225 percent. 

4. Estimated Investment for Non-qrain Ethanol Plants 

Although few investment estimate data are available for non-grain ethanol 

plants, data for comparable industry processes are applicable. Certain 

components. of the non-grain ethanol system are similar to those for grain 

1/ Popper. Herbert. Modern Cost Engi neerinq Techni pues , New. York: McGrauHI11 , 197,O. 

VI-5 
Per gallon Inrestsent 

(Usal) 

Total investaent 

($ mil) 

t I I - w I I 1 I 1 1 

0 10 20 30 80 50 60 70 80 90 1(TD 110 120 

:Plant sizes In mllllon gallons per year 

Flgu.re VI-1. €stbated Investment for graln ethanol plants by size of plant 
Table VI-2. Comparison of per gallon investment 

for graln ethanol plants in 1977 dollars 

Plant size Source Reported 

estimate DPRA 

mllon gallon ($/gal ) ($/gal 

per year) 

15 Cray 1/ 2;. 23 1.70 

1.9 Indiana 3 1.67 1.58 

.20 stone and Webster 9 1.24 1.56 

20 Schel 1 er 1 .35* 1.56 

35 khel ler 9 1.11* 1.33 

70 Schel 1 er y .88* 

100 Schel 1 er 9 .75* .98 

.r 

Includes' working capital 

Source: Derived by DPRA and adjusted to December 1977 dollars. See 

Appendix VI-1 for original .data. 

Cray, Cloud L. ,' Jr. '~fdweit sol vents Corporation, Gasohol Seminak, 

1.. 

Rlo de Janerio, Brazil, September 1977, 

9 Miller, Dwight L. "Fuel Alcohol from Wheat," Proceedings of Seventh 

a, 

National Conference on Wheat Utilization Research, USDA, ARS, 1972. 

-?/ Corcoran, W. P., A. T. Braskett and F. Lindsey. Indiana Grain Fe.rmentation 

Alcohol Plant, Indianapol is Center for Advanced Research, 1976. 

stone and Webster Engineering Corporation. "Prel iminary Economic Evaluation 

of Nebraska Grain Al-coho1 Plant," Agricultural Products Industrial Uti.litation . Comni ttee, State of Nebraska, December 1976. 

I/ Scheller. William A. "Cost of Producing Grain Alcohol," ~drking paper, undated . 
ethanol. In other instances, certain front-end processing equipment in 

non-grain ethanol plants is similar to that used in plants processing the 

same raw materials into different products, i.e., sugar beets into beet 

sugar. Thus, estimates for these different procedures can provide esti - 

mation data. 

In determining a reasonable plant size, it was assumed that the size of 

potato and sugar beet ethanol plants would be similar to that for existing 

plants processing these raw materials. A starch and beet molasses plant of 10 mi 11 ion gal lons was, therefore, assumed representative. 

a. Potato Ethanol Plant 

A 7.2 million gallon potato ethanol plant was estimated. This plant would 

require 250,000 tons of potatoes per year, a requirement equivalent to that 

for a very large plant currently processing potatoes in frozen potato products. I/ It was assumed that storage and front end processing components of a current frozen potato plant would be similar to the requirements for 

a potato ethanol plant. The fermentation requirements would be similar to 

those for .grain ethanol production;' thus, these cost relationships were used. 

Based on this approach, it was estimated that investment would be $27.4 

million (Table VI-3). The factory yard and potato storage would be a 

significant component, representing 30 percent of the total. 

Currently operating plants might be converted to fermentation production 

at a lower cost considering the lower value of sunk investment; however, 

such conversions would occur on a plant by plant basis and would require spetlf ic conversion studies. 

b. Sugar Beet Ethanol Plant 

A sugar beet ethanol plant would combine the front-and processing and storage 

characteristics of a sugar beet processing plant with the fermentation and 

distillation processing of an alcohol plant. The. plant size chosen, 4,000 

tons of beets sliced per day, represents a large beet plant in the Colorado, 

Nebraska, and Kansas area and would produce 9.7 millions of ethanol annually. 2! 

Because sugar beets have a short processing season (120 days), plant econmlcs would require thc double precessing of some raw juices Into storage and some into production. The raw juices for storage would be concentrated 

to 90 percent, cooled, later diluted, and. fermented for ethanol producti,on. 

DPRA, Economic Impact of Water Pollution Controls on Selected Food Vege- table Industries. Vol . IV, The Fruits and Vegetable Industry. National 

Comnission on Water Qua1 i ty, Washington, D.C., November 1975. 

DPRA. @onom1 c Im~act of Pro~os~d~nt Limitation Guidelines on Bppt 

baar Wtrv, Environmental Protection ~gency, Washington, D.C. August 1973. 
Table VI-3. Estimated investment for a 7.2 million gallon 

potato ethanol plant in 1977 do1 lars 

Category 

Site ' Component Land . preparation Building Equipment Total 

Factory yard and 

potato storage 

Office, laboratory and 

maintenance 

Steam and processing plant 5,500 12,600 18,100 

Alcohol storage 

Total 

Source: DPRA estimate 
Taking these characteristics and factors into account, it was estimated 

that a 9.7 million gallon sugar beet ethanol plant would require sn investment of $34.7 million (Table VI-4). Of this total, 40 percent of the investment would be for factory yard and remote station hand1 ing and storage. 

1 his estimate assumes new investment. Considering the 1 i kel i hood of sugar beet plant closures, it may be possible to convert an old plant and utilize 

lnplace facilities. This would require specific plant by plant engineering and cost studies. 

c. Starch Ethanol Plant 

The starch ethanol plant was sized at 10 million gallons per year. It was 

assumed that this plant would be located adjacent to an existing corn wet 

milling or wheat wet milling plant. The estimated investment for a starth 

ethanol plant is $11 million (Table VI-5) assuming a separate, stand-alone 

plant. If the fermentation and distillation functions were added to an 

ex! sting starch processing plant, certain dupl icated faci 1 i ties could be 

el lminated and the investment could be reduced to $8,579,000. 

In a starch plant, since all raw material is hydrolyzed into sugar and fermented, no residue pulp is dried. The non-alcohol effluent from the beer 

still would require waste treatment facilities either on site or by connection to a municipal treatment plant. 

d. Beet Molasses Ethanol Plant 

A 10 million gallon beet molasses ethanol plant was estimated and it differs 

from a .beet plant by requiring less investment for raw material storage and 

for preparation equipment. No investment costs for residue pulp drying facil ttfes are required. 

On a stand alone basis, it is estimated that investment would be S11.4 

(Table Vl-6). If this unit could be integrated with a beet sugar plant, the elimination of dupl icate faci 1 i ties would reduce the estimated cost 

to $9.2 million. 

5. Comparison of Investment by Type of Plant 

A comparison of the estimated investment by type of plant indicates that 

the investment per gallon for starch and.molasses plants is lower than that 

for grain plants: $1.09 - $1.14 vs $1.89 per gallon for grain plants. Potato 

and sugar beet plants at $3.80 and $3.58 er gallon respectively.are signi- ficantly greater in cost than are grain p ! ants (fable VI-7). 
 able VI-4. ~stimated investgent fir a 9.7 million gallon 

.". sugar beet eth-yo1 plant in 1977 dollars 

Category. . . Site . 

~npon6n t Land preparation Building' Equipment Total 

...................... ($000) ..................... 

~&tor~ yard 400 1,000 2,000 6,000 9,400 

Remote stations 600 4,000 4,600 

Offlce, 1 aboratory and . mai ntenance 400 . 100 500 

Processing plant 

Juice. storage 

A1 coho1 storage - - 1.. ,I 00 100 1' ,200, 

Total 1,000 1 ,000 9,800 22,900 34,700 

Source: DPRA estimate 
Table VI-5. Estimated investment for a 10 million gallon 

starch ethanol plant in 1977 dollars 

Category 

Site 

Component Land preparation Building Equipment Total 

...................... ($000) .................... 

Plant site 140 1,000 1,140 

Starch .storage 

Office and laboratory 

Maintenance shop 

Steam plant 

Water system 

Alcohol plant 

Effluent treatment 

A1 cohnl storage - - 

Total 140 1 ,090 

Source: DPRA estimate 
Table VI-6. Estimated investment for a 10 million gallon 

beet molasses ethanol plant in 1977 dollars 

Category 

Site 

Component Land preparation Building Equipment Total 

. . -.-------------------- ($000) .--------------------- 

Land 140 1,000 1,140 

Storage - raw material 500 90 590 

Office and laboratory 300 6 0 360 

Ma lntenance shop 60 40 1 00 

Water system . - 9 0 20 110. 

Steam plant 

Alcohol plant . 

Effluent treatment 

A1 coho1 . storage 

Total 140 1,000 2,530 7,730 11,400 . 

Source: DPM estimate 
Table VI-7. Comparative investment for ethanol plants 

by type of raw material in 1977 dollars 

- 

Uni ts Grain Potatoes Sugarbeets Starch Molasses 

bnua 1 product 1 on (mi1 gal) 10.0 7.2 9.7 10.0 10.0 

Investment 

Land ($1.000) 209 400 1,000 140 140 

St te ($1 000) 1 600 500 1,000 1 ,000 1,000 

Bulldlng (81,000) 2,300 9,700 9,800 2,170 2,530 

Equ I pmen t ($1.000) 14,800 16,800 22,900 7,690 L 7 730 

Total (11,ooo) 18,900 27,400 34,700 1 i ,000 11,400 

Investment per gal lon ($/gal ) 1.89 3.80 3,. 58 1.09 1.14 

Source: DPRA estimate 
C. Estimated Operating Costs 

Sectlon C presents the estimated operating costs for ethanol plants. As 

was true for investment costs, most of the.existing estimates are for ,20 

million gallon per year grain ethanol plants. Estimates for this study 

were first made for the 20 million gallon per year ethanol plant and then 

modified for the other plant sizes. Estimates for the non-grain ethanol 

plants were made from a combination of the applicable operating costs of 

existlng plants and from the fermentation costs as developed (and adjusted) for the grain ethanol plants. 

Operating costs include direct and indirect costs. Direct costs include fuel, 

labor and other supplies. Indirect costs include plant overhead, adminlstration and marketing. Costs such as income taxes, depreciation, and . interest are excluded from this discussion and are considered in the subsequent financial analysis. 

1. Estimated Operatinq Costs for Grain Ethanol Plants 

The operating costs of seven sizes of grain ethanol pl.ants ranging from 10 

mill ion gallons per year to 120 mil lion gallons per year are shown in Table 

VI-8. These costs are displayed in detail for both direct and indirect costs. 

a. Direct Costs 

The direct costs are estimated for fuel, labor and other costs exciusive of 

raw material costs. Raw material costs are major and were discussed in 

Chapter V. 

1. Fuel - It was assumed that coal would be the primary source of energy. The costs are based on Western type coal with a caloric content of 

10,500 Btu per pound and a del ivered price at the plant of $30 per ton. 

Coal with this heat content and this price results in a unit fuel cost of 

$1.43 per million Btu. From the previously described energy balance (Chapter 

IV), an energy equivalent of 131,000 Btu per gallon of ethanol was estimated 

for grain ethanol production. This converts to cost-per-gal lon of ethanol 

of S.187. The type of processing (batch) used for costing is not expected 

to have economies of size in unit fuel costs; thus, the unit fuel cost was 

assumed to be the same for all sizes of grain ethanol plants. 

2. Labor - Although ethanol plants are capital intensive, they have signi- flcrnt7abor costs. To estimate costs, a direct labor budget was prepared for a 10, 20, and 40 million gallon plant. It was assumed that 'these .plants would operate on a near-continuous basis of '330 days per year and would require three regular shifts and one swing shift to maintain an average 40 hour 

work week per employee. A base wage rate of $7 per hour was considered to 

be a representative rate as of December, 1977 (based on current wage scales 
Table VI-8. Estlmated operatlng costs for graln ethanol 

production by size of plant in' 1977 dollars 

Cost 

Plant size (mil gal per year) 

10 20 4 0 60 80 100 120 

..-.o--o------o.----o-.- ($/ga1)------.---------.----- 

Dlrect costs 

Fuel 

Labor 

Other 

Total 

1ndlrect 

. - Plant overhead .086 .063 ,048 .044 . .042 .040 .039 . 

Admlnl stratlon .042 .030 .022 ,020 .019 .Ol8 .018 

Marketing 013 .012 012 .011 

Tota 1 % # % % %. .068 

foal dlrect and 

Indirect .438 .363 .322 .310 .303 .298 ,295 

~ - - - - - - - - - - -- 

Source: DPRA estimate. 
of similar industries) and a similarly representative shift differential 

of $.SO per hour is a1 so included. A 25 percent fringe benefit package 

was added to the base wage rate. 

Based on the direct labor budget, the estimated direct labor costs of S.091, 

S.057 and S.043 per gallon of ethanol were estimated for the 10, 20 and 40 

mil 1 ion gallon plant, respectively (Appendix VI-2). As shown, economies of size are present for direct labor. These relationships were used 

to establish a direct labor cost function which was used to estimate the 

direct labor costs for the larger plants. For example, the per gallon 

direct labor cost for a 120 million gallon plant was estimated to be 8.032. 

It Is noted that this estimate should be considered as a reconnaissance 

grade estimate and that detailed engineering studies are required to refine 

and validate these cost estimate\, particularly for the larger plant sizes. 

3. Other - The costs of chemicals and other supplies directly associated 

with ethanol production were based on estimates for a 20 mf 11 ion gallon plant. 

It was assumed that the per gallon cost would be constant for all plant sizes. 

The estimate of other direct costs was 8.008 per gallon ($160,000 per year for 

a 20 million gallon plant). 

b. Indirect Costs 

1. Plant overhead - The largest cost element of plant overhead is that for 

3ndirect labor which includes plant supervisors , maintenance personnel , technicians and other support employees for plant operation. To estimate indirect 

labor, indirect 1 abor budgets were prepared for the 10, 20, and 40 mi 11 ion 

gallon plant sizes. Wage rates used were representative of similar positions 

in comparable processing industries. A 25 percent fringe benefit package was 

added to the base wage rate. 

Based on the indirect budgets, per gallon costs of 8.058, 9.040 and 9.031 

were estimated for the 10, 20 and 40 mil 1 ion gallon plants respectively 

(Appendix VI-3). This relationship was converted to a cost function 

which was extended to estimate indirect labor costs for the larger plant 

sizes. This resulted in an estimated cost for indirect labor of $.(I24 for 

120 mlllion gallon plant. 

The other elements of plant overhead are repairs, maintenance, insurance, 

3 eneral supplies and related i tems. Those costs were estimated at 8.028, 

.023 and S.018 per gallon for the 10, 20, and 40 million gallon plants 

respectively. For the 120 million gallon plant, the.other indirect costs 

were estimated at 8.015 per gallon. 

3. Adminlstrbtion - Administrative costs include company management, supporting staff, property taxes, office suppl ies, legal and professional fees, and communications. The labor component was estimated with labor budgets as previously 

described for direct and indirect plant overhead labor (Appendix VI-4). 
The labor component was estimated at $.011, S.007 and 9.005 per gallon for 

the 10, 20, and 40 million. By determining a function of these labor costs, 

a cost of S.004 was estimated for the 120 million gallon plant. 

3. Marketin - Marketing costs are those for the selling and distributing -f--$l o the pro ucts of the ethanol plant (ethanol and distillers dried grains) 

to a wide variety of customers. These costs cover the marketing payroll, 

office expenses, and promotion and advertising costs. The labor costs of 

marketing were estimated as previously described and are detailed in Appendix 

VI-5. These labor costs on a per gallon basis for the 10, 20, and 40 

million gallon plants are $.Oil, 5.009 and $.006 respec.tively. For the 

largest plant, 120 million gallons, the cost is b.00- per gallon. 

The expenses for travel, comnunication, promotion and office expense make 

up the other marketing costs which are included in total marketing costs 

in Table VI-9. 

c. Comparison of DPRA Estimates with Reported Estimates 

As indicated under the di scussion of investment costs, independent cost 

estimates are avai 1 abl e. Unfortunately, however, the estimates have not 

been made on a consistent basis in assigning direct and indirect expenses. 

Based on the contractor's review of these studies, it was concluded that 

direct costs, fuel, labor, and other direct expenses were most readily comparable a1 though not precisely. The reported direct costs were adjusted to 

1977 do1 lars for compari son purposes. 

As shown in Table VI-9, the contractor's estimate is higher than Miller's 

and lower than the other estimates. Scheller 1/ estimated direct and indirect conversion costs at 9.32 (1977 dollars) per gallon compared to DPRA's 

$.25 estimate. The Indiana study 11 estimated indirect costs at 8.118 per 

gallon. This compares to the DPRA estimate of 5.11 1 per gallon. The 

total direct and indirect costs in the Indiana study were S.389 (in 1977 

dollars) per gallon compared to DPRA's estimate of $. 363 per gallon. 

Tho various dl fferences in cost assignment and formats make comparisons 

difficult. However, it is the contractor's judgment that their estimated 

operating costs are reasonable and comparable to other estimates. 

2. Estimated Operating Costs of Non-Grain Ethanol Plants 

Operating costs for non-grain ethanol plants were estimated by synthesizing 

the applicable costs from existing processing plants with the costs estimated 

for the appl icabl e ethanol components. 

. . d 

1/ Scheller. William A. "Cost of Producing Grain Alcohol ," Working paper, undated. 

Corcorhn, W. P., A. T. Brackett and F. Lindsey. Indiana Grain Fermentation Alcohol Plant, Indianapolis Center for Advanced Research, 1976. 
Table VI-9. Comparison of estlmated direct and indirect 

operating costs in 1977 dollars 

Reported 

Plant size Source estimated DPRA -- - 

(mil gal per year) ($/gal ) ($/gal ) 

15 Midwest Solvents ,315 .264 

16.7 Miller .230 .259 

19 Indiana .271 .252 

20 Stone 8 Webster ,304 .252 

- 

Source: See Appendix Table VI-6 for original data. 
a. Potato Ethanol Plant Operatinq Costs 

The operating costs of a potato ethanol plant are similar to those costs 

described for the grain ethanol plant with two exceptions. Fuel costs are 

higher due to the lower a.lcoho1 yields of potatoes and more water to be 

removed from ethanol. Too, more energy is required for potato storage. Offsetting some of the energy increase is the savings due to not drying 

potato pulp. Marketing costs are less for potato plants because of the 

limited values and local market for wet pulp. 

b. Suqar Beet Ethanol Plant Operating Costs 

Operating costs for sugar beet ethanol plants are not significantly different 

from those for grain or potato plants. A higher fuel cost is estimated for beet 

plants than for grain plants because of double processing of the thick storage juices. Marketing costs are estimated to be somewhat lower for beet plants than for grain plants. 

c. Starch and Molasses Ethanol Plant Operating Costs 

Plants processing either starch or molasses have significantly 1 ower oper- atlng costs than do grair, plants. There may be a slight cost advantage 

to a molasses plant compared to a starch plant, but no data delineating this 

difference were found. The contractor believes the cost differential is 

minimal and, therefore, both plants were estimated to have the same costs. 

Starch and molasses plants have lower costs for labor, fuel, and all indirect 

costs than do grain plants, 

d. Comparative Ethanol Plant Operatinq Costs by Raw Material 

Table VIilO compares different operating costs for different raw material 

types. Clearly, the starch or molasses ethanol plants have the lpwest direct. 

and indlrect costs. Because the costs shown are costs per gallon, the reader 

should be cautioned that the plants compared are not identical size plants and some differences are due to economies of scale rather than to raw materlal 

characteristics only. 

The real effect of raw material costs will be more apparent in the following Financial Analysis (Chapter VII ) where raw material costs and capital. recovery costs are fully evaluated and the effect of by-product credit 'for 

each plant, is shown. 
Table VI-10. Comparative ethanol plant operating costs 

by raw material 

Starch or 

Raw material Unit Grain Potatoes Sugarbeets molasses 

Annual (mi1 gal) 10 7.2 9.7 10 

Direct costs 

Labor ($/gal) .091 .071 .066 .066 

Fuel and energy ($/gal ) .I87 .245 .233 ' .I27 

Other - .008 - .009 - .005 

Total .324 .308 ,198 

Indirect costs 

Plant overhead ($/gal .086 .096 .089 .064 

Administration ($/gal) .042 ' .047 .044 .031 

Marketing ($/gal .024 .013 01 2 .009 

156 335 - 

TO-I ($/gal) .152 ,104 

Total ($/gal) .438. .480 .453 .302 

Source: DPRA estlmate 
I I. FINANCIAL ANALYSIS OF ETHANOL PRODUCTION 

This chapter presents the financial analysis of ,ethanol production. The 

analysis brings together the data and information on competitive ethanol 

prlces, raw material prices, by-product prices, plant investment and oper- . 

ating cost estimates presented in the preceding chapters and the various 

additional financial elements--cost of capital , income tax, working capital , sustaining capital, inflation--needed to undertake the financial analysis. 

The focus of this analysis, in line with the Terms of Reference, is from 

the point of view of the firm,, that is, investors will make investment 

decisions that will increase their wealth. 

A. Method01 oqv 

A typical Investment will require an initial capital o'utlay or perhaps 

investment outlays over a multiple year construct.ion period. These investment outlays will typically return cash at one or more times in the 

future. There is a time value associated with money .in that $1 received 

today is not worth the $1 received one or more years from now due to the 

Interest that can be earned on money invested today. 

Thus a method is needed to compare cash flows occurring at different times. 

The comon approach to this is discounted cash flow analysis. 1! This pro- cedure converts all cash flows to a lump sum occurring at a single .point 

in time. The present time is the most frequently used point, thus future 

cash flows are discounted to present value. 

The suitable discount rate to be used is the "cost of capital" for the firm 

(Investors), that is the foregone opportunity of future cash benefits, had 

the firm invested in a alternative venture. If the project cannot produce 

discounted returns greater than its capital costs, it wi 11 be unattractive 

to the firm. Put another way, the discounted returns must exceed the capital 

Costs if the investors wealth Ss to be increased. 

In general, the decision rule is that an investment will be attractive'to 

the investor if the expected return, discounted at the cost of capital, 

exceeds the investment cost, also discounted at the cost of capital. Another 

way of expressing the feasibility criteria is: . 

-- - 

Other methods of evaluating investment proposals are used although they 

are considered inferior since they do not consider the timing of the 

cash flows. These methods include accounting rate of return, payback 

method and other techniques. 
(Total present value of future cash flows) - 

(Total present value of investment) - > 0 

The difference between the sum of the discounted future cash flows (benefits-) 

and the sum of the discounted investment costs is comnonly called the "net 

present value." Thus the feasibility criteria can also be referred to as 

Net present value 2 0 

In more specific terms the general discounted cash flow model can be expressed 

as 

NPV = I: 

t=1 

where 

Ct = the expected projected cash flow in year t 

I, = the investment (assumed to be made at t = 0) 

T = the economic lifetime of the project 

R the cost of capital 

Obviously the above expression is highly simplified and many elements are 

included and' the timing patterns of cash flow and investment are in 

practlce complex. The following discussion briefly describes the elements. 

1, Cost of Ca~ftal 

One of the key factors is the .cost of capital (discount rate). Two primary 

approaches may, be used--(l) the weighted cost of capital which combines 

both the cost of debt. and equity into .one weighted cost.and (2) the cost 07 

'equity. When properly done both approaches lead to the same decision. 

For this study the cost of eguity approach was used. 

The cost of capital concept is a complex one involving the real cost of 

csplta1, inflation premium and risk premiums. For purposes of this study 

a nominal cost of equity of 15 percent was used as a base. This relatively 

high value was used, to reflect a risk premium that would be assocjated with new investment areas such as fuel grade ethanol. It is noted that 

Indeed investors may require a higher return due to their perception of risk 

associated with ethanol production. On the other hand, if the risk could be 

reduced, the cost of equity might be lower. To examine these possibilities, 

sensitivity analyses of the cost of equity were examined. 
2. O~eratinq Cash Flow 

Operating cash flows, under the cost of equity approach, are defined as 

revenues 1 ess raw material expense, operating and maintenance expense, 

interest expense, income taxes, principal payment. Noncash i tems such 

as depreciation and amortization are exluded, except as they affect income 

taxes. 

The computation of income taxes are complex with the many convention types 

such as depreclation, carryforward and carryback provisions, investment 

credit provisions and other tax provisions. It is also noted that direct 

incentives such as direct subsidy payments would also be included in the 

cash flow. 

3. Investment 

Investment outlays include those costs requi red to construct the plant. 

For purposes of DCF analysis, these costs are taken in the year they are 

expected to be incurred. For large projects such ethanol plants, construction will nornially occur over three or more years. A three year construction period was assumed in the following analyses with approximately 

one-third of the investment (in constant 1977 dollars) being incurred in 

each year. 

Since the plant may have some value at the end of the analysis period, 

(items such as land, buildings), terminal value is often taken in the 

last year of the analysis. This value is essentially a negative investment 

and thus ofrsets initial investment. However, this value is discounted, 

thus in present value terms,its worth is less than the initial outlays for 

these Items. 

SInce the equfty approach was used, debt proceeds were taken as cash inflows. 1/ 

Thus the investment outlays represent only the equity portion. 

a. Net Workina Cap1 tal 

In bdditlon to the basic Investment outlays for plant, a net working capital 

w< 11 a1 so be required to finance on-going operations. Working capita 1 wi 11 

vary depending upon inventory prices, accounts payable and receivable 

fnaturities. For this analysis, working capital was estimated as a function 

of annual raw material throughput and revenues from distillers dried grain. 

For example, the working capital for grain plants was estimated as 16 percent of distillers by-product revenues plus S.43 per bushel of grain. For example, 

the working capital investment was estimated at $5.0 million for 20 million 

gallon ethanol plant and $25.8 million (1977 dollars) for a 100 million gallon 

plant under base conditions of $2.50 per bushel of grain and 51 10 per ton DOG. 

Thls investment was assumed to be made during the year the plant was placed in 

servlce which corresponds to the fourth year, following the three year construct ion peri ad. 

Principal repayment and interest charges are cash outflow elements of 

the operating cash flow. 
b. Sustaining Capital 

Sustaining capital (sometimes called replacement capital ) encompasses a1 1 

outlays required to maintain the plant and excludes outlays for plant betterments, modernization and expansion. These outlays were assumed to 

begin in the sixth year following the placing of the plant in services. The 

annual outlay was estimated at 2.2 percent of the building investment and 

5.9 percent of equipment investment. For purposes of income tax computa- tions, sustafning capital was divided into an expense portion and depreciable portion. This division was based on IRS tax guide1 ines. 

Another important factor, not previously mentioned, is inflation. Inflation 

increases items such as investment revenues and operating expenses. For 

purposes of this analysis, costs were estimated in 1977 dollars. Those 

estimates were then inflated over time, so that the analysis was done using nomlnal do1 lars. Because inflation would not increase fixed interest, principal 

repayments and depreciation charges, these cost elements were not inflated. 

5. Display of Results 

With inflation, prices and costs will 'vary each year of the analysis. In 

order to faci 1 i tate presentation and understanding of the results, the nominal 

prices and costs were onverted back to real terms ($1977) and assuming a 

constant real price. 5 

Tradltionally, net present value or the present values of components of 

the net present value are reported in total lump sums for the period of 

analysjs. Again, to facilitate display and understanding, the results were 

converted to equivalent costs per gallon of ethanol. 

For purpose of display, in this chapter, certain cost i terns were aggregated from those shown in Chapter VI. Direct costs are shown as energy .and other 

direct costs. Indirect costs are displayed as one item. The aggregate per gallon values will agree with those shown in Chapter VI subject to rounding 

error. ' 

For purposes of this report, . Interest expense, principal repayment, return 

on equity capital and return on equity capital and income taxes were aggre- gated to one value called "capital recovery." (Appendix VII-1 contains 

the breakdown of capital recovery 'for selected situations . ) Raw material 

costs and by-product credits per gal ion were simply the. prices of the items 

In bushels, ~ORS, ete. times the appropriate conversion factors. 

1/ This assumption is not cbnsidered to be restrictive in that average real 

present value p'rice (cost) produced by discounted cash flow analysis is 

qulvrl ent under a variety .of assumptions regarding prices and inflation 

combinations. 

VII-4 
~ecause of the numerous computations involved in dl scounted cash flow analysis 

and the variety Qf financial questions of interest, the above described bCF 

model was programmeil ,on a computer. WRi l'e the actual model was .somewhat 

more complex than the brief description given herein, the underlying principal s are pertlnent. 

It Is noted that much of the complexity involves computati'on of inbome taxes 

and that an lnterative.. procedure was developed so that an, ef hano.1 price,. 

f.0.b. plant, that would. make-the NPV equal to zero including-tax effects, 

could be solved for. This iterative procedure also was used to investigate 

. various Incentives. 

While the results are reported as production costs, it should be recognized 

that if the ethanol plant could realize a price equal to the production 

cost, the investor could retire the debt, recover his investment and real ire 

a.:return on equity equal. to the stated cost of equity capital . In other 

words, the stated production cost may be viewed as a full ,cost. 

B. Analyses Performed 

A number of financial analyses were performed to test the i,rnpact of different 

raw material prices by product prices, energy costs, leverage and debt 

costs, various tax incentives, various .investment estimates and various 

direct payment and grant schemes. 

1. Plants Analyzed . 

a- . . . I 

Eleven different plant configurations were analy;ed as fol lows : 

elant- :Seize .. . 

]mil gal ethanol/yr) 

. grain (corn, wheat, or sorghum) 10 to 120 

. sugar beet 9.7 . potato 7.2 . starch 10 

. molasses (beet)' 10 

The reader is referred to Chapter VI for a detailed description of 3hes.e 

plant configurations. 
2. Bases of Analyses 

In order to place the various analyses in perspective, a set of base cases 

were establlshed. These base cases were based on the contractors approximation of representative prices and costs and conventional financing terms. 

In addl tion, a number of other assumptions. (depreciation method, types of 

loans, etc. ) were inputed into the financial model. These base parameters 

art sumnarized in Table VII-1. 

As a point of reference, key base parameters are $2.50 per bushel grain 

price, $110 per ton distillers dried grain price, 15 percent cost of equity, 

10 percent Interest rate, 30 percent debt financing and 6 percent annual 

lnflatlon rate, For all analyses, a 20 year direct reduction loan and sum 

of the year digit depreciation were assumed. Interlm construction financing 

In proportlon to the yearly investment outlays was assumed for all cases 

I nvolvi ng debt financing . 

To determine the impact of 10 kay variables, sensitivity analyses were 

performed. These analyses were done on the 20 and 100 MGY grain plant. 

In each .semi tivi ty analysis, only one or two parameters were varied. 

A11 other variables were held constant. 

In addi tlon to the sensitivity analyses, various types of incentlves (direct 

payments, construction grants and fuel tax exemptions) were examined. . 

C. Base Condition Results 

Total costs of ethanol production assuming the required 15 percent return 

on equity Investment and Income tax effects were estimated for grain plants 

ranging from 10 to 120 nil1 1 Ion gallons annual throughput and for non-grain 

ethanol plants of approximately 10 mi 11 ion gallons annual throughput. Comparison of estimated ethanol production costs under a business as usual 

sltuatlon with the ethanol sell ing price, indicates that production costs 

are about three to five times greater. Also, cost comparisons among types 

of plants show that grain ethanol plants are generally lower cost. 

1. Feasibilltv under Base Conditions 

Total estimated production of ethanol under basel i ne conditions ranged from 

8 low of 1.16 per gallon of athanol (Table VII-2) for a 120 million gallon 

grain plant to a high of $2.02 per gallon (Table VII-3) of ethanol for a 

potato ethanol plant. As developed in Chapter 11, ethanol for blending with 

regular non-leaded gas01 ine would have to be priced for about b.41 per gallon 

to make gasohol competitive with gasoline. Under these cost relationships, 
Table VII-1. Description of parameters used in analyses 

- - - - - - -- - 

1 terr Uni t Base Sensitivity values 

Inflation rate 

Cost of equi ty 

Interest rate I/ 

Debt ratio 

Loan type 

Loan term 

Depreciation method 

In- tax rate 

Investment tax credit 

, (Percent of qwlified. investment) 

Limit percent of tax liability 

Grain price 

Distillers dried grain price 

.Sugar beet price 

Distillers dried bee.t pulp price 

,Potato pri ce 

Distil1:ers potabo pulp price 

Starch price 

Molasses price 

taolasses' stillage 

Energy price 

Total investment 

Construct i on perl od 

pct 

PCt 

pet 

PCt 

- - 

years' 

--' 

pet 

PC t 

pet 

$/bu 

$/ton 

$/ton 

S/ ton 

$/ton 

$/ton 

$/ 1 b 

.$/ga 1 

$/ton 

$/HBtu 

pct of 

base 

years 

.. 6 

is 

10 

30 

Dikt reduction 

20 

Sum of years digit 

50 

Y Includes interim financing 
Table VII-2. Total cost of grain ethanol production by plant size 

under base conditions in 1977 dollars 

Cost 

Ethanol plant size (million gallon) 

10 2 0 4 0 60 80 100 120 

Energy .19 -19 ..I9 .19 .19 .19 .19 

Other di rect .10 .07 ; 05 .05 .04 .04 .!I4 

Indirect .15 .ll .08 .08 ; 07 .07 .07 

Cap1 tal recovery .46 .38 .32 .29 .27 .26 .25 

Raw material -96 .95 .96 .96 .96 .96 .90 

By-product credit -.36 + -.36 - -.36 -.36 -.36 -.36 

Total 1.50 1.35 1.24 1.21 1.17 1.16 1.15 

Source: DPRA estimate 

Table VII-3. Total cost of ethanol ~roduction for different raw 

materials under base conditions in 1977 dollars 

Grain Potato Sugarbeet Starch Molasses 

Cost - 11 - 2/ - 3/ - 1/ - 1/ 

-. ...................... ($/gal)----------------------- 

Energy .19 -25 .23 .13 .13 

Other -direct .10 -08 .08 .07 .07 

Indirect .15 -16 .15 ,10 -10 

Capi tql recovery .46 .87 .83 .28 .28 

Raw materi a1 .96 * .69 1.25 1.20 .97 

By-product credit - -. 36 - -.03 - -.60 - . 00 - -. 12 

Total 1.53 2.02 1.97 1.78 1.43 

10 mil 110" gallons per ,year 

7.2 million gallons per year 

9.7 million gallons per year 

Source: DPRA estimate 
esti~ted ethanol production costs are about three to five times greater 

than the expected competitive selling price. Thus it is concluded that 

under base conditions, representative for "business as usual " situation, the 

production of fuel grade ethanol is not financially feasible. 

2. Grain Ethanol 

Referrlng to Table VII-2, the range of total costs for grain based ethanol 

is $1.50 for a small plant down to $1.15 for a large 120 million gallon 

plant. (This assumes $2.50 per bushel grain input and $110 per ton DDG. ) 

Clearly, economies of size are present under the estimated cost structure. 

The single largest cost component is raw material at 9.96 per gallon. 

Capital recovery is the second largest cost component anging from b.46 

per gallon for the small plant down to b.25 per gallon for the large 

plant. The by-product credit of 9.36 .per gallon is also a major item 

of total cost. This cost structure suggests that these are critical 

parameters. 

A more comprehensive analyses of plant size, including assembly and distribution costs, is contained in Chapter VIII. It was concluded that a large 

ethanol plant (about 100 million gallons) was in the optimal ran e in terms 

of the estimated cost situation. It was also concluded that a 2 8 million gallon 

plant could represent a reasonable size unit for an initial project for a 

1 imi ted gasohol program. Thus, subsequent analyses will present both the 

20 and 100 MGY plant sizes. 

3. Non-Grain Ethanol 

The f inancial analyses suggest that non-grai n ethanol plants, ' excepting 

molasses, are higher cost sources of ethanol than grain plants. In the'case 

of potatoes and sugar beets, the high cost of the plants (capital recovery 

of over $.80 per gallon), is a major source of cost. In the case of sugar 

beets, raw material costs are very high at $1.28 per gallon ($26.00 per ton 

of beets). In the case of the starch, the absence of a by-product credit is 

a major causal factor. Also, in the case of the starch plant, the raw material costs are high at $1.20 per gallon (9.08 per pound of starch). 

The molasses plant, with total estimated costs of $1.43 per gallon, is 

Slightly lower cost than the comparable sized grain plant. This estimate 

assumes a by-product credit of 8.12 per gallon of molasses. As discussed 

in Chapter V, molasses stillage is not currently produced in the United 

States. Thus the estimate of the by-product cost is indicative based on 

its relative protein content. However, relative to grain, it would appear 

to offer potential and should receive further attention if a regional program 

Is pursued. 

While the other non-grain sources do not appear to be attractive raw materials 

for ethanol, it should be noted that there may be special situations for 

which these raw materials may warrant additional consideration. For example, 

if an existing beet sugar plant could be purchased cheaply and ethanol equipment added, the costs might be significantly reduced. Another possibility 

might be low cost sugar beets. These possibilities would require specific 

Investigations and analyses. 
The remainder of the analysis will focus upon grain ethanol production. 

0. Production Cost Sensitivity 

Four major cost components - investment, grain price, distillers dried 

grain price and energy - were varied to investigate the impact on ethanol 

production costs. Results are presented for the 20 and 100 million gallon 

per year grain plants. 

1. Investment Cost 

The investment impact was measured by ranging the base investment +25 

percent. A 25 percent investment change caused about a 6 percent Fhange ($1.35 2 S.08) in the cost per gallon of ethanol for the 20 MGY plant and 

a 4 percent ($1.16 + 5.05) for the 100 MGY plant. This suggests that a 

relatively wide varTance in investment wi 11 not substantially impact total 

production costs. 

2. Grain and Distillers Dried Grain Prices 

The effect of raw material and by-product prices on ethanol production cost 

is shown in Table vII-'~ and Table VII-5 for the 20 and 100 MGY plants, respectively. Grain prices were varied from $2.00 to $4.50 per bushel and can 

be interpreted as average corn, wheat and/or sorghum per bushel prices, f.0.b. 

plant. Similarly, distillers dried grain prices were varied from $50 to $150 

per ton and can be interpreted as average corn, wheat, and/or sorghum distillers dried grain prices f.0.b. plant. Within the ranges of the analyses, 

ethanol cost ranged from a low for $1.03 (9.84) 1/ per gallo with $2.00 per bushel grain and $150 per ton DDG to a high of $2.31 (2.13) per- gallon with $4.50 grain and 950 DDG. This shows a $1 .OO per bushel change in the 

COSt of grain translates into about a 8.38 to 8.39 per gallon change in the 

ethanol production cost. Similarly a $20 per ton change in the by-product price translates into about a $.06 to 5.07 per gallon change in the ethanol 

cast of production. 

From this analysis it can be seen that prices of raw materials and by-product Items are very important. As discussed in Chapter IX, it is expected that 

under a large gasohol program, grain prices will increase to some degree, while distillers dried grain prices would fa1 1 relative to historical 

levels. 

3. Direct Enerqv Cost 

Direct energy costs were varied by +25 percent from the base price of $1.43 

per MBtu. With all other costs he17 constant, a 25 percent change in direct 

energy costs would change ethanol production costs by about 4 percent. It 

would appear that a relatively large change in direct energy cost would result in a relatively small change in the. cost of ethanol production. 

( ) refers to 100 MGY plant 
Table VII-4. Cost of ethanol as.a function of grain price and distillers dried grain price for a base 

20 IlGY plbnt in 1977 do1 lars 

Distillers dried grain ($/ton) 

Prlce of graln 50 7 0 9 0 110 130 150 

- 

Source: DPRA estimate 

Table VII-5. Cost of ethanol as a function of grain price and dlstillers dried grain price for a base 

100 MGY plant in 1977 dollars 

Distillers dried grain ($/ton) Prlce of grain 59 1 0 90 110 130 130 

Source: DPRA estimate 
This analysis assumes all other costs remain constant and the analysis is 

designed to test the impact of a range input energy cost from the standpoint 

of estimating error. If, in fact, overall energy costs increased, it would 

be expected that other production costs would also rise. This issue will 

be discussed later in this chapter. 

E. Incentives for Ethanol Production 

Based on the preceding analyses, it was concluded that the production, of,. fuel grade ethanol is not financially feasible. This raises the question 

of what incentives would be required to create a feasible situation. . 

. A 

Governmental incentives (actions taken to stimul ate product ion--and/or. use 

of a good or service) have been and are being used in the United states. , 

. , 

The types of incentives may be divided into eight major types 1/ as followi: 

. . 

1) Exemption from taxation, or reduction of exi.st.ing.taxes. 

2) Disbursements in which the Federal Government distributes, money 

without requirtng anything in return. . . 

3) Governmental requirements backed by' criminal 'or civi 1 sanction. 

4) Traditional government services provided tt~ruugh a nongovernmerital 

entity without direct change (i .e., regulating interstate and .Foreign 

comnerce and providing inland waterways). 

5) Nontradi tiona 1 qovernmen t servj ces such as exploration, research 

devel upuent and demonsrration of new technology. 

6) Market activity under conditions similar to those faced by nongovernmental producers or consumers. 

7) Creation or prohibition of organizations that carry out actions. 

8) Collection of fees for the delivery of a governmental service or 

good not directly related to the cost of providing that good or 

service. 

Battelle-Pacific Northwest Laboratories, An Analysis of Federal 

Incentives Used to Stimulate Energy Production, U. S. Department 

of Energy, March 1 978, 
1. Incentives for Current Ener~y Development and Production . . -. 

Production of current forms. of energy in the United States has resulted 

fran simulation through a variety of complex technical, economic, legal, 

institutional and political forces. An important factor in this complex 

of forces has been the Federal Government operating through a series of 

Federal incentives designed to stimulate energy development and production. 

a. Costs of Incentives 

A recent estimate places the costs of federal 'incentives for energy at 

$123-$133 (Appendix VII-2) bill ion, beginning in 1918. This breakdown 

of energy form indicates that about 60 percent of the total has gone to 

oil energy, 13 percent to nuclear, 12 percent to natural gas, 10 percent 

to hydro-electric and 5 percent to coal. 

Eighty-five percent ($65.7 bill ion) of the incentives for oil energy went 

to simulate petroleum refining and transportation and 1 percent to research 

and development (Appendix VI 1-2). 

The cost of federal incentives for oil in 1976 amounted to $11.1 billion - 

nearly 14 percent of the estimated historical total (Appendix VII-3). Clearly, 

incentives for oil are rising. 

b. Types of Incentives 

Taxation and dl sbursements are the two .major types of energy incentives, 

representing 44 and 27 percent of the total costs of energy incentives 

respectively (Appendix VII- 4). In the case of oil, these two types of 

incentives have hi storicallv accounted for 53 and 39 percent of the incentive 

costs.foroi1 (Appendix VII-4). It should benoted that in1976, the 

situation in oil had shifted substantially with disbursements accounting 

for 84 percent of the total and taxation 12 percent (Appendix VII-3). 

This has resulted in large measure to the fixing of old crude oil prices 

substantially below that of new and stripper oil. 

The Cost by type of incentive provides some indication of the type incentive 

and, thus policy tools, which are commonly used. Clearly, taxation and 

dlsbursements are the primary tools which the U.S. has historically re1 ied 

upon. 

From thls brief analysis, two conclusions can be stated-- (1) higher and 

longer run social goals have been and are extensively pursued through 

Incentives to encourage energy development and production, and (2) taxation 

and disbursements have been the major incentives used. 
The following discussion considers financing, investment and direct tax 

credits and direct payments. 

2. Financing 

A large number.of financing schemes could be developed including conventional 

bank financing, government loans, industrial revenue bonds and leasing. 

Additionally a variety of repayment (i .e., direct reduction, constant 

repayment, bal lon repayments) schemes might be avai 1 able. In this instance, 

It would appear that bond financing and leasing are not viable options, considering the risk involved with new ventures and markets. Consequently these 

sources were not analyzed. 

The impact of interest rates, leverage and cost of equity capi ta.1 were analyzed 

as representative of the impact of differing financing conditions. A1 1 analyses 

are based on a 20-year direct reduction loan. 

a. Interest Rate and Leverage 

With a constant'cost of equity at 15 percent, Tables VII-6 and 7 present the 

impact of interest rates and leverage. With a given debt ratio, the changes 

In interest rate did not materially change total production costs. The difference between 5 percent interest and 11 percent interest was. $.01 per gall'on for 

30 percent leverage and 9.07 (5.04) per gallon at 90 percent leverage.' 

The impact of leverage is much more pronounced. At a 5 percent interest 

rate, the Increase of leverage from 30 percent to 90 percent reduces ethanol 

price by 8.1 Der gallon. At 11 percent interest the difference is 

1.13 (1.15) k per gallon. 

b. Cost of Equity 

The above ana'lysis assumed a 15 percent cost of equity. Without loan guarantees, the 15 percent may be low, thus a 20 percent cost of equity was examined. 

Assuming 30 percent leverage, the cost of ethanol was increased to $1.50 ($1.27) 11 

from the base of $1.35 ($1.16) per gal 1 on, 

On the other hand, if loan guarantees were available, cost of equity might 

be reduced. A 5 percentage point reduction (10 pe ent cost of equity) 

(S.08) 5 per gallon. 

would r duce !5 the cost per gallon to $1.23 ($1.08) , ,a reduction of 9.12 

c. Interest Rate, Leverage and Cost of Equity 

Tables VII-6 and 7 assumed a 15 percent cost of equity capital. Assuming that 

through loan guarantees or other factors, that the cost of equity was 1.0 

percent, and that as a result of the guarantee, 90 percent leverage could 

-. . 

( ) refers to 100 MGY plant. 

VII-14 
Table VII-6. Cost of ethanol as a function of interest rate 

and debt ratio for a-base 20 million gallon grain plant 

Interest rate 

Debt (pct) 

30 50 / 0 9 0 

Source : DPRA estimate 

Table VII-7. Cost of ethanol as a function of interest rate 

and debt ratio for a base 100 million callon grain plant 

Debt.(pct) 

Interest rate 3 0 5 0 7 0 90 

Source: DPRA estimate 
be obtained, the effect would be to reduce the cost. of ethanol by about 

$.07 per gallon. Thus, at a 7 percent interest rate, 90 percent leverage 

and 10 percent cost of equity, ethanol cost would be about $1.16 ($1.03) 

per gallon. 

In all situations, however, it appears that regardless of financing, the 

cost of ethanol would not fall below $1.00 per gallon including the 100 

MGY plant ,assuming $2.50 per bushel grain and $110 per ton DOG. 

3. Income Tax Credits 

A variety of tax incentives are available such as accelerated depreciation 

methods, investment tax credit and rapid amortization. Various proposals 

are currently being considered for direct tax credits in connection with 

shale oi 1 production. For this study accelerated depreciation (SOYD) was 

assumed throughout. Investment tax credits and direct income tax credits 

were investigated. 

a. Investment Tax Credit 

The base analysis included a1 lowances for the existing investment tax credit 

provisions of 10 percent, 7 year carryforward and 1 imit of 50 percent of the 

income tax over $25.000. Raising the percentage of qua1 ified investment to 

30 and 50 percent only reduced the cost by 5.03 (g.01) 11 a.nd 5.04 (S.02) 1! 

per gallon respectively from the base (Tables VII-8 and 9). It is noted 

that under a 50 percent tax credit the year carry forward would impact the 

20 MGY plant by about b.01 per gallon. 

The conclusion drawn from this analysis is that investment tax credit is not 

a powerful incentive. 

- b, Income Taj Credit 

A.dl~ectax credit is another tax incentive that might be considered. 

However, at full costs of production, a full tax credit would only reduce 

the cost by $.I3 (to $1.22 per gallon) per gallon for a 20 MGY grain plant, 

For the 100 MGY plant, the reduction of a full tax credit would be S.09 

(to 1.06 per gallon) per gallon. Thus a full tax credit would not significantly reduce full ethanol production costs (see Appendix VII-1 for tax 

estimates). 

4. Direct Construction Grants 

One approach wbul d be to provide direct government construction grants. 

Two situations are presented. The first represents a conventional situation, 

wi th 30 percent leverage, 10 percent interest and a 15 percent cost of equity. 

The second illustration assumes 90 percent leverage, a 7 percent interest 

rate and a 10 percent cost of equity. The second situation might represent 

some type of low interest government loan participation. 
Table VII-8. Cost of ethanol as a function of investment tax 

credlt and limit for a base 20 MGY grain ethanol 

plant in 1977 do1 lars 

Percent of tax 1 imit 

Percent of 50 100 

quallfled . 7 ear 20 year 7 year 20 year investment carry T orward carryforward carrvforward carryforward 

Source: DPRA estimate 

Table VI1-9. Cost of ethanol as a function of investment tax 

credit and llmit for a base 100 t4GY grain ethanol plant i.n 

1977 do1 lars 

Percent of tax lymi t 

Percent of - 

qua1 If i ed 

50 190 

7 year 20 year 7 year 20 year investment carryforward carrvforward carryforward carrvforward 

Source: DPRA estfmate 
As shown in Table VII-10, a 100 percent construction grant would yield 

a .cost of $1.06 per gallon and $.98 per gallon respectively for a 20 MGY 

and 100 MGY plant under conventional financing . Under government financing 

with a 100 percent grant, the ethanol costs would be only slightly less at 

$1.04 and $. 96 .per gallon for the 20 MGY and 100 MGY plants respectively. 

The small difference in cost between the two I00 percent schemes results 

from the assumption that working capital is financed through equity. 

Lesser grants would increase ethanol costs. The ethanol costs are substantial ly above the $ .41 per gal lon competitive requirement and suggests 

that an incentfve program based on grants alone would not be sufficient to 

attract investment to fuel ethanol production. 

5. Subsidies 

As suggested, subsidies either through direct payments or fuel tax exemptions 

would be required to support the production of fuel grade ethanol made from 

grains. The extent of the subsidy would be the difference between the cost 

of ethanol production and the expected competitive selling price which was 

estimated .to be 8.41 in 1977 dollars. This estimate, as indicated in Chapter 11, may ultimately be determined to differ. sl Tghtly, thus the required 

subsidies have been computed for a range of 5.39 to 8.43 per gallon of ethanol 

for the 20 MGY and 100 MGY plant and under two financing schemes. 

Based on these specifications, it is concluded that the direct subsidy without 

any other type of governmental incentive would be about 9.94 11 per gal lon 

for a 20 MGY plant and about $.75 1/ for the 100 MGY plant (Table VII-11). 

Use of government financing would reduce the required subsidy per gallon, 

but there would be a cost associated with this incentive. 

This estimate is based on grain costs of $2.50 per bushel, which is about 

the historical average of corn prices in 1977 dollars and slightly higher 

than the graln sorghums. It is also based on a distillers dried grain price 

of $110 per ton. As discussed in Chapter 1X, a large regional gasohol program 

would be expected to Increase grain prices and exert significant downward 

pressure on distillers dried grain prices. The extent of these charges have 

not been determined. However, it is conclud~d that while the above estimates 

arc reasonable for a limited gasohol program, the creation of a large program 

would likely require increased subsidy per gallon. 

Of this amount $. 13 and $. 09 per gallon for the 20 MGY and 100 MGY 

plants would be paid as income taxes under the assumption subsidies 

would be taxa bl e. 
Table VII-10. .Cost of ethanol as function of construction grants and financing costs in. 1977 do1 lars 

Level 

of 20 MGY 100 MGY 

Type of financing grant - 1/ plant - 4/ plant 

(pet) ---..---- gal --------- 

Conventlonal financi ng 2J 100 

7 5 

50 

25 

0 

Government financing - 3/ 100 

75 

Assumes working capital equlty financed. It was also assumed that the 

assets funded by grants would not be depreciable for tax purposes. 

10 percent interest. 30 percent leverage and 15 percent cost of equity. ' 7 percent interest. 90 percent leverage and 10 percent cost of equity. 

Investment base of $31.2 mlllion (1977 dollars). 

I/ Investment base of $97.8 million (1977 dollars). 

fable VII-11. Estimated direct subsidies. 1/ required 'for ethanol 

production for gasohol in 1V77 dollars 

Ethanol 

sell i ng price 

Ethanol cost of production ($ha1 ) 

f.03 1.16 1.35 

1/ Payments assumed to be taxable as ordinary income. 

Source: DP'RA estimate 
F. Feasibility of. Ethanol Production Under Higher Gasoline Prices 

The preceding analysis was based on the assumption that all costs (excepting 

flxed cmi tments such as interest and depreciation) inflated proportionately 

at six percent per annum. One argument that advanced is that if the price 

of gasol ine were to double, ethanol would become viable. This argument 

Implies differential inflati'on, that is gasoline prices will rise at a 

faster rate than other goods, or put another way, the real price of gasol ine 

will lncrease faster than the real price of other goods. 

In consldering this Issue. it shnuld be noted that all energy costs tend to 

be interrelated and move together (see Table ViI-12). Thus any real increase 

In gasol ine pvices would be expected to proportionately increase energy costs 

for the manufacture of ethanol. These costs represent 14 to 16 percent of 

total costs depending upon plant size. As indicated earlier in this cnapter, 

a 25 percent charge in energy costs would change ethanol production costs by 

four percent, all other costs remaining constant. This would imply that 

with a doubling of gasoline prices, the cost of ethanol production would 

lncrease by 16 percent. 

However, with a real increase in energy costs, non-energy prices would also 

be expected to fncrease reflecting their use of energy. For example, one 

estimate of a doubling of energy prices in 1985 over 1974, with normal 

1 Txport. levels, indicated that real corn prices would increase by 14 percent. - 

This estimate dealt with direct energy use and did not reflect the impact 

through Indirect or invested energy of fertilizers and other farm inputs. 

The translation of substantial increases in real energy prices to charges 

In ethanol costs would be a formidable, if not impossible task, given the 

rapid changes in the structure of energy during the past five years. 

While the Issue is muddy, it seems unlikely that. there would be any sustained 

long term dlf fkrential inflation between energy and other goods. 

Thus it is the contractor's opinion that price increases in gasoline will ,not 

materially alter the conclusion that ethanol production will require substantial subsidies to be competitive. 

Dvoskln, Dan and Earl 0. Heady. "Commodity Prices and Rsr~urce Use 

Under Virrious Energy A1 ternatives in Agriculture," Western Journal of 

Agrlcul tura 1 Economi cs , Vol . 2, December 1977. 
.. . . Table VII-12. Trends In energy prices ".. 

Item .:. 

Average annua'l -.percent .c harige -. 

,1958 to 1973 1973 to 1976 1976 to 1.977 

 holes sale prices lJ 

All energy 

Petrol euii products 

Natural gas 

Coa 1 . Electrlc power 

Fuel 011-and coal 

Gasol lne and motor oi 1 

Na-tural gas 

Elecfrici ty 

Prlccr deflated by the wholesale price index for a11 finished goods. 

2/ Prlcer deflated by the consumer price indei foi a1 1 I tkms. 

Source: Council of Economic Advisors. Economic Report of the President, 

Washington, January 1978. 
VIII. ETH1NOL: PLANT SIZE, MARKET AND SITE SELECTION FACTORS ' 

Optlmum plant size is detennined as the least unit cost plant size necessary to minimize an ethanol plant's total per gallon costs for raw material 

assembly, by-product and ethanol distribution, and plant conversion. Transportatlon cost estimates for. commodity assembly and distribution are based 

on market parameters including raw material production densities, by-product 

use densities, market shares, average length of haul, and transportation rates. 

These depend, 'in turn, on choice of plant location. Consequently a scenario 

approach Is used whereby. transportation cost estimates are determined over a 

wlde range of market parameters reflecting representative values over the 

seventeen state study area. 

Location detennines a plant's orientation to input and output markets and, 

hence to a plant's revenues and costs. In the previous steps of analysis, 

revenue and cost variations. due to locational factors within the seventeen 

state study area were ignored. Since the proper treatment of all i,mportant 

location dependent variables would involve major study costs which are beyond, 

the scope of this study, the contractor's analysis focused on identifying 

those areas of concentrated raw material production and high protein feed 

and ethanol use to point the way for more detailed .plant 1o.cation studies. 

The data of sections A, 0, and C which follow support the conclusion that 

ethanol plants should be located near sources of raw materials to minimize ' 

combined assembly and distribution costs. 

Plant slze also affects unit ethanol producti,on costs. Because many 'costs 

are affected by varying plant sizes, many factors must be assessed to determine 

optimum plant size. Section A below discusses such factors including market 

characteristics that affect raw material prices and assembly. costs, product 

and by-product prices, distribution costs, plant conversion costs and capital 

rlsk costs. 

Sectton B presents estimates of increasing and decreasing costs as plant 

slze Increases under a wide .range of .possible market parameters. It is 

shown that for most p.lausible plant loactions the least unit cost plant size. 

Is. greater than 40 mi 11 ion gallons annual capacity. Furthermore, reconnaCssance grade extrapolations of the cost estimates for 60, 80, 100 and 120 

mlllfon gallon annual capacfty plants show that unit costs continue to decrease but. at ever decreasing rates. 

Slte selection criteria for ethanol plants are briefly outlined in section 

C below. Generally these relate to guaranteeing an efficient access to process 

Inputs and to the disposition facilities. of process outputs. Such criteria 

Indlcate that ethanol plants should be raw material oriented. Secondary site 
location considerations include sites that provide access to by-product user 

markets, potential gasoline-ethanol blending points, and adequate coal, water, 

and skllled labor sources. Sites must have primary highway access and rail 

sldlngs to accomnodate grain, coal, and by-product transportation requirements. 

A. Market Parameters 

Raw material production and high protein feed use data were used to estimate 

the average raw material production and high protein feed market densities 

for selected states and crop reporting districts shown in Table VIII-1. 

These density statistics for high protein feeds and raw material commodities 

provide broad ceographic coverage and should be su~pl emented by 1 ess 

aggregated marketing analyses, esoecially in the case of high protein 

feeds for which state-based estimates tend to understate 1 ocal high-use 

areas. (Note those for the northwest Texas cattle feeding area.) Nevertheless the density estimates in Table VIII-1 provide a gauge for selecting 

parameter values for subsequent analyses and provide a broad state-based 

estimate of raw material production and by-product use densities. 

1. Raw Material Production Densities 

Crop production density estimates shown in Table VIII-1 are based on 1976 

production estimates divided by the respective state or crop reporting 

dlstrlct total land area. 

Crop reporting districts having the maximum production densities among crop 

reportlng districts in the seventeen state area for their respective crops 

were found to be as follows: 

BIJI CRD, State 

Corn Central, I1 1 inofs 

Gral n Sorghum East, Nebraska 

Wheat Southcentral , Kdnsas 

Sugar beets Northeast, Colorado 

Potatoes Northeast, North Dakota 

Corn densities ranged from zero to over 20,000 cwt per square mile in Central 

Illlnols. Grain sorghum in East Nebraska reached 2,500 cwt per square mile 

ahd contributed to a combined corn, grain sarghun~, and wheat density of over 

12,000 ewt per square mile. Southcentral Kansas lead wheat production density at 4,300 cwt per square mile, Northeast Colorado lead sugar beet production density at 2,800 cwt per square mile, and Northeast North Dakota 

led In potato production with a density equal to 1,900 cwt per square mile. 
Table VIII-1. Average hlgh proteln use and crop production densltles for selected states 

and crop reporting dlstricts, 1976 

HI CJ&/ Graln 

Selected protein Corn sorghum Wheat SugarState CRD' s feeds 56llb.u 56#/bu 601/ bu beets Potatoes 

------------- hundredweight per square mile-------------------------- 

Colorado 

2 Northeast 

Illinois 

5 Central 

Indiana 

Iowa 

Kansas 

8 South Central 

Michigan 

Minnesota 

< 

w Missouri W 

Y 

Montana 

t 

W 

Nebraska 

6 East 

North Dakota 

3 Northeast 

Ohio 

Ok 1 a homa 

South Dakota 

Texas 

Wisconsin 

ktyomi ng 

- 1/ Equivalent to 400 lbs. of 44% soybean ma1 consumed per hlgh protein consumfng anlmal unl t 

(milk cow base) for all classes of livestock which Includes milk cows, other dalry cattle, 

cattle on feed, other beef cattle, sheep, hogs, hens and pullets, chickens, broilers, turkeys, 

horses and mules. 
2. Distillers Dried Grain Use Denslties 

Distillers dried grain 4s one of several high protein feeds. The high protein 

feed consumption density reported in Table VIII-1 was computed as each 

state's equivalent to 400 Ibs of 44 percent soybean meal consumed per high 

protein consuming animal unit (milk cow base) for all classes of livestock 

divided by that state's total land area. On the basis of total protein content, 1.6 pounds of 28 percent distillers dried grain is equivalent to one 

pound of 44 percent proteln soybean meal ; however, since some 1 ivestock classes 

(e.g., swine and poultry) have a lower tolerance for disti 1 lers dried grains 

than for soybean meal, the potential market density for distillers dried grains would be somewhat 1 ess than for soybean meal depending on the class of 1 ivestock or species mix characteristic of the market area. 

The market density statistics presented above are used to develop transportatlon. cost estimates in the next section. 

B. Plant Size 

9s plant size increases over the range of 10 to larger than 100 mi1 1 ion 

gallons annual capacity, net raw material costs are expected to increase 

IS assembly and distribution costs are manifested in direct plant costs 

Ir through indirect prlci ng arrangements for raw materials , by-products, 

rnd ethanol. Also as plant size increases, conversion costs are expected 

:o decrease. The estimates of these changing costs and &n analysis of the 

!conomies of plant si ze foll ow. 

. Transportation Costs 

ransportation costs vary directly with average 1 ength of haul. Average ledgth f haul varies directly with plant size but inversely with market density and 

arket share. Transportation costs include raw material assembly costs and 

Istillers dried grain and ethanol distribution costs. Each has been estiated under a range of market parameters and plant sizes. 

ransportatSon rates (in 1977 dollars) for raw material grain, by-product 

?eds, and ethanol are shown in Table VIII-2. Published tariffs are not 

railable for ethanol, but because of its simi1a.r fluid, volatility and 

ins1 ty characteristics to gas01 ine, the' latter's rates are assumed appl i - 

~ble. Rates shewn for distances less than 400 miles are based on the Kansas 

~rporation Comi ss ion Is 1977 Distance Commodity Rates wtii ch commonly reprent negotiated hauler rates for minimum weights of 45,000 pounds. Similar 
Table VIII-2. Representative distance comnodi ty rates 

('In cents per 100 pounds) 

Di stance Grain Feed Gas01 i ne 

In and and feed (and . miles seeds ingredients ethanol ) 

Source: DPRA esti,mates based on 1977 Distance Commodity Rates, 

Kansas Corporation Commission and Kansas City Board of 

- Trade Grain Rate Book, March 1977. 
rate structures exist throughout all the states in the study area. Rates 

shown for distances greater than 400 miles reflect grain carload rates by 

rail into Kansas City based on the Kansas City Board of Trade Grain Rate 

Book, March 1977. These rates are representative of Midwest carload rates 

thmughout the study area. 

a. Grain Assembly Costs 

This study estimated a plant's costs for receiving its raw material grains 

by employing a square grid road system and uniform market density. Grain 

market densities of 5,000, 10,000 and 20,000 cwt per aquare mile represented 

the variability of market densities and grain market shares of 1, 5, 15 and 

25 pecent were considered at each market density level. Purchase density 

equal to the product of grain density times market share ranged from 50 to 

5,000 cwt per square mile. Purchase densities of 5, 50 and 500 cwt per square 

mile were selected as low, medium and high values for later analysis. (As Table VIII-1 shows, a grain density of 10,000 cwt per square mile is roughly 

representative of Nebraska's East Crop Reporting District which had a combined 

corn, grain sorghum and wheat production density in 1976 equal to 12,607 cwt 

per square mi 1 e. ) 

Table VII 1-3 contains the estimated transportation costs per gallon of ethanol 

and average length of haul for grain based on alternate plant sizes, market 

densities and market shares. Plant sizes considered ranged. from 10 to 120 

mill ion gallons annual capacity. 

When a plant's size is 20 million gallons, its grain market density is 10,000 

cwt/sq mi, its market share 15 percent, its average length of haul for the 

grain will be estimated at 25 miles with a transportation cost of S.025 per 

gallon of ethanol. Under the same market parameters, a 100 mill ion gallon 

plant will have an average length of haul of 56 miles and a transportation 

cost of 6.034 per gal 1,on of ethanol. 

b. By-product Feed Distribution Costs 

A square grid road system and a uniform market density were used to approximate average shipping distances and unit distribution costs for disti 1 lers 

by-product feeds. Di sti 1 lers by-product feed variable densities of 100, 200 

and 400 cwt per square mile and market shares at each level Of density of 

2, 10, 30 and 50 percent were, also, utilized for the analysis. In 1977, 

distil 1 ers dried grains represented approximately 1.8 percent by weight and 

1.1 percent by total protein, the quantity of high protein feeds available 

for feeding. Local markets in an ethanol plant's vicinity would be expected 

to utilize these feeds above the average rate for recent years. Sales density 

equal to the product of by-product density times market share, thus, could 

range from 2 to 200 cwt per square mile. Sales densities of 2, 20 and 200 

cwt per square mile were selected as low, medium and high values for later 

analysis. 
Table VIII-3. Transportation costs per gallon of ethanol and average length of haul 

for grain based: on a1 ternative plant sizes, market densities and market 

shares with a uniform share pattern, 1977 dollars 

GraCn dens1 ty (wt/sq ml) 5,000 10,000 20,000 

Harket share (percent) 1 5 15 25 1 5 15 25 1 5 15 25 

Purchase denslty (cwtlsq n1) 50 250 750 1,250 100 500 1,500 2.500 200 1.000 3,000 5,000 

Plant size 

Infl gal) 

Grafn transportation costs 

($/gal of ethanol) 

Average length of haul for grain 

(miles) 

10 97.8 43.8 25.3 19.6 69.2 30.9 17.9 13.8 48.9 21.9 12.6 9.8 

20 138.4 61.9 35.7 27.7 97.8 43.8 25.3 19.6 69.2 30.9 17.9 13.8 

40 195.7 87.5 50.5 39.1 138.4 61.9 35.7 27.7 97.8 43.8 25.3 19.6 

60 239.7 107.2 61.9 47.9 169.5 75.8 43.8 33.9 119.8 53.6 30.9 24.0 

80 276.7 123.8 71.5 55.3 195.7 87.5 50.5 39.1 138.4 61.9 35.7 27.7 

100 309.4 138.4 79.9 61.9 218.8 97.8 56.5 43.8 154.7 69.2 39.9 30.9 

120 338.9 151.6 87.5 67.8 239.7 107.2 61.9 47.9 169.5 75.8 43.8 33.9 

Source: DPRA estimate 
As Table VIII-1 shows, the above assumptions of a by-product density of 200 

cut per square mile is.comparable to the high protein feed density estimated 

for Nebraska. It is noted, however, that 200 cwt of 44 percent soybean meal 

has approximately the same amount'of total protein as about 325 cwt of 27 

percent protein corn distillers dried grain and that the latter may be limited 

4n use to a greater extent than soybean meal. 

Table VIII-4 contains the estimated transportation costs per gal ion of ethanol 

and average length of haul for by-product feeds based on alternate plant sizes, 

market densities, and market shares. Plant sizes ranged from 10 to 120 million 

gallons annual capacity. 

Average length of haul varies directly with plant size but inversely with 

market density and market share. Transportation costs vary, directly with 

average 1 eng th of haul . When a plant's size is 20 million gallon and its by-product density is 200 

cwt per square mile, and market share is 10 percent, the plant's average 

length of haul for by-product feed will be 129 miles with an average transportation cost equivalent to 5.029 per gallon of ethanol. With the same 

market parameters but increasing plant size to 100 mill ion gallons, the 

average length of haul increases to 289 miles with an average transportation 

cost equivalent to 9.047 per gallon of ethanol. It is expected that although 

by-product feeds represent about one-third the mass equivalent of raw material ; 

grain flowing into the plant, the by-product marketing area will be much 

larger (i . e., 56 mi 1 e average haul for corn vs 129 mi 1 e average haul for 

by-product feeds) and may place bounds on plant size and distance between 

mu1 tiple nuwbers of plants. 

c. Ethanol Distribution Costs 

To estimate the costs for ethanol distribution, this study's analysis considered 

the per gallon unit distribution costs, the distances between plant's and . their gasohol blending points, and the variations in costs resulting from 

differing plant sizes. Representative transportation costs per gal lon of 

ethanol over a span of 0-200 highway mi 1 es are 0 to $. 0281 per gal Ion as 

shown below. 

Representative ethanol transportation costs vs . 1 ength of haul 

- Mi 1 es g/gal Mi 1 es 8/9al 

20 .007 120 -01 7 

40 .oo8 i so .020 

60 .010 160 .022 

80 ,013 180 -025 

100 .014 200 .028 

source: DPRA estimate 
Table VIII-4. Trans rtation costs per gallon of ethanol and average length of haul 

for dlstlllers go y-product based on alternatlve plant sizes, market densities 

and market shares nlth a uniform market share pattern, 1977 dollars 

By-product dens1 ty (cwt/sq a1 ) 100 200 - 400 

Market share (oercent) 2 10 30 50- 2 10 30 50- 2 10 30 50 

Sales dens1 ty -tcwt/sq-mi) 2 10 30 50 4 20 . 60 100 8 40 120 200 

Plant size 

]mi 1 gal ) 

Oistlllers by-product transportation costs 

($/galofhano1 ) 

Average length of haul for di st1 1 lers by-product 

(mi-j 

209.3 129.4 74.7 57.9 204.5 91.5 52.8 40.9 144.6 64.7 

409.1 1tl2.9 105.6 81.8 289.3 129.4 74.7 57.9 204.5 91.5 

578.5 258.7 149.4 115.7 409.1 102.9 105.6 81.8 289.3 129.4 

708.5 316.9 182.9 141.7 501.0 224.1 129.4 100.2 354.3 158.4 

818.1 365.9 211.2 163.6 578.5 258.7 149.4 115.7 409.1 182.9 

914.3 409.1 236.2 182.9 646.8 289.3 167.0 129.4 457.3 204.5 

1.002.0 448.1 258.7 200.4 708.5 316.9 182.9 141.7 501.0 224.1 

.Source: DPRA estimate 
Depending on actual site selection, the distance between a plant site any- where In the seventeen state study area and an adequate gasohol blending point (refineries, pipeline terminals, jobber bulk stations, retail stations) 

ranges from 0 to about 150 air miles. 

Thus, the maximum average ethanol distribution cost from the ethanol plant 

to the blending point is about 9.03 per gallon. 

Since It Is likely that ethanol will be transported by truck or rail to a 

single local blending point in the case of a small 10 million gallon plant or 

to multlple blending points in the case of larger 40 to 100 million gallon plants, a uniform market pattern is not a plausible assumption for ethanol 

dlstributlon. More logical is a fixed average point market pattern in which 

the average length of haul increase$ 8s plant size increases and addi tinnal 

blending polnts are added to the destination points. Unit transportation 

costs are estimated as though all of the ethanol were hauled the same distance. Average length of haul is assumed to increase as plant size increases. 

To provide a range of possible values, three cases were assumed as shown i n 

fa Me VIII-5. Average length of haul assumed for scenario A ranges from 

160 to 400 miles; scenario B, 80 to 200 miles; scenario C, 40 to 100 miles. 

Resulting ethanol transportation costs are: scenario A 5.022 to 8.056 per gallon; scenario B, 8.013 to 8.028 per gallon, and scenario C 8.008 to 8.014 

per gal 1 on. 

2. Conversion Costs 

Chapter VI defined and analyzed conversion costs as direct energy costs, 

other direct costs, indirect costs and capital recovery. The results of that 

analysis are repeated in Table VIII-6 for the 10, 20, 40, 60, 80, 100 and 120 

million gallon grain ethanol plants. Economies of size, that is, decreasing unit costs as plant size increases, exist for non-energy direct costs. indirect 

COStS, and capital recovery. Total conversion costs decrease from 8.901 per gallon for the 10 million gallon plant to s.645 per gallon for the 40 million 

gallon plant and to 9.544 per gallon for the 120 million gallon plant. 

3. EconomLg of Plant Size . . 

To determine the ethanol per gallon costs that stem from variations in 

production plafit sizes, the study compared the diseconomies of increasing plant si zes on raw material and product-by-product transportation costs to 

the economies that similar plant size increases contributed to product conversion costs. This comparison is discussed below under "a" and "b". A 

general overview of these total costs is presented in Table VIII-7. 

Table VIII-7 presents the conversion costs, ethanol transportation costs, 

by-product transportation costs, and grain transportation costs for a1 ternative plant sizes (10 to 120 million gallons) and selected raw material 

and product market densities. Low, medium and high density total trans ortation costs are defined as the sum of respective low (A), medium --&- B and 

high (C) density ethanol, by-product, and grain transportation costs. 
Table VIII-5. Estimated transportation costs per gallon of ethanol 

and average length of haul for ethanol based on alternative 

plant sizes and assumed average length of haul scenarios 

Plant size 

Scenario 

A B C 

(mil gal) Ethanol transportation costs 

($/gal ethanol ) 

Assumed averaqe lenqth of haul for ethanol - 

(mi 1 es) 

Source: DRPA estimate 
Table VIII-6. Conversion costs for ethanol production based on alternative 

sizes of grain ethanol plants. 

Ethanol ~lant slze (mll llon. gallon) 

- 10 - 20 - 4 0 - 60 L 0- 100 - 120 

Energy .I87 ,187 .I87 ,187 .187 .I87 .I87 

Other di rect .098 ,067 ,051 ,046 .043 .042 .041 

Indi rect .I55 .lo8 .084 .077 .013 .070 .069 

Capital recovery .461 2 .273 .258 .247 

Total .901 .747 .645 .602 .576 .557 .544 

Source: Chapter VI. 
Table V.111-7. Conversion costs for ethanol production and transportation costs for ethanol, bypmduct and grain (raw miterials) based on alternative sizes of grain ethanol plants and market 

dens1 ties. 

Ethanol plant size (mil gal/yr) 

- 10 - 20 - 40 - 60 8 0100I20 

Total conversion costs .901 -747 .645 .602 .576 .557 .544 

Transportation Costs: 

Ethanol transportation 

,160-400 miles 

89-200 miles 

40-100 miles - 2 

By-product transportation A 

W Low 

Medi urn 

Hi gh 

Grain transportation 

Low 

Medi um 

High 

Total Transportation 

Low 

Medium 

High 

Total conversl on and transportatlon 

Low 

Medi urn 

High 

Source: DPRA estimate 
Total low, medium and high density conversion and transportation costs 

are defined as the sum of the conversion costs and the respective low, 

medium and high density transportation costs. 

a. Diseconomies of Assembly and Distribution 

Total per gallon transportation costs increase as plant size increases when 

all other parameters are held constant. The rate of transportation cost 

Increase depends on (1) market density and market share in the case of grain 

and by-product feed or (2) average length of haul in the case of ethanol. 

The rate of grain and by-product feed transportation costs increase is 

lowest when thelr respective market densities are highest. 

Under hiqh density market conditions (including ethan~l scenario C) total 

transportation costs for raw material assembly, by-product distribution, 

and ethanol distribution remain under 9.10 per gallon of ethanol. For the 

20 mill ion gallon plant, these total transportation costs of S.053 per allon 

are composed of (1) ethanol transportation cost of S.009 per gallon; (2 7 

by-product transportation of 9.022 per gal lon; and (3) grain transportation of 

$.022 per gallon. For the 100 million gallon plant the total increased transportation costs of 5.065 per gallon is a result, respectively, of (1) S.013, 

(2) $ .026 and (3) 8.026 per gal lon. 

Under low density market conditions (including ethanol scenario A) total 

transportation costs for raw material assembly, by-product distribution 

and ethanol distribution increase from S. 150 per gallon when plant size is 

20 million gallons to 5.267 when plant size is 100 million gallons. The 

20 million gallon plant's total costs subdivide into (1 ) ethanol transportation costs of 9.028, (2) by-product transportation costs of 9.055 and (3) 

grain transportation costs of 8.067 per allon. For the $100 million gallon 

plant, these costs are, respectively, (1 8.051, (2) 8.81, and (3) S.135 per 

gallon. 

3 

Such data clearly indicate the locational advantage of a high density market 

area in which assembly and distribution activities are conducted over lower 

average hauling distances and for, consequently, lower unit transportation 

costs. The data jndicate, also, that transportation costs for raw material 

assembly, by-product distribution, and ethanol distribution for a given locatlon and set of market parameters will increase as plant sizes increase. 

b. Economies of Conversion 

A6 the analysis of Chapter VI indicated, total estimated per gallon conversion 

costs decrease as plant sizes increase. Such a decrease reflected large 

plant efficiencies per gallon of ethanol in such costs as those for capital 

recovery and investment, overhead, and labor. Total conversion costs in the 

range of the 10 to 40 mill ion gallons annual capacity decrease from 9.90 to 

$.64 per gal lon. Further conversion cost reductions are estimated to continue 

but at a decreasing rate as plant size increases above 40 mill ion gallons. 

It was noted, also that estimates for plant sizes greater than 40 million 
gal lons 

gallon 

be veri 

plant, 

I are extrapolations of cost estimates for the 10, 20 and 40 million 

plants and that they are, at best, but rough estimates that should 

fied by detailed engineering studies. For the 100 million gallon 

conversion costs were estimated at approximately S.56 per gallon. 

c. Least Unlt Cost Plant Size 

Total conversion and transportation cost estimates for plant sizes ranging 

from 10 to 120 million gallons annual capacity are shown at the bottom of 

Table VIII-7. These costs continue to decrease over this range of plant 

sizes for the high and medium density cases. Such data suggest that the 

least unit cost plant size is very large, perhaps, greater than a 100 

million gallon plant size for most plausible plant locations within the 

seventeen state study area. 

Assuming 1 ow density market parameters; total conversion and transportation 

costs (excluding raw material costs) decrease to 8.823 per gallon when plant 

slze Is 60 or 80 million gallons and then begin to increase for larger plant 

slzes. 

These results are displayed graphically in Figure VIII-1. 

The data and analysis of pi ant size economies and diseconomies suggest that 

(and, In part, depending upon market factors) the least cost plant size is 

large--in excess of 60 million gallons or greater--based on the reconnaissance grade cost estimates used in this study. To determine optimum plant 

size given the nature of the data and the apparent interrelationships 

among the cost elements further detailed engineering and economic studles 

focuslng on larger plant sizes and specific locations are needed. 

Obviously, the preceding analyses, though based on reasonable data and 

logical assumptions, cannot be definitive and reflective of real market 

conditions. Considerations of plant sizes and marketing experiences proJected for a hypothetical plant in a yet-to-be developed major ethanol industry would doubtless be modlfied if such an industry were developed over 

a wide region of the United States. Too, assumptions concerning site location 

are here based upon generalized, extrapolated data specific to other sites 

and different plants. The considerations emerging from such analyses would, 

If a specific plant's construction were contemplated, have to be supported 

by an exhaustive, sophisticated analyses of such a plant's projected productlon, Its raw material supply area characteristics, and its potential 

market area for ethanol and by-product distribution'. Doubtless, capital 

risk considerations attendant upon investment, would require most extensive 

engineering and economic studies. In general, then, the preceding analyses 

should be recognized as basicall y re,connaissance grade estimates. Risk 

factors to private investors weigh into plant size selection. Some diseconomies such as raw material acquisition costs or DDG sell ing costs may 

not have been adequately estimated by the cost estimation procedures used 

herein. 
transportation costs 

L 

l3 

Conversion costs 

- 

Trans~ortati on costs 

I I 1 I 1 

10 20 40 60 80 100 120 

mllllon gallons 

Flgure VIII-1. Conversion and transportation costs based on a1 ternative 

plant sizes and market densities 

L - Low market denslty 

M Medlum market density 

H Hlgh market dens1 ty 

VIII-16 
However, the foll owing observations are offered. Given the underlying 

ethanol production costs of more than $1.00 per gallon even for the large 

plant sizes and current ethanol market value of about S.41 per gallon not 

even the large plants are financially feasible without soecial incentives. 

Consequently, plant size decisions will necessarily be made within the 

context of special incentives if any plant is to be built at all. If 

pub1 ic incentives for ethanol production are forthcoming of sufficient 

magnitude to make ethanol for gasohol oroduction financial ly feasible 

for private investors, the plant size question needs to be investigated In light of the specific incentive package available. 

Because of the lower unlt ethanol production costs for the larger ethanol 

plants (60 to 120 mil 1 ion gallons annual capacity) larger plant sizes are 

preferred over the small er (10-40 mi 11 ion gallon ethanol plants) for 

purposes of man production of ethanol. For 1 ess ambitious goals, the 

smaller plants appear favored over larger plants. Less total capital and 

operatlng costs are required. The smaller plant which should provide ample facil i ties to provide commercial operating experience and data on 

ethanol production, markettng and distribution. Private investors backing such semi -commerci a1 -research-demonstra ti on plants are exposed to 1 ess - 

absolute risk with smaller plants. To represent small and large plants, the 20 and 100 million gallon plants were selected as representative of 

small and large' plants. 

The generalizations of Sectlon C, below, should also be considered in 

‘relationship to the above potential determinants apropos of a specific and 

actual site location decision. 

C. Plant Site Selection Criteria 

Site requirements for an ethanol for gasohol plant are principally concerned 

with guaranteeing efficient access to process inputs and the disposition of 

process outputs. 

Annual throughput volume of major process Inputs and outputs for a 20 and 100 

mill ion gallon grairt-ethanol plant are sumarized in Table VIII-8. At minimum, 

slte selection criteria would require that these throughput volumes can be 

managed. 

Analysis of transportation costs for ethanol, grain, and distillers byproduct in the previous section shows that because of expected different 

average lengths of haul, the transportation costs for grain, ethanol and 

dlstlll ers by-product are not proportional to their annual throughput volumes. 

Rather corn and distillers by-product transportation costs are more nearly 

equal, with the former ranging from S.022 to 9.057 per gallon of ethanol 

and the latter ranging from 8.021 to s.049 per gallon of ethanol within the 

range of parameter values considered. 
Tab1 e VII 1-8. Annual through~ut quantity of ma jar process inputs and outputs 20 and 100 mil 1 ion gallon grain-ethanol plants 

Unl ts 

Throughput volume 

Uni ts/year 

Plant slze mll gal 

Major Inputs; 

Graln mil bu 

Coa 1 1,000 shsrt tons 

.Boll er and cool i ng water mi 1 gal 1 ons 

Pmcess water mll gallons 

Major outputs: 

Ethanol mil gallons 

Dlstllled dried grain 1,000 short tons 

Waste water mil gallons 

Excl uder recycl ed water. 

Source: Stone and Webster Engineering Corpora tion, Prel imi nary Economl c 

Evaluation of Nebraska Grain Alcohol Plant, Agricultural Products 

Utll ization Coni ttee, Sfa-te of Nebrasl:a, Uecember i976, and 

DPRA es t 1 mates . 
Because raw material assembly costs are expected to be the greatest or, 

perhaps the second major component of traosportati on costs (after byproduc'ts) and because raw material sources are more geographically concentrated than distillers by-product or ethanol markets, the primary site 

selection cost criterion should be that for raw material assembly. 

Site selection secondary considerations include the efficiency of plant 

access to potential by-product user markets, potential gas01 i ne-ethanol 

blendlng points, and adequate coal , water, and ski 11 ed 1 abor resources. 

SItes must have primary highway access and rail sidings to accmodate grain, 

coal and by-product transportation requirements . 
IX. COMMENTS ON IMPACTS OF REGIONAL GASOHOL PROGRAH 

Thls. study of the feasi bll i ty of. establ lshing a gasohol program is necessarily 

a llmlted one. First, by its Terms of Reference, the study is restricted to 

the seventeen states compri sing the Cornbel t, the Great Plains, and Colorado, 

Montana, and Wyoming. Secondly, the economic impact of such a program will 

be affected, in part, by Its schedule of development and this, in turn, wlll 

be largely dependent upon the imp1 ementation of 1 egi sl a tion designed to 

create Investment i ncentlves. Thirdly , the Terms of Reference preclude the 

Contractor's developing the sophisticated, comprehensive economic model that 

would be necessary to measure def i ni ti vel y the economic interrelationships 

existlng among all aspects of such a program and between these aspects and 

the program's effect upon area cropland and a region's economy. 

Some llmi ted studies of the economic impact of gasohol have been recently 

completed. Though they do not consider the economic implications for this 

study's reg1 onal area and do not examine a1 1 economic sectors, they do 

offer some general insights into the economic effects of a gasohol program.. Where they are pertinent, they will be reported below. 

A. Ethanol Requirements 

Ethanol production requirements will be a function of regional gasoline 

use; thus, gas01 ine cohsumption provides the basis for deriving potential 

ethanol use. 

1. Hlstorlcal . Gas01 i ne Use 

Gasoline consumption in the seventeen state region is currently 39 percent 

of the total U.S. gasoline consumption (Table IX-1) and was relatively so 

during the 1974-1976 period. Regional consumption growth has para1 1 el ed 

that of the United States which during the past decade has grown.at an average 

rate of about four percent annually. 

from 1967 to 1977, the total domestic consumption of motor gasoline rose 

from 208.2 million gallons per day to over 300 million gallons per day, with 

the greatest increases occurring in 1968 and 1972 (Table IX-2). In 1974, the year in which demand was most directly affected by the oil embargo which 

extended from October 1973 to March 1974, consumption dropped by 2.1- percent. 

Whlle annual increases have occured since 1974, their rate of increase has 

been somewhat lower than during the preembargo .period. 
Table IX-1. Gasoline consumption in the 17 stite regidk 

and the United States 1974-1976 

(on highway, off highway and other uses) . 

Area 1974 1975 1976 - ---------------,--- (mil gal) ........................ 

Co1 orado 

Illinois 

Xndiarre 

Iowa 

Kansas 

Michigan 

Minnesota 

Mi ssouri 

Montana 

Nebraska 

North Dakota 

Ohio 

Oklahoma 

South Dakota 

Texas 

Wi.scons i n 

Wyomi ng 

Region Total 39,678 40,692 42,780 

Total U.S. 101,856 104,267 109,431 

Percent of U.S. Total 39.0 39.0 39.1 

Source: National Petroleum News Factbook Issue, McGraw-Hi1 1 , New York, 

1976 and 1977. 
Table 1x02. Annual daily gas01 i ne consumption and 

growth rate, 1967-1977 

Annual rate 

Year Consumpt 1 on of growth 

om4 1 gal /day 1 (pet) 

1967 208.2 3.1 

1 968 221.0 6.1 

1969 232.1 5.0 

1970 243.0 4.7 

1971 252.6 4.0 

1972 267.8 6.2 

1973 280.3 4.7 

1974 274.6 ?2.1 

1975 280.4 2.1 

1976 293.1 4.5 

1977 301.5 2.9 

Source: Federal Energy Admini strati on, Office of Energy Information and 

Analysis, Month1 Y Enersv Review, July 1977. 
About 97 percent of the motor gasol ine consumed in the United States is 

for private and commerci a1 needs. Ninety-four percent of a1 1 consumption 

was for private and comercial highway use. In 1975, nonhighway private 

and comnercial use accounted for only 2.7 percent of the year's total consumption, with the agricultural sector claiming over half of that. Motor 

gasol ine consumpti on for pub1 ic use; hi qhway and nonhi hway , accounted for 

less than 2.3 percent of the 1975 total (Appendix 1x01 7 . 

Since passenger vehicles account for over 70 percent of the gasol ine consumed In the United States (Appendix IX-2) (corresponding state consumpti on 

data are not readily available) , passenger car fuel economy is a major 

factor In considering historical and future gasol ine consumption growth. 

The average miles per gal lon attained by a1 1 U .S. personal passenger 

vehicles declined steadily from 13.93 in 1967 to 13.01 in 1373. Since 

then, fuel economy has increased, but its 1975 rate was still less than 

that of 1967 (Table IX-3). Fuel economy dropped noticeably in 1973 as 

pollution control equipment became mandatory on new cars. There was some 

Improvement In 1974 and 1975, but the average vehicle in 1975 still achieved 

2.2 percent fewer miles per gallon of fuel than in 1967. 

Fuel economy standards for 1 ight duty motor vehicles were establ i shed by 

Congress in the Energy Policy and Conservation Act for 1975. 1/ This 

legislation specified that 1978 model cars must meet a standaFd of 18 mpg 

on a production weighted average basis and that the standard must incrementally increase each year to 27.5 mpg by 1985: 

- Year Mandated mpq z/ 

As the composition of the passenger car stock changes, this legislation 

will Impact gasol ine consumption. 

A major change in consumption has resulted from the decrease in the number 

of cars requiring premium gasol ine. In 1970, 32.3 percent of the cars on 

the road required premium gasol ine, and its sales in major cities accounted 

for 42.6 percent of gasoline ssles, By 1977, only 8.9 percent of the cars 

U.S. Department of Commerce, U.S. Industrial Outlook, 1978. 

U.S. Department of Transportation, "Techn~10g.y Sharing", Nat! .ona.l-...Tm 

portation Statistics Annual Report, November, 1977. 
Table 1x03. Passenger car fuel economy, 1967 to 1977 

Average passenger New car 

car fuel economy, fuel efficiency, 

Y ear calendar year basis model year basi s 

('"~9 1 (mps* 1 

55 percent ci ty, 45 percent highway miles sales weighted average 

Source: U.S. Department of Transportation, "Techno1 ogy Sharing" , Na-tlonal Transoortation Stati st1 cs Annual Report, 

November 1 977. 
required premium, and sales had decreased to 15.5 percent of the total. I/ 

Another major change has been the continuing increase in the consumption 

of the no-lead gasol ine required for a1 1 cars domestically produced since 

197 5. 

2. Projected Gas01 ine Consumption 

The Department of Energy has recently issued a report to Congress showing 

demand projections for gasol ine (and other energy forms). In projecting 

the energy demand for the transportation sector, two primary factors were 

recognized: (1) little substitutability of fuel exists in the short run 

among types.of transportation, and (2) highway vehicle fuel use is large 

compared to that for other types of transportation. Therefore, the stock 

of vehicles, their characteristics, and the intensity of their use become 

significant. These factors embod the effects of trends in income, economic 

actlvlty, fuel prices, and techno f ogy. The average efficiency of the overa1.l stock of vehicles, the more f u e l - e f f i c i e n t new cars, the relative number 

of each, and their jntensity of use were incorporated into these projections. 

Table IX-4 depicts six different U.S. gasol ine consumption scenarios for 

1985-1990: five show oil supply and demand situations with a constant 

dollar price of imported oil and one scenario assumes a high import price 

of fuel. Using the Projection. Series A (high supply, high demand) and E 

(low supply, low demand) to bracket consumption, the demand for gasoline 

ranges from 118.3 billion al-lons to 126.5 billion gallons in 1985 and from 

124.2 to 137.2 billion gal 9 on in 1990. By comparison, the consumption in 

1975 was 104.2 billion gallons. The annual rates of growth of 1.0 to 2.0 

percent are down from the historical levels of over 4 percent in the 1960's. 

As can be seen in the projections, gasol ine consumption will not vary widely 

under the various scenarios. For purposes of determining potential ethanol 

requirements., Scenario C will be used. 

These detail ed gasol ine consumption projections were not di ssaggregated by 

state or region. As an indication of future gasol ine consumption in this 

study's region, it was assumed that the region's share of the United States 

total would remain at 39 percent, Applying this assumption to Scenario C, 

interpolating for interim years, and assuming a 2.0 ~ercent growth for the 

1990-2000 perlod, indicate that the region 's gasol ine consumption will 

increase from its 1975 level of 40.6 bill ion gallons to 53.5 billion gallons 

In 1990 and to 65.2 billion gallons in 2000 (Table 1x4). 

The projections, though but estimates, suggest that regional gasol i ne consumptlan #I11 by 2000 increase 60 percent over its 1975 level. 

National Petroleum News Factbook Issue, New York: Mc-Graw Hill, 

Gym 19//. 
Table 1x04. Projected consumption 1/ and annual rate of growth of gasoline in th5 United States, 

1985 and 1990 

-- --- --- - -- 

Scenario: - A - B - C - D - E - F 

Danand: High High Med .LOW Low High 

import 

Supply of domestic price 

oil and gas: High Low Med High Low' 

1985 (mil gals) 126,496 126,344 123,936 118,448 118,256 123,264 

Annual rate of 

growth, 1975- 

1985 (pct) 1.9 1.9 1.7 1.3 1.3 1.7 

1990 (mil gal) 136,400 136,176 137,200 124,528 124,192 135,208 

Annual rate of 

growth, 1 98 5- 

1990 (pct) 1.5 1.5 2.1 1 .O 1 .O 1.9 

The consumption fn 1975 was 104,232 million gallons. 

Source: U. S. Department of Ener y, Energy Information Administration, "Projections of Energy SUDD s y and Demand and Their Impacts", Annual 

Report to Congress, Vol . 11, 1977. 
Table 1x05. Indicative gasoline and ethanol use in the 

17 state reglon, 1980-2000 

Gas01 lne Ethanol 

Dni ted Percent gasohol use 

Year States Region L/ 2 5 5 0 100 

Assu the regions consumption percentage of U.S. total remains at 39 Derce 

21 DOE, a. m. 

2/ Ertlmated at annual 1975-85 medium growth rate (1.7 pct) as reported. 

Medium demand and of1 price (scenario C) as reported in DOE, x. - cit. 

5/ Extrapolated from 1990 at a 2.0 percent annual growth rate. 
3. Potential Ethanol Requirements 

As previously stated, the rate of growth of gasohol use is not known and 

will depend upon ul timate government pol icy. However, to provide perspec- tive, the study projected the study region's ethanol requirements by 

estimating its use under three differing levels of gasohol usage. The 

first column indicates the percentage of the area's gasoline requirements that gasohol would provide. The second column shows the percentage of 

gasoline that would be replaced by ethanol at the corresponding levels 

under a blending ratio of .90:10. 

X gasohol % aaQ 

The potential ethanol requirements, then, would range from 1.1 bi 11 ion 

gallons in 1980 to 1.6 bill ion gal tons in 2003 under the 25 percent replacement scenario (Tab1 e IX-5). Under the 100 percent rep1 acement, a1 ternati ve, 

ethanol requirements would range from 4.4 billion gallons in 1980 to 6.5. 

bill ion gallons in 2000 for the region. 

The data shown .in Table IX-5, are intended to demonstrate the dimensions 

of various levels of ethanol use in the seventeen state region and to pro- vide insight into the potential impacts of a gasohol program. 

B. Aqricul tural Impacts 

The agricultural Impacts of a regional gasohol program would include Its 

effects on farm prices and net fami income. A qua1 itative, defi'nitive 

estimate of these impacts wuld require developing an economic model 

representing the region's and the nation's agriculture and other, affected 

economic sectors. While slmllar models exist, no specific analyses of a 

seventeen state regional program have been done; however, the resul ts of 

related analyses done under differing assum~tions and the results of land 

resource impact analyses do provide some insights and are included below 

when appl i cab1 e. 

1. Land Resource Impacts 

A gasohol program's Impact on land resources would be fe1 t as land was 

utilized to produce the raw materials for ethanol production. To estimate 

the Impact of the program, then, requires a determination of (1) the area 

acreage needs for other crop production, (2) the acreage needed for ethanol 

raw material crop production, and the amount of land available as either 

new or substftute crop lands. Such estimates, a1 so, must reflect long term 

cropping requirements. 
a. Base1 I ne Acreage Requirements 

A basel i ne condition was determined under two demand al'ternat ives : moderate 

and demand. The baseline condition also assumes the following assump- tions, generally across both the moderate and hi h demand scenarios (1) 

demand functions for farm comnodities are perfect Sr y "price inelastic" and 

(2) supply functions are perfectly "price elastic", characteristics which 

result in "constant price" projections, consequently certain checks on 

productive resource availability and productivity are needed. 

In addftlon, both scenarios assume no wars and no major economic disruptions such as another OPEC oil embargo. Both scenarios further assume that current trends in envi ronmental control s, consumers tastes and preferences , and technological change continue during the scenario periods, 

Under the moderate scenario, total U .S. population will reach 236 mill ion 

by 1985. Theal growth rate in total disposable income in 1958 dollars 

will be 4.1 percent from 1976 to 1980 and 3.8 percent after 1980. Exports 

of U.S. agricultural commodities will be constrained by the policies of 

the major prospective importin countrfes to promote increased sel fsufflclency. Concurrently, (1 7 the world capacity to produce cereal grains wfll Increase faster than consumption, (2) grain reserves will be rebuilt, 

I 3) Europe and the USSR will approach self-sufficiency in cereal grains, 4) the European Community will maintain a high-price pol icy and thereby 

encourage the substitution of protein supplements and nongrain feeds for 

grains, and (5) the People's Republic of China will import wheat and export rice, and (6) Japan will continue to be the largest importer of U .S. wheat 

and coarse grains. 

Under the hi h demand scenario, the total U.S. population will reach 244 

million peop 3- e '5-735, a result of the continuation of recent birth rates. 

The annual growth rate in total disposable income in 1958 do1 lars will be 

4.5 percent through 1985. Exports of U.S; agricultural commodities wi 11 

Increase because: (1) the USSR and Eastern Europe wi 11 increase trade with 

the U.S., especially the import of grain to expand 1 ivestock production and 

increase consumption, (2) The People's Republic of China will increase 

trade by Importing U.S. cereal grains to improve diets, (3) the European Cornunity ill adopt lower target prices for grains and, thus, lower its 

~roduction and increase its consumpti on of grain imports, (4) 1 ivestock 

production will increase in the developing countries, and (5) fishmeal pro- duction will stagnate at 1969-71 levels. 

These basic assumptions are transla.t;ed f nt;o U .S. production requj rements 

(see Appendix IX-3) which are used to determine regional acreage requirements based on expected regional yields and regional acreage shifts. Based 

on this approach, the seventeen state region cropland requirements were 

estimated. Under the moderate demand scenario 229.6 million acres would be 

required In 1980 and increase to 247.0 mil 1 ion acres in 2000 (Table IX-6). 

Under the hi h demand assumptlon, 259.2 million acres would be used in 1980 

and 280.7 --fT-- ml ]on acres in 2000. 
Table IX-6. Project.& cropland requirements ln the 17 ',state region, for basel lne demand, 1980-2010 

Demand scenario 

and crop 1980 g/ . I985 ,A/ 1990 2J 1995 1/ . ,- 2000' 2/ 2o(K 2/ . 2010 L/ % 

Moderate demand 

Corn 53,960 53,250 52,500 51,800 . 51,100 50,400 49,700 

Grain sorghum 15,100 15,400 15,700 15,900 . .:. 16,200 16,500 ' 16,800 

Wheat 41,360 40,400 39,400 38,500 37,500 36,600 35,600 

Soybeans 41.160 42,000 42.800 43,700 44,500 45,400 46,200 

other crops 

Total 

- High demand 

x 

Corn 63,200 62 ; 500 61,800 61,100 60.4.00 .^ 59.700 59,000 

Grain sorghum 17,360 . . 17,700 18,000 ,. 18,400.; 18,700 19,100 . 19,400' 

Wheat 50,950 49,850 48,700 ' ' 47,600 . 46,500 45.400. 44 ; 300 

Soybeans 41,400 43,400 45,400 47,900. 49,400. , 51,400 . 53;400' 

Other crops 86,300 91,150 96,000 : . 100,900.. 105,700 110,600 115,400 

Total 259,210 m-Jm 269,900, ..275,300 .. 280,f00t. 286,200 2911500 

1! Development Planning and Research Associates, "Assessment of sthe Envirenrnental Imp1 ica tions of Regional Croo Production Trends, Interim Workshop Report", €PA, February 1978. This study dl vided the 

United states into 5 regions including the Corn Belt, Great Plains and West. The 17 state region of 

this study includes the Corn Be1 t, Great Plains plus color ad^, Wyoming and Montana in the West. These 

states were disaggregated .from the West for i-nclusion in this study. 

2' Interpolated from the 1985 and 2010 projections. 
b. Ethanol Acreage Requirements 

The indlcated ethanol acreage requirements were derived from the ethanol 

requirements shown in Table IX-5 above and the yield projections (Appendix 

1x04) used to.develop the baseline acreages shown in Table IX-6 above. The 

acreage requirements were calculated under four crop situations for each 

of the gasohol use level scenarios. 

As can be seen in Table IX-7, the least amount of acreage (about 17 million 

acres under 100 percent gasohol use) would be required if only corn were 

used as an ethanol raw material. An all grain sorghum ,program would 

require about 28 to 31 mil 1 ion acres and an all wheat program would require 55 to 60 mil lion acres. If an ethanol industry were developed, all 

three comrnodi ti es wo,ul d probably be used. Assuming the same production 

ratios as shown in the 'baseline, a weighted average acreage requirement 

of about 25 mill ion acres was calculated. 

The analysls, then, indicates that a substantial gasohol program would 

require significant .increases in grain acreage. 

c. Avall a bl e Acreage 

The total of both the baseline and ethanol acreage requirements provides 

one posslble perspective of a gasohol's program's acreage impact. As 

shown In Table IX-8, the total acreage requirement for a 100 oercent 

reglonal gasohol program under the moderate demand scenario ranges from 

about 255 million acres In 1980 to 273 mill ion acres in 2000. Under the 

hlgh demand assumption, the 'acreage would be increased to 284 to 308 mill ion 

acres for 1980 and 2000 respectively. A partial gasohol program would 

reduce the total acreage requirement. 

The date Qf a recent USBA 2/ land use study indicate that the study region 

has 343:2 mi 11 ion acres of-current and potenti a1 cropland. This includes 

287.2 mill ion acres currently available, 41.8 mil 1 ion acres with high 

cropping potential, and 14.2 mil 1 ion acres with medium cropping ootential . This estimate does not include any allowances for losses due to urbanization, 

roads, and for other non-cropping uses, and it excludes federally owned 

1 ands . The projected total cropland requirements are within the estimated available 

cropland. Under the 100 percent gasohol, scenario in 2000, 308 mil 1 ion acres 

would be requlrnd and 343 mill ion acres are available, 

Wheat production in the baseline is 15 to 17 percent of total production 

Of corn, grain sorghum, and wheat. This percentage is less than the 

20 to 25 percent wheat limitation for a grain ethanol plant. 

3 U.S. Department of Agriculture, Soi 1 Conservation Service, "Potential 

Cropland Study," July 1976. 
Table 1x07. Indicative cropland requirements in the 17 state region for ethanol , 1980-2000 

Gasohol 

use 

Crop scenario 1980 1985 1990 1995 2000 

- -------....----- (1,000 ac)--.------------- 

- Corn 

25 percent 4,250 '4,179 4,217 4,306 4,384 50 percent 8,503 8,363 8,438 8,612 8,766 

100 percent 17,008 16,727 16,880 17,224 17,535 

Grai n sorghum 

25 percent 6,950 7,023 7,227 7,574 7,841 

50 percent 13,906 14,052 14,459 15,149 15,678 

100 percent 27,811 28,105 28,924 30,297 31,361 

- Wheat 

25 percent. 13,642 13,729 13,927 '14,202 14,963 

50 percent 27,296 27,466 27,865 28,404 29,917 

100 percent 54,593 54,932 55,740 56,808 59,844 

Three croo production wei qhted average ' I 

25 percent 6,.210 6,130 6,190 . 6,340 6,500 

50 -percent 12,420 12,270 12,380 12,680 12,990 

100 percent ,24,840 24,540 24.720 25,360 .25,990 

Source: - DPRA estlmate 
 able IX-8. Total cropland requirements under three ethanol 

requirement scenarios and assuming no croD 

fubsti tution for the 17 state reglon, 1980-2000 

Moderate demand 

25 percent gasohol 235.8 240.1 244.5 249.0 253.5 

50 percent gasohol 242.0 246.3 250.7 255.4 260.9 

100 percent gasohol 254.5 258.5 263.1 268.1 273.0 

Hlgh demand 

25 percent gasohol 265.4 270.7 276.1 281.6 287.2 

-50 percent gasohol 271.6 276.9 282.3 288.0 233.7 

100 percent ~asohol 284.0 289.1 294.7. 300.7 307.7 

Source: DPRA estimate 
'These total cropland estimates are not conclusive, however, further impacts of a regional gasohol program would probably result in a shift in croplands 

presently' used in other crop production, especially for those devoted to 

soybean production. 

d. Impact of Distillers Dried Grains on Other-Crop Acreage 

For each gallon of ethanol, about 6.5 pounds (see Chapter IV) of distillers 

dried grain are produced. As shown in Table IX-9, the quantities of DDG 

are significant, reaching 21 million tons by 2000 under.the 100 percent 

gasohol assumptl on. Such a production would affect soybean meal production, 

for DOG would offer a less espensive substl tute product. Current soybean 

meal consumption of 15 mi 11 ion tons is part of the total high-protein feed 

use of 36 million tons (Appendix IX-5). The expected impact of the pro- jected quantity of DDG on soybean prices and soybean production is not 

known, but considering the relative qualities involved, the impact would 

appear to -be significant. Some related studies will provide some insight 

Into this issue. 

Wisner and Gidel 1/ have projected the production of distillers dried grains 

under a1 ternative7 eve1 s of gasohol usage and the percentage increases in 

disti 11 ers dried grains and total hi gh-protein suppl ies that would resul t 

from the projected production levels. Using the 1973-1974 supplies as a 

base and a gasohol program for the state of Iowa only, Wisner and Gidel 

estimated an increase in total U.S. high protein feed supplies of about 

one percent and an expanded U.S. distillers dried grain production of 119 

to 126 percent. If a nation-wide gasohol program were in place by 1980, 

the percentage increase in high protein feed supply would be 80 to 88 percent 

and di sti 1 lers dried grains would increase 60-fold. 

The projected relative price impacts of a gasohol program are shown in 

Table IX-10. These impacts assume high protein feeds, a constant soybean 

acreage, and a1 1 other price influencing variables unchanged. An Iowa 

gasohol program would be expected to place moderate downward pressure on 

prfces for distillers dried grains and only slight downward pressure on the 

prfces for soybean meal and soybeans. A national gasohol program would 

sharply depress prices for both distillers dried grains and soybean meal, 

and lower soybean prices by more than $2.00 per bushel. The projected growth 

in high-protein feed demand is expected to moderate the situation to some 

degree. 

Projecting the estimates of the Wisner and Gidel study further would show 

that a five-state program producing 3.9 to 4.3 mil 1 ion tons of DDG would 

reduce soybean prices by 9.60 to $ .95 per bushel . A regional program of 

15.6 mf 11 ion tons of DDG in 1985 and 21 mil 1 ion tons of DDG in 2000 would 

reduce soybean prices by $1.00 and $2.00. 
Table 1x09. Productlon of distillers dried grain with corresponding 

levels of ethanol productlon, 1980-2009 

Year 

Percent qasohol use 

2 5 5 0 100 

-- ~ 

Source: DPRA estimate 
Table IX-10. Potential Impact of a1 ternatlve levels of "6asoholn programs on prices for di sti 1 lers 

drled grab, soybean ma1 and soybeans In 1980, before Including growth in demand for hlgh protein feeds. 

Level of Potential impact Potential inpact Potential impact 

nGa~~hol " on distfllers on soybean on soybean 

program , dried grains meal prices prices 1/ 

Total gas01 ine usage: 

Iona 18% to 25% .decrease 3% to 4% decrease 7t to lOC/bu decrease 

F.1 ve-sta te region - 2/20% to 32% decrease 601 to 95t/bu decrease , 

Uni ted S.ta tes - 2/. - 2/over 70% decrease 2J over $2.00/bu decrease 

- 1/ Based on inltlal soybean meal prlce level of $125 per ton and soybean meal yield of 47.6 pounds per 

bushel. Higher- In1 tial .soybean meal price levels would lead to greater impacts on soybean prices. 

Z 2/ Price decrease would be very large but is Impossible to estimate precisely.. Past price-quanti ty 

I 

C-l 

w, relationships suggest prlces would become negative with the 1:arge supply increases involved, a1 though 

this seems un! i kely. , 

Source: blisner, R. N. and J. 0. Gid'el , 2. - cit . 
These results suggest that land would be diverted from soybeans to corn. 

The USDA concluded that moch of the needed land could be diverted from 

the production of soybeans because of the competi tion between di sti 1 1 ers 

dried grain and soybean meal. 11 Thus, under the considerations of avail - 

able land or the possible cropping pattern shifts, it is concluded that 

er se, will not be impacted through the increased acreage requirements land* 5 su fEiently enough for it to be a program constraint. 

2. Livestock Production 

The impact of a national gasohol program on 1 ivestock production was 

characterized in a recent USDA report as follows: a 

Aggregate 1 ivestock production would decline from the current ".. 

base estimates. This occurs because of the shift to distillers , 

grains. The higher fiber content of this feed will require a longer digestion phase. But the much-cheaper relative price of this.feed 

shou.ld make it sufficiently attractive so as to be substituted for 

soybean oil meal into hog and poultry rations as well .as beef. . If 

1,ivestock producers accept this low cost feed and modify their 

deeding schedules accordingly, this would slow down the 1 ivestock 

- cycle and result in higher total costs to livestock producers. 

While the regional program considered in this study would be only about 40 

percent of a national program, it would be sufficiently large enough to 

create an impact on 1 ivestock production. 

3. ,Farm Prices 

As 'discussed above, the interrelationship among a large regional or national 

gasohol program, farm prices, and cropping patterns is difficult to measure. 

It seems likely that soybean prices would be depressed under a full gasohol 

program In the seventeen state region. The impact on food and feed grain prlces are not as clear, however, since it would depend to some extent on 

how fast the program developed. 

USDA, concluded that the development of a national program by 1982 would 

increase the prlce of food and feed grains. 31 Under a slower rate of 

development, the impact on grain prices woula be moderated for farmers 

U.S. Department of Agricul tvre. "Gasohol from Grain--The Economic 

Issues", ESCS Publication No. 11, Jan. 19, 1978. 

3 - Ibid. ' - Ibid. 
(who over the long run generally produce near their cost of production) would have time to make production adjustments as price takers. A definitive 

assessment of ultimate grain prices would require extensive econometric 

analyses and speciffcatlons regarding the phase-in of the program. Such 

mrrk'is not available and was considered beyond the scope of the present study . 4. Net Fan Income -. 

Estimating the impact of a regional gasohol program on net fan income is 

subject to the same limitations as on estimating its price impact. The 

USDA in its recent assessment of gasohol reported the following: 

Crop rtcei pts would be up somewhat, due to increased price of corn 

and other grain, but this would be partially offset by the higher variable costs of corn relative to soybeans. This would result in 

a slight net increase in farm income. - 2/ 

Again, to assess the impact on net farm income, a rigorous econometric 

analyses would be needed. 

C. Impact on the Soybean Industry 

As suggested in the preceding discussion, one of the major .impacts of a 

large gasohol program is its effect on the soybean industry through the 

large quantities of distillers dried grain that would be produced (Table 

IX-9), and the depressing effect of that production on soybean meal prices. The work of Wisner and Gidel would indicate that a national gasohol program 

wfth its required ethanol production would virtually eliminate the soybean crushing indust.ry. - 3/ 

The impact of a regional program of the size for the seventeen state region considered in this study might be less severe, but the locating of ethanol 

plants in locations similar to those for soybean crushers would probably 

cause soybean plant closures. Definitive estimates of such closures would 

require additional study, particularly of the extent to which soybean 

acreage would be reduced. 

It should be noted that the impacts would be regional. For example, a 

reduction of soybeans woul'd require possi bl e new sources of vegetable 

04 1 and increased vegetable oi 1 prices might impact cotton production in the Southeast. 

a USDA, a. Sir. 

USDA reports a similar conclusion in USDA, s. G. 
The impact at the local level of substituting corn for soybean acreage 

may be illustrated by comparing a soybean mill and an ethanol fermentation 

plant. Soybean crushers are found in the grain producing areas and are 

concentrated in Iowa, Illinois and Indiana. Ethanol production plants would 

also be located near grain supplies. The relative impacts in the surrounding 

area may be deduced by examining the information tabulated below. 

Annual 

Annual output of 

high orotein 

- Plant -. 

Empl oymen t feeds 

(1,000 T) 

Soybean mtll 1/ Large 7.3 200 173 

(218,000 T/yr) (44% protein) 

Ethanol 100 mil gal 38.5 340 323 

(22-273 protein) 

Although the outputs of high protein feeds from the above plants are essentfally the same in terms of total protein, the amount of cropland and the 

number of employees required are greater for the ethanol plant. With 

current U.S. average yields, 440 thousand acres would be required for 

corn inputs and 270 thousand acres for the soybeans. The ethanol plant 

would requlre 140 more employees. 

D, Other Impacts 

The impact of ethanol production is not confined to agriculture. The, 

Impacts resulting from replacing a portion of the gasoline consumed with 

ethanol would, for instance, affect. other segments of the economy. Too, 

the ethanol production would affect energy suppl ies to the extent that they 

were consumed in ethanol and raw material production. 

1. Re4i nery Operations 

With an ultimate decrease by 10 percent in the volume .of gasoline refined, 

impacts on refinery operations would be .anticipated. The severi ty of the 

impact would depend, in part, on the rapidity of gasohol use phase-in-- 

if relatively slow, then refineries as a whole could adjust their operations 

with fewer dislocations. Currently, approximately five years 1 ead time, 2/ 

ts required between management approval and refinery start. up. In addition, 

Develo ment pl;nning and Research Associates, Inc. Economic Analysis 

of Eff ! uent Guide1 i nes--Mi scel 1 aneous Foods and Beverages Industry, 

Pol. 1, Edible Oil Industries, EPA, March 1977. 

a Dixon, J., Bonner 6 Moore, private communication, Clay 15, 1978. 

1x920 
refinery operations would be impacted differently by the decision as to 

whether to market gasohol of the same octane number as present day unleaded 

gasoline (which means producing a special base gasoline having a lower octane 

number) or to market gasohol having an octane number higher than present 

day unleaded gasoline (which means producing a base gasol ine similar to 

today's unleaded product). The impact would vary by refinery depending on 

current operations. In addition, it must be remembered that gasoline is but 

one product of a refinery; thus, a reduction of this magnitude would also 

impact on a1 1 other refined petroleum products, fue.ls, and petrochemicals. 

2. Energy Requi rements 

Although the primary emphasis in this report has concerned the energy required for the production of ethanol from the raw materials, in an overall 

assessment of the energy required for the gasohol program, other related 

energy factors must. be considered: for instance, grain and other raw material 

production energy, transportation energy, and the energy required to produce 

the fertilizers required by marginal lands. 

If, indeed, gasol ine prices increased substantial ly, transportation cost, 

production costs, fertilizer costs, and in time, grain prices and ethanol 

costs would also increase. 

3, Consumer Prices 

Consumer prices would be expected to increase as farm prices increased reflecting higher feed, livestock, and ultimately, meat product prices. It 

would be necessary to determine farm prices before a definitive answer 

could be given regarding the magnf tude of consumer price increases. 

4. Gasohol Proqram Costs 

In Chapter VII, it was concluded that some type of government incentive 

equivalent to 8.75 per gallon of ethanol (8.075 per gallon of gasohol) would 

be required to attract Investment into ethanol production. This estimate 

is based on a 100 mill ion gallon plant. A 20 mil 1 ion gallon plant would 

be $. 94 per gal Ion of ethanol (S. 094 per gallon of ~asohol ). Income taxes 

paid by producers would be 8.09 and s.13 per gallon under the assumption 

which the subsidies were estimated. Thus, in net terms, the subsidies 

would amount to 8.66 and 8.81 per gal lon for the 20 MGH and 100 MGY plants, 

respectively. It is also noted that these estimates make no allowances for 

graln price increases or distillery dried grain price decreases that would 

be expected with a massive gasohol program. 

Extending these by the three scenarios o'f gasohol use, it can be seen 

that subsidy payments would be significant (Table IX-11). For example, under a 100 percent regional program based on 100 mi 11 ion gallon plants 
Table IX-11. Indicative annual net subsidy 1/ costs under three 

gasohol programs for the 17 statz region 

Year 

Percent gasohol use 

25 - - 50 - - 100 -- - 

'20 MGY 100 MGY 20 MGY 100' MGY 20 MGY 100 MGY 

-1! Income taxes paid by ethanol producers were subtracted from the gross 

subsidy. 

Source: DPRA estimate 
would require 1/ an annual net subsidy of $3.2 billion in 1985 and increase 

to $4.3 billioii by 2000. An industry based on smaller units would increase 

these payments by about 22 percent. 

5. Impacts on Plant Engineering, Equipment Manufacturers and 

Construction Support 

In consldqring these indicated ethanol amounts, the critical importance of 

the development schedule is demonstrated. For example, a program for 100 

percent gasohol in the region would require 48 of the 100-mil 1 ion gallon 

ethanol plants by 1985 and 65 by 2000 with investments per plant of about 

$100 mill ion (.97 per gallon of ethanol ); thus, to develop an industry of 

48 plants by 1985 would require a construction program of $4.4 billion in 

1977 do1 lars. Small er plants would increase this investment requirement. 

This would represent a massive construction effort; indeed, it would be 

questlonable that a 100 percent replacement of gasoline with gasohol would 

be accomplished by 1985. Even under 50 percent replacement by 1985, a 

$2.2 bi 11 ion construction program would be required. Gasohol programs of 

this magnitude would create a significant strain on engjneering, pl ant 

quipment, and plant construction capacity. Quantification of this would 

require careful study of engineering equipment manufacturers and construction 

firms. Certalnly if a significant gasohol Drogram is pursued or contemplated 

during the next decade, these considerations should receive careful attention. 

6. Capital Markets 

The investment requi rement for 'a full regional gasohol program for the 

seventeen state region would be about $4.4 billion, a capital funding that 

would place pressure on capital. markets, the extent of which is not known. 

Considering the current demands on capital for meeting the various governmental regulatory (pollution, health and safety) and plant modernization 

requirements, the consequent pressures on the avai 1 abi 1 i ty of cap1 tal. and 

the Impact on the capital market of a gasohol program 'should be considered 

In detail. 

7. Balance of Payments 

Ethanol production impacts would not be confined to the domestic situation, 

but its ramifications would be felt in U.S. foreign trade and in the balance 

of payments. In particular the imports of crude oil and the exports of 

food and feed grains would be impacted. 

It is noted that the larger plants' financfal profiles are based on 

reconnaissance grade estimates and that more detailed studies could 

a1 ter these estimates. 
The value of the exports of grain, cereal pre aration, and soybeans constltuted 55.5 percent of total exports In 197 P . By contrast, the value of 

petroleum and related products imported in 1977 was 28.3 percent of the 

value of total U.S. imports and 1.75 times that of the value of the agricultural exports (Table IX-12). 

The possible change in the balance of payments resulting from a large scale 

gasohol program has been addressed in various studies. 1/ The extent of 

the reduction in feed grains and soybeans for export is-dependent on both 

the extent of the gasohol program and, thus, the use of these grains in 

etha~oduction and on the increase in acreage or production levels of 

the gralns. Since 6.5 pounds bf lers dried grains are produced for 

each gallon of ethanol, the impacts on 1 ivestock feeds are moderated. But 

It should be noted that for each bushel of corn fermented, 15.8 pounds of 

dlstlllers dried grains are produced. These compete more directly with 

hlgh protein feeds rather than corn. Although the total quantities of potential animal feeds are changed, the quantities are not changed as much as 

mlght be anticipated initially. Again, the rapidity of the phase-in of a 

gasohol program would be important. If it were developed over a period of 

time, possibly markets for at least a portion of the 20 million tons of 

distil lers dried grains could be developed. If the historical percentage 

(about 40) 9 is exported, this quantity of 8 million tons is twice that 

of the current quantlty of soybean meal exported. 

The energy situation is complex. For every gal Ion of gas01 ine replaced 

wlth alcohol, it has been suggested that crude oil use (presumably imports) 

could be reduced by a factor of 1.6 since not only gasoline but a variety 

of products are obtained when crude oil is refined. 3/ Thus, for a nationwide gasohol program requiring 10.9 billion gallons gf ethanol (260 million 

barrels), the crude oil use would be reduced by 415 million barrels annually 

(ylelds of jolnt products would be reduced simultaneously). But increased 

gasohol production requires increased raw material production and this, in 

turn, rcqulves Increased amaunts of energy. Again, the effects of one 

portlon of an Interrelated system cannot be analyzed in Isolation. An 

elaborate model would need to be developed in order to analyze a1 1 the parameters wlth some degree of precision. 

In sumnary, the economic, environmental and international impacts of a 

gasohol system depend on the extent of the program and the timing of the 

phase-in. 

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-. 

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Exports Imports 

1976 1977 1976 1977 

Graln and cereal 

preparatlons 10,910.9 8,754.8 I/ 1/ 

Soybeans 3,315.4 4,393.2 1/ - 1 / 

Ag products, total 22,997.6 23,671.0 11,179.3 13,538.3 

Petroleum and products 997.6 1,275.6 31,797.9 41,526.1 

Total U.S. 113,318.5 117,962.7 120,677.6 146,816.7 

L/ Not tabulated separately. 

Source: U. S. Department of Comerce, Bureau of Economic Analysis , Surve~ 

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Oct. 6-10, 1975. 

Schrock, Mark. "Gasohol -- Myth or Mlracl e?" Energy Facts, Cooperative 

Extension Service, Kansas State University, Manhattan, Kansas, undated. 

Schruben, Leonard W. Excerpt from "Working Together to Build Better Wheat 

Markets," Kansas Association of GIheat Growers, Wichita, Kansas, . . ... 

Nov. 19, 1977. 

Segal, Migdon R. "Methanol and Ethanol as Alternatives to Gasoline," 

Congressional Research Service, issue brief number 1024087, updated 

Sept. 12, 1977. 

Methanol and Ethanol as Fuels--State of the Art as of July 1977," 

~on~resri~nal Research Service., undated. 

Sharp, Rodney L. "The Economic Feasi bil I ty of Converting Agricultural 

Comnodities into Alcohol in Colorado," Colorado State University, 

(Agricultural Economics Staff Paper) August 1977. 

Shotwell, 0.' L. "Aflatoxln In Corn," Journal of American Chemists' society, March 1977, 21 6A-224A. 

"Mycotoxins - Corn-Related ~robl ems,' Cereal Foods Nor1 d, 

~etober 1 977, 524-527. 

. Shreve, R. Norris. Chemical Process Industries, New York: McGraw-Hill 

Book Co.. , 1 956. 

Simpson, Bruce H. " Improvlng the Measurement of Chassi s Dynamoter Fuel 

Economy," Paper 750002, Society of Automotive Engineers, February 1975. 

Sklar, Scott. "The Chevron Sheet in Perspective," Memorandum, Off ice of 

Jacob K. Javits, United States Senate, Dec. 7, 1977. 

Solomons, G. L. "Sol vents from Carbohydrates : Some Economic Considerations," Process Biochemi stry, Apri 1 1976, 32-33 and 37. 
Smith, A1 len G. "Comodi ty Production and Utilization to 1985," Actricul ture 

the Third Century, July 1976. 

Sml th, Stephen M., M. L. Jackson, and Leonard Johnson. "The Feas i bi 1 i ty of 

Gasohol : An Examination of the Issues," Re ort No. 202, Agricultural 

Experiment Station, University of Idaho, Apri +-- 1 978. 

Spencer, Warren H. "Fill'er Up - With Gasohol," Popular Mechanics, Apr. 1, 1977. 

Steinhart, John 5'. , and Carol E. Steinhart. "Energy Use in the.'U.S. Food 

System," Science, July 1974, 48-57. 

Stone and Uebster Engineering Corporation. "Preliminary Economic Eva1 uation 

of Nebraska Graln Alcohol Plant ," Agricultural Products Industrial 

Uti 1 ization Connl ttee, State of Nebraska, December 1976. 

Stout, Bill A., Robert M. Peart, Wesley F. Buchele and Edwin Finch. "Brazil 

Promotes PROALCOOL," Agricultural Engineer4 np, Apri 1 1978, 30-33+. 

Stroup, Richard and Thomas Miller. "Feasibility of Ethanol from Grain in 

Montana ,I1 Agricultural Experiment Station, Montana State University, 

Bozman, 'Research Report No. 118, January 1978. 

"Sugar and Sweetener Report," USDA, February 1978, 40. 

"Sugar and Sweetener Report, USDA, May 1976, 36. 

"The Sugar and Sweetener ~ituation," USDA, November 1975, 27. 

'Synthetic Fuel s: Where we Stand Today," Society of Automotive Enqineers 

30urna1, October 1974, 38-43. 

Tinley, H. L. "Gasohol--It's in the Pumps in Brazil," Farm Journal, Aprfl 

1978, H 8-9. 

Ttao, George 1. "Utilization of Grain and Crop Residues for the Production 

of Fuel and Chemicals," Purdue University, West Lafayette, Ind., 

undated. 

Turner, Mi ke. "The Nebraska Gasohol Program, " Cornhus ker Economi cs , Cooperative Extension Service, University of Nebraska, Li ncol n, 

Feb. 23, 1977. 

Tyner, Wallace E., and Martin R. Okos. "Alcohol Production from Agricultural 

Products: Facts and Issues, Cooperative Extension Service, Purdue 

University, January 1978. 

Unger, Samuel G. , and Michael W,Wool verton. Economic Analysis of Proposed 

Effluent Guide1 ines--Grain Mi 11 ing Industry, EPA, 1973. 
U. S. Department of Agriculture. "Considera tion of Industrial Hydrocarbons 

Pilot Program," Federa 1 Reqi ster, Thursday, Oct. 20, 1977, 55904. 

ESCS, Pub1 ication No. 11, "Gasohol from Grain--The Economic 

~sruea," Jan. 19, 1978. 

. Federal Grain Inspection Service, 1976 Crop Qua1 i ty Report, 1977. 

U.S. Department of Energy. Energy Information Administration. "Projections 

of Energy Supply and Demand and Their Impacts," Annual Report to Congress, 

Vol. 2, 1977. 

. Energy Information Administration. "Projections of Energy Supply 

and Dema.nd and Their Impacts," Annual Report to Congress, Executive 

Sumnary, Vb1. 2., 1977 

. Monthly Enerqy Review, January 1978. 

. Monthly Enerqy Review, March 1978. 

. Position Paper on Alcohol Fuels, March 1978. 

7;. 

"Preliminary Gas01 ine Prices--January 1978," Enerciy Data Report, 

29, 1978. 

U.S. Department of Transportation. National Transportation Statistics, 

November 1977. 

U.S. Energy Research and Development Administration, A1 ternative Fuels 

Utilization Report, No. 1, April 1977. 

. "Program Sumnary--Fuel s from Biomass ," draft, September 1977. 

. Fuels from Biomass Proqram, September 1977. 

. "Program Plans," Fuels from the Biomass Branch, draft, July 27, 1977. 

Universityof Nebraska. "The Development of a High Protein lsolate from 

Selected Disti 1 lers By-Products," NSF, July 1975.' 

Valmassei , Christine. "Gasohol : Boon or Boondoggle?" I1 1 inoi s Farm Bureau 

Fami ly, October 1977. 

Weaver, Rep. James, Oregon. "The 'Gasohol ' Bi 11 ," Congressional Record, 

Extensions .of Remarks, in the House of Representatives, Mar. 7, 1978, 

El 097-El 099. 
"Wheat Situation," USDA, February 1978, 23, 

"Wheat Situation," USDA, May 1977, 21. 

Wlgg, E. E. "t.lethano1 as a Gas01 ine Extender: A Critique," Science, 

Nov. 29, 1974, 785-790. 

Wise, John 3. Statement by Vice President for Planning of Mobil Research 

and Development Corporatlon before the Senate Appropriations Comi ttee, 

United State Senate, Jan. 31, 1978. 

Wisner, Robert N., and Jerry 0. Gidel . Economic Aspects. pf. Ufinq Grain 

Alcohol as a Motor Fuel, with Emphasis on By-Product Feed Markets, 

Iowa State ~nivirsi ty, June 1977. 

Wright, Bruce H. Regional and Sectoral Analysis of the Wheat-Flour Economy: A Transportat ion Study, USDA Economic Research Service, October 1969. 

Zerschking, Lynn. "Gasohol Comi ttee discusses study's due date," 

Lfncoln Star, Sept. 15, 1977. 
ADDENDUM TO BIBLIOGRAPHY 

Androni kashvili , T. G. et fi., "1966 Preparation of Absolute Ethyl Alcohol 

by Zeolite," Lavod. Lab, V. 32, No. 10, p. 1211, as reported by 

the Colorado Gasohol Task Force in Production and Marketinq of 

Alcohol Motor Fuels from Colorado Agricultural Commodities: A 

Tentative Description, Jan. 31, 1978. 

American Chemical Society, Cleaninq Our Environment; The Chemical Basis 

for Action. Washington, D. C. 1969. 

Davis, Leroy and Lowel 1 Hal 1. "Spatial Price Differential s for Corn .Among 

I1 1 inois Country Elevators," American Journal of Agricultural Economics, 

Vol. 5, No. 1, February 1974, 135-144. 

Dvoskin, Dan and Earl 0. Heady. "Commodity Prices and Resource Use Under 

Various Energy A1 ternatives in Agriculture," Western Journal of ASri - 

cultural Economics, Vol . 2, December 1977. 

Freidlaender, Ann F., The Delemna of Freight Transport Regulation, The 

Brookings Institution, Washington, D. C., 1969. 

Gelperin, N. I., -- et al. "Rectifyin capacity of columns with fluidized 

packing." Khim. Prom. (Most~~~, V. 47, no. 1, 1971. 

Locklin, Philip D., Economics of Transportation, 7th ed. Richard D. Irwin, 

Inc. Homewood, Illinois, 1972. 

Marks, Norton E. and Robert M. 'Taylor, .~ds. Marketing Loqistics; Prospective 

snd Viewpoint, John Wilcy & Sons, lnc., N.Y., 1967. 

National Petroleum News Factbook Issue, McGraw-Hill , New York, 1976 and 1977. 

Chemical and physical properties of ethanol 

Property Ethanol 

Molecular weight 

Composition, weight percent 

Carbon 

Hydrogen 

Oxygen Specific ravity 

600F/60 8 F , . 

Density 1 b/gal - 60'~ 

Boi 1 i ng temperature, OF 

Flash point OF 

Flammabi 1 i ty 1 imi ts, volume percent 

Lower 

HI g her 

Heating value 

Btu/gal at 68OF 

(liquid fuel/ 1 iquid water) 

Latent heat of' vaporization 

: Btulgal at 68O 

Stoichiometric air-fuel ratio 

(Ib air/lb fuel ) 

OCtane number research 

Octane number motor 

Source: Ameri~an Petroleum Instl tute. A1 coho1 s A Technical Assessment 

of Their Application as Fuels, 
Gasol lne refinery and di stri button system 

From the refinery, gasoline goes via one of several post1 ble mutes to 

the retail consumer. The major portion of gasol ine flows from the refinery via pipel ine to local terminals. From these terminals, the gasoline 

Is loaded onto trucks (or in a few instances rail cars) for transport to 

the retail outlet.sometimes vla a local bulk station. An alternative 

method of dl stri but1 on cons1 sts of tanker trucks load1 ng "off the rack" 

at nflneries; however, time and safety factors restrict this type of 

loadlng to large trucks only. For refineries located on the Great Lakes, 

petroleum products may be shipped by lake tanker. Refiners on rivers may uti li tt ri ver barge. The Gulf Coast ref i nerl es uti 1 i te seacoast tankers 

to haul sane petroleum products to the East Coast. Seacoast tankers 

also operate along the Jest Coast. In only a few isolated spots in northern 

blifornia and Nevada ars retailers more than 150 air miles from a pipeline terminal or refinery. 

The pipeline system in the U.S. is shown on the accompanying map (Figure A). Large pipelines run from the refineries in the Texas-Louisiana area to 

the Northeast. Other major routes run from the refineries on the East 

Corst, the Chqcago &ma and the California Coast. 

The pipelina company takes delivery at the refinery, tests for specjflcations and then at the destination pipeline terminal maintains storage and 

load-out facilities, with facilities for injecting any required additives 

as the trucks arc being loaded. 

Another dl stri bution arrangement utll izes ref1 nery exchanges whereby one 

supplier buys a base gas01 ine at a competftor's refinery but its own 

specific additives are injected during truck loading, much as is done at 

the pipel i ne term1 nal . These exchanges faci 1 I tate the di stri bution of 

gasol lne which meets brand specification, and result in lower overall transportation costs for the consumer. Presumably this same type of arrangement could be mnde for gasohol distribution. 
Refinery 

A Terminal 

, Pi pel ine Locations 

Figure A. U.S. refineries, pipelines and terminals 

Fource: Compiled from Petroleum Pipelines in.the United States and Canada. Petroleum Publishing Cn 

1976. 
Toxici t.v hazards for ethanol and gas01 i ne 

Exposure Ethanol Gasol i ne' 

Acute 1 ocal 

Irri tant 

Ingestion 

Inhalation 

Inhalati'on 

Skin absorption 

Chronic local 

Irritant 

Inhalation 

ChronPc systemic 

1.nsest.i on 

~nhalation 

Skin absorption 

- - 

- no information given. 

0 = no ham or harmful in overwhelming doses. 

1 - sl ight, causes readily reversible changes which disappear' after 

exposure. 

2 - moderate,, hay involve both reversible and irreversible changes, but 

not severe enough to cause death or pennanent injury 

3 = high, may cause death or pennanent injury after short exposure to 

small quantities. 

u. = unknown: no information on humans considered valid by authors 

Source: Sax, N'. Irving, Dangerous Properties of Industrial MateriaJ s 

4thf edition, 1,975. 
Crude oil prices 

Domestic crude oil prices (average of 8 areas) increased more or less 

steadily from $2.765 per barrel in 1955 to $3.388 per barrel in 1972. 

After the oil embargo of 1973-74, the crude prices increased rapidly 

to $8.130 per barrel in 1976 (Table A). 

In accordance with the provisions of the Energy Conservation and Production 

Act, the ceiling prices of crude. oil at the wellhead varies. As of July 1977, there were five crude oi 1 prices: lower tier, upper tier, actual 

stripper, Alaskan North Slope, and Naval Petroleum Reserves (Table B). 

The actual domestic average price of crude oil--the average price at which 

a1 1 domestic crude oil Is purchased--had increased from an average of $6.87 

per barrel In 1974 to 50.72 in November 1977. 

The price paid by refiners for domestfc crude petroleum includes transportation costs from the well head to the refinery. The refiner acquisition 

cost of imported crude petroleum is the average landed cost of imported crude petroleum to the refiner and re~resents the amount which may be 

passed to the consumer. It incorporates transportation costs and fees 

(including the supplemental import fees) and any other costs incurred in 

purchasing and shipping crude oil to the U.S. The domestic imported and 

composite averages are tabu1 ated be1 ow. 

- Year Domes tic Im orted Composite ........................ (s,B* -----,-... CC 

All the averages Increased during the 1974-77 period- There was, however, 

a slight drop in imported crude price in the early months of 1976 (Table 6). 
Table A. Historical crude oil and gasoline prices, 1965-76 

Year 

Crude oi 1 

8 area average 

Source: National Petroleum News Factbook Issue, McGraw-Hi 1 1 , New York , 1977. 
Table 0. Domestic crude petroleum prices at the wellhead. 

~ ----- 

A1 askan Naval ~ctuaj Imputed 

Lower Upper Actua 1 north petroleum domestic domestic 

Year ~onth ti erl/ tier stri pperl/ s 1 op& reserve& averagd average ... .- . .. ............................. (dollars per barrel) -------r----------------------- 

1974 Ave. 5.03 10.13 6.87 6.87 

1975 January 5.05 11.28 7.61 

February 5.03 11.39 7.47 

March 5.03 11.47 7.57 

Apri 1 5.03 11.64 7-55 

5.03 11.69 7.52 

June 5.03 11.73 7.49 

July 5.03 12.30 7.75 

August 6.03 12.38 7.73 

September 5.04 12.46 7.75 

October 5.03 12.73 7.83 

November 5.03 12.89 7.80 

December 5.03 12.95 7 t 93 

Ave. 5.03 12.03 7.67 7.67 

1976 January 5.02 12.99 8.63 8.63 

February 5.05 11.47 7.87 7;87 

March 5.07 11.39 7.79 7.79 

Apri 1 5.07. 11.52 7.86 7.86 

MY 5.13 11.55- 7.89 7.89 

June 5.15 11.60 7.99 7.99 

July 5.19 11.59 8.04 8.04 

August 5.18 11.62 8.03 8.; 03 

September 5.17 11.65 13.21 8.39 8.19 

October 5.15 11.62 13.35 8.46 8.23 

November 5.17 41.62 13-31 8.62 8.40 

December 5.17 11.64 13.30 8.62 8.40 

1977 January 

February 

March 

Apri I 

bY 

June 

July 

August 

September 

October . November 

~ecembery 

. .,. 

stripper oil was exanpt from price controls beginning September 1, 1976. F~A February through August 

: 1976- stripper oi i was subject to upper tier price cel ling$. 

a ~lqskan North Slope (ANS) crude oil prices are treated as Upper Tier for determining the applicablewellhead ceiling prices. ANS is included in both the Actual Domestic Average and the Imputed Domestic 

.. Averaqe price determinations 

The Naval Petroleum Reserves (NPR) are exempt from pricing regulations but have been reported here as 

Upper Tier prior to July 1977. NPR is included in the Actual Domestic Average price determination, but 

not in the Imputed Domestic Average. 

The actual domestic average price represents the average price at .which a1 1 domestic crude oi 1 is purchased. The imputed domestic average price is the average price used to establish ceiling prices for 

domestic crude oil in accordance with the provisions of the Energy Conservation and Production Act. It 

is calculated as the weighted average of lower tir, upper tir, and an imputed stripper crude oil price. 

The imputed stripper crude oil price is equal to $11.63 per barrel plus the difference between the composite price of crude oil in August 1976 (excluding stripper oil) and the composite price of crude oil 

in the month of measurement (excluding stripper oil ). 

Preliminary data based on early reports. 

Source: U.S. Department of Energy, Energy. Infolmation ~dministration, Month1 Y Enerqv Review, .July 1977 

and March 1978. 
Raw mterlal prices, selected markets and grades 

12 Ye1 l'ar Corn 13 Ye1 low Corn I2 Yellaw Sorghur 12 Winter Wheat Potatoes Beet Molasses 

Season ava. 

price melvd 

- 

price 

Minnea- byfarrcrs rue1 ved 

Cm ma Chlua Ks City haha Chicago polls Ks Clty Ft Worth Ks Clty Chicago St Louis llcw rork by famrs ~olorada 

----------------- [$/bu)----------------- -----[$/cwt)----- ----------[$/b)---------- -----(WT)---- ------(#/at)----- ---($/I) ----- 

Average 

(In 1977 

Qllrrs) 2.46 2.48 2.45 2.38 2.33 4.11 4.62 3.35 3.08 3.03 25.72 6.22 4.13 61.34 - 

1 Crop year beglns October for corn, sorghm, sugarbeets and potatoes, June for wheat, January for molasses. 4 Per ton (2,000 lbs) prices are based 01 171 U.S. gallons. Prlces represent sales f.0.b. terminal to the general feed trade and do lwt include 

sales made under various special prlclng arrangements. Colorado, Wplng and Montana prior to 1974. Source: USM, Sugar md Smetntr Report 

various Issues. 

3 Grain prlces fran USDA, Grain Market News, July, Nov., 1977. 1/ J hverage p r l c o I n terms -6ased on prices slum and 6NP Iapliclt price deflator (1977=100). 

Souroc: Agrlcul tural Statlstlcs, US!,tfashlngton, 1976. 
Average price per ton, bulk, In wholesale lots, at leadlng markets, 

1962-76 

Soybean Distillers' Beet pul p 

mea 1 dried grains (molasses 1 

Year 44% 

beg1 nni ng rotei in at at 

October- Decatlir Cincinnatl Los Angeles 

1962 

1963 

1964 

1965 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 

1974 

1975 

1976 

1977 

AV~Y~~Y 

(in 1977 

do1 1 ars ) 

N.A. 

N.A. . 

N.A. 

50.40 

54.90 

N.A. 

N.A. 

N.A. 

106.00 

107.00 

106.00 

I/ ~djustment to 1977 dollars based on GNP implicit price deflator 

(1977=100) 

Source: Agricultural Statistics, USDA, Washington, D.C.: U.S. Government 

'Printing Office, 1964 through 1977 

Feed Si tuatl on, USDA, Economic Research Service, 1964 through 1977. 
CORN 

INSPECTEO RECE:PTS. OES:GYATEO STATES. 

2 MONTHS FOLlOWlhC HARVESTv 1976 CROP 

ALL INSPECT IONS 

STAT SPECIAL GRAOES AN0 CLASSES tS 

YLEVI LY MLLOY YHI te MIXED 

NUMBER NUMBER NUMeLR NUnlER 

NO. 3 

nuneEa 

1144 

6360 

2560 

9592 

3 20 

NO. 4 

FreER 

no. 5 

wnoEn 

TOTAL 

NUN0 ER 

NO. 1 

MIMBER 

a0 

608 

544 

3016 

44 

440 

16 

120 

152 

NO. 2. 

NUMB ER 

lob* 

b09b 

3960 

14'3 0% 

53 b 

104,3 

701 

51 5.1 

1040 

3504 

4003 

264 B 

2320 

11 8i 

592 0 

15Jb 

ssalb 

34.4 

37.9 

23. (1 

OHIO 

mmsnvm1A 

sourH CAROLINA 

TENNESS EE 

ALL STATES 

t 1914 CROP' YEAR 
C411 CORNllr 

CclORAW 

1 OAHO 

1lLtNOI~ 

KANSAS 

7' MISSOUR1 

-I ru MONT AN1 

NEIRASKA 

ORLAHOMA 

CPEGOY 

1E XAS 

UTAH 

YASMINCTON 

ALL STATES 

t 1976 CROP IEBR 

t 1975 CROP YEAR 

t 1974 CROP YEAR 

,HbRO RE0 WINTER .WHEAT 

.INSPECTED REC.EIPlS, OES ICNATEO SIATESI 

2 nmTns FOLLOWI.NC HARVEST, 1976 CROP 

'All INSPECT IOJS 

NO* I NO. 2 NO. 3 SLMPL~ 

HEAVY NO. L HEAVV NO. 2 nrrvr NO. 3 NO. 4 NO. 5 GRAOE roru 

NUMBER WHBER NUMBER NUMBER HUROm MJMBER NUMBER MHBER NUMBER NUMBER 

4 34 3 231 52 104 71 3 2 6 10032 

1014 1944 1104 ZOO0 336 728 248 112 272 1816 

I I4 3 2 8 0 48 24 0 0 0 0 408 

90 72 0 0 0 '0 0 0 0 I20 

6096 16344 3064 17968 320 40 976 4 944 51464 

l 1016 400 I256 24 208 64 32 112 4880 

2296 728 96 13b 2 I 4 8 24 8 16 3881 

1391 2600 1080 4Wl LO4 904 120 48 105 10776 

srss 9592 1200 3256 ZOO 1480 so4 MO 352 2'1040 

280 4 0 4 0 6 4 0 4 0 0 0 16 536 

40% ,2912 728 17b8 104 424 176 120 96 10488 

7bO 1400 320 13%4 72 400 240 104 101 4744 

13-W 328 40 216 0 32 2 4 5 128 2544 

13080 18192 8000 34336 1940 34 2456 1656 2160 132724 

23 29.4 6.7 23 t.1 6.4 1.9 1 1.f 100.0 

20.4 39.6 4.7 19.7 8.b 4.0 1.3 0.7 o,a 100.0 

261) II.8 1207 29.7 1.5 1.1 2.0 0.9 1.0 100.0 

SPEC I A;L GRIOE'S 

YtEV- CARTWCM ILY LtCKY 

!MJflBER NUMBER NUMBER 

40 0 0 

'200 l l 

a o o 

I6 0 0 

11128 144 0 

'0 AR I( YELLW 

'HARD HlRO HA40 

YINlER MINTER MlNTER 

NUMBER NUM8ER NUMBER 
SORCMUM 

INS PECTEO RECEI PIS* OES ICNATEO STATES* 

2 MONTHS FOLlOYINC HIRVESTr 1976 CROP 

AIL INSPECT 103s 

U. So CRAOC SPECIAL CRAOES AN0 CLASSES 

SAPPLE WEEY. 

NO. 1 NO. 2 NO. 3 NO. 4 GRIOE TOT A1 ILY YELLOW UHl TE OTHER 

NUMBER NUMBER . NUMBER NUMBER MJW~EA: r~rn n ER MINBER NUMB.ER NUMBER NUM8ER 

All STATES 3020 19650 8790 4755 1080 545 30 8s 54430 0 100 

8 1976 CROP YEAR 10.0 51.6 23.1 12.5 2 -0 100.0 0.2 99.0 0.0 0.2 

X 1975 CROP YEAR 9.5 5503 21.7 10.6 2 09 100.0 0 04 99.9 0.0 0.1 

t 1974 CROP VEAR 2-6 30.3 26.7 21 00 13.1 100.0 1.4 100.0 0.0 0 00 

Source: USDA, Federal Grain Inspection Service, 1976 Crop Qua1 i ty Report, 1977. 
Estimated Investment. for grain ethanol plants 

HiMt 11 Stone & 2/ Sc he1 1 er Miller Indiana 

Unl t Sol vent- Webs ter- - 3/ - 4/ - 5/ 

Year Basis Year 76-77' Ave 1976 1976 1971 1980 

Annual Produc tl on mi.1 gal 15 

Land $1 ,om M4 

Plant 

P 

" P TOTAL 

1 Cray Jr., Cloud L. , Midwest Solvents Corpol-ation, Gasohol Seminar, Rio De Janerio, Brazi 1 , September 1977. r' Stone and Webster Engineerfng Corporation, "Prel iminary Economic Evaluation of Nebraska Grain Alcohol Plant ," 

Agricultural Products Industrial Uti l 1 ration Comnl t tee, State of Nebraska, December 1976. 

Scheller, William A. and Brian J. Mohr, "Grain Alcohol-Process, Price and Economic Information," Department 

of Chemical Engineering, University of kbraska, 5eptember 1976. 

- 41 Miller, Dwight L., "Fuel Alcohol from Wheat," Proceedinqs of 7th National Conference on Wheat Utll ization 

Research, USDA, ARS, November 1971. 

Corcoran, W. P. and A, T. Brackett, Indlana Grain Fermentation Alcohol Plant, Indianapolis Center for Advanced 

Research, F.,Lindrey, 1976. 

Based on 190 ethaml. All other estimates based on 2000 ethanol. 
Ethanol plant employment. direct labor 

10 mllllon gallon 20 mllllon qallon 40 mJlllon gallon Rmber Hourly llumber tburl Y lIumber Hourly Etem employees rate Total employees rate Total qloyees rate Total 

1st shlft 18 7.00 

($1 1 

26 2 2 1 7.00 306 30 7.00 437 

2nd shlft 10 7.50 156 13 7.50 203 20 7.50 312 

3rd shlft 10 7.50 .I56 13 7.50 203 20 7.50 312 

4th shlft - 10 7.50 - 156 - 13 7.50 203 - 20 7.50 312 

Subtotal 48 730 60 915 90 1,373 

7 Fringe benefl ts (251) d - 183 229 343 

C" TOTAL 91 3 1.144 1.716 

Cost per gallon .091 .057 .043 

Source : DPRA es t lmate 
Ethanol plant employment, indirect labor 

10 mllllon gallon 20 million qallon 40 million gallon 

&mber Hourly Number burly Number Hour 1 y 

I ta employees rate Total employees rate Total employees rate Total 

($1 ( sooo) (5 1 ( $000 l (5 1 ($OW 

Guards 

Maintenance, 

Plant manager 

Assistant plant manager 

Shi f t supervl sors 

Chemists 

Technicians 

Shipper 

Purchasing 

Plant engineer 

Clerks 

Subtotal 

Fringe benefits (25%) 

TOTAL 

.Cost per gal lo,n 

Source: DPRA es tlmate 
Ethanol plant eaployment, administrative personnel 

10 mlllion gallon 20 milllon qallon 40 million gallon 

Number Hourly Number Hourly Number 

I tea burly employees rate To ta 1 employees rate Total employees, rate Total 

($1 (500')) (5) ( 50001 (S 1 (f0mJGeneral manager 

Comptroller 

Secretaries 

Clerks 

Subtotal 

P A Fringe q Total 

Cost per gallon 

Source: DPRA. estimate 
Plant employnent , marketing !~ersonnel 

10 million qallan 21) milllon gallon 40 million qallon 

Number Hour1 Y Number Hourly Number Hourly I tem &pl oyees rate Total employees rate Total employees rate Total 

($1 (low (5) ( So001 ($1 C SOm 

Sales manager 1 25 25 1 30 30 1 40 40 

Sales representa tl ves 2 2 0 40 4 20 80 6 20 120 

Secretaries 2 8 16 c' 8 16 3 8 24 

Clerks - 1 8 - 8 - 2' 8 - 16 - 3 8 24 

Subtotal - 

6 89 9 142 13 2013 

? Fringe benefits c25 pct), 22 36 52 Total 111 178 d 

- 

w 260 

Cost per gallon .011 .009' .006 

Source: DPRA estlmate 
Comparable ethanol direct operating costs as reported 

Hi dues t Stone Ih 

I tern Units solvent - 1/ Webs ter 2/ - Schel 1 er - 31 Mfller - 4/ Indiana - 5/ 

Oa te 1976-77 average 1976 1977 1971 1976 

Annual production mil gal 15 2 0 20 16.3 20 6/ - 

Labor $ .060 .I38 N A , .I34 . .046 

Fuel 3 

Other direct 

rD 3 

Total direct $ .315 .288 .300 .I56 .262 

1' Cray, Cloud L. Jr. flidwest Solvents Corporation. Gasohol Seminar, Rio de Janerio. Brazil, September 1977. 

7 1 

- Stone and Webster Engineering Corporation. "Prel iminary Economic Evaluation of Nebraska Grain Alcohol Plant ," Agricultural - Products Industrial Utilization Committee, State of Nebraska. December 1976. 

Scheller, Will lam A. and Brian J. Flohr. r rain ~lcohol--process ,' price and Economic Informatio~," Department 

of Chemical Engineering , Uni vessi ty of Nebraska,, Lincoln', revised September 1976. 

Mil 1 er, Dwight L. "Fuel Alcohol from Wheat ,I1 Proceedings of Seventh National Conference on Wheat Oti 1 lzation 

Research, USDA, ARS, 1971. 

c 1 

Corcoran, W. P., A. T. Bsackett andF. Lindsey. Indiana Grain Fermentation Alcohol Plant, Indianapolis Center 

for Advanced Research. 1976. 

Reported in 190 proof gallons. 
Elements of capital recovery cost 

Conventional financing 1 Government financinq- Ll 

- I tm 20 MGY 100 MGY 20 MGY 100 MGY 

Debt service .02 .01 .09 .07 

Equity return .23 .16 .07 .04 

Income taxes - .13 - .09 - .03 - .02 

Total .38 .26 .19 .13 

lJ 10 percent interest, 30 percent leverage and 15 percent cost of equity. 

2J 7 percent interest, 90 percent leverage and 10 percent cost of equity., 

Source : DPRA estimate 

A- 'LO' 
Estimated cost of Federal incentives used to stimulate energy productlon, 1918 to date 

Tradi tio~al Nontradi tional Market 

Energy forn Taxation Disbursement Requirements services services activity Total Percent 

(iBils 19763) 

Nuclear 1.2 

Hydroelectric 1.7-0 

Coa 1 3.0 

- Oil P 40.5 30.3 

Gas 11.3 3.5 

Tota 1 56.5-54.8 35.0 

Percent '4 4 27 

Source: Battel le-Paci fic Northwest Laboratories, An Analysis of Federal Incentives Used to Stimulate Enerw Praduction, U.S. Deoartment of Energy, March 1978. 
Cost of prlmry oil Incentlvts by type for 1976 

Dlsbursp Requl re- Tradl tlonal Nontradl tlon~l ktktt 

Incentlverrea Taxation. men t ments scrvices strvlces rctlvlty Total 

[mil. I) -. Research 6 developsent 

Subtotal b 5 b 5. 

011 exploratlon and 

production . 

Geological Sumydata 

Bureau of land 

mnagernentleasing 

Bureau of mlnesdata 

Stripper we1 1 

price incentl.vts 

Incentives for 

new oil 

Federal Energy 

Adrninlstratla 

Intagi ble drll8lng 

expensing 842 

Percentage depltlon 

a1 lowance 533 

Subtotal m7'5 

Petroleum refining 6 

transportation 

High yield. on 

p.1 pe 1 lnes 

Maintenance of 

ports 6 waterways 

Subs Idles for 

tankers 

Subtotal b 8 r% 

Total Km 9.206 130 2-s K. 38 miiR - 

lJ FYI975 - 

Source: Bate1 le- Caclf lc Northwest L'aboralorOes, =. G. 
Cost of prlmary oil energy Incentives by type over time 

Disburse- Require- Tradi tional Nontradi - Market 

I ncen t i ve area ~axa't ion men t ments services tional services act1 vi ty Total Period 

(mil 1976 $1 

Research L development - - 

Subtotal 0 0 

011 exploration L production 

Geological survey-data 

Bureau of land management-leasing 

Bureau of mines-data 

Stripper well price 

i ncen ti ves 8,280 

7 Incentives for new oil 16,200 N 

w Federal Energy Administration 30 5 

Intangible dri 1 Fing 

expensing 11,152 

Percentaqe depletion 

allowance . 29,306 - Subtotal 40,458 24,480 30 5 

Petroleum refining b 

transportation 

High yield on pipelines 4,882 4,882 1921-51 

Maintenawe of ports 

and waterways 4,736 4,736 1962-76 

Subsidies for tankers 949 - 949 1970-76 

Subtotal I1 5.831 -IT 4735 0 0 10.567 

Total 40,458 30;311 305 4.736 1,045 21 7 77 ;072 -- - 

Source: Battel le-Paci fic Northwest Laboratories, 9. m. 
Area harvested, yi,el d , and production : 

corn, wheat, grain sorghum, sugar beets, potatoes; states; 1975-1977 

ALA 

An12 

Aau 

CALIF 

COLO 

COW 

OtL 

ILA 

OA 

I obnl 

ILL 

I WD 

IOWA 

SANS 

av 

LA 

MAlNC 

UD 

MASS 

rlcm 

UlNU 

MISS 

MO 

MONt 

NtOa 

ME v 

N n 

MJ 

n WCR 

n tr 

r( c 

N DAI 

OYIQ 

UULA 

ORLG 

PA 

@I 0 

bb? 

ARIUU CROP SIPWRY, JANUARI 1978 
STATL I AQCA HARVESTED I YIELD I PAOOUCTrON 

I 197s I 197b I 1977 I 1975 I 1976 8 1977 I 1975 I 1976 1 1977 

I 11000 ACRES BUS~ELS lr0oo BuSMELS 

AL A 

ARIZ 

ARK 

CALI? 

COLO 

OEL 

f LA 

G A 

I oAno 

1 LL 

I NO 

I our . KANS 

K Y 

LA 

no 

nlcn 

MINN 

HISS 

no 

WOYt 

NEBR 

NtV 

N J 

N HEX 

MI 

N C 

N OAK 

onro 

OKLA 

OREG 

PA 

s c 

s OAK 

TCNN 

tcx 

utrn 

V A 

WASH 

u VA 

UIS 

WVO 

U S 

ANNW CROP SWARY, JANUARY 1978 
I 

ALA I 3 3 3 1 27 37.0 35.0 27.0 1.221 lt085 729 

1 120 9 1 90 68.0 73.0 80.0 81160 6 t643 71200 

ARU I 200 31 0 252 49.0 50.0 52.0 9.800 15~500 13rlOk 

CALIF I 207 21 0 132 72.0 71.0 73.0 14r906 16~910 9.636 

COLO I 290 259 273 2610 28.0 31.0 7 r 540 7.252 arb63 

G A I L 7 45 2L 40.0 43.0 28.0 1~880 1 r 935 672 

ILL I 6 0 67 66 68.0 59.0 64.0 CtU80 39953 6,096 

1 NO 8 18 21 IS 64.0 67.0 78.0 1,152 1 *607 1.170 

IOWA I 26 26 32 62.0 65.0 76.0 19612 1 t690 2r368 

ebNJ 1 3.130 3.950 1.050 42.0 43.0 60.0 lC4.060 lb9.eSO ?43.000 

UY 1 2 1 29 32 65.0 60.0 57.0 1 D 365 1~740 1.826 

LA t 19 28 20 32.0 35.0 33.0 608 980 660 

MISS I 38 4 I 21 35.0 37.0 32.0 1,330 1 ,517 768 

NO 8 530 660 840 53.0 60.0 73.0 28~090 391600 611320 

NEW I 1t9OO 21100 2~130 55.0 57.0 71.0 10b~S00 1191700 1511230 

N HEX I 310 199 238 50.0 60.0 48.0 15~500 111940 . llr424 

N C I U S 9 0 72 51.0 51.0 37.0 4t335 bt590 2 1664 

OKLA I 520 565 565 38.0 30.0 38.0 19~760 16.950 21,470 

S C I 17 15 12 35.0 34.0 16.0 595 5 10 192 

S OAR 8 24 7 152 343 26.0 23.0 49.0 6.422 39496 lbr807 

TENN I 26 23 20 48.0 52.0 51.0 1 t 248 1.196 1 r 020 

TCX I 7rZOO 5r8OO Lr800 52.0 50.5 68.0 374r400 2921900 2301400 

V A I 1 I 11 10 . 44.0 63.0 43.0 484 673 430 

.US 1 1Sr355 16,723 14rObS 69.0 68.9 56.2 753rObb 7191817 790r647 

ANNUAL CROP SmmY. JAN WRY 
srrrt r ACCA MA~VE~~O I TICLO I PRO?UCTYON 

1975 1 1976 I 1977 I 197s 1 1976 I 1977 I 1975 : 19761 1977 

8 lrOOO ACMES TONS 1rOOO TONS 

t 

AQlZ 118 17.0 

CALIF 111 326.3 

COLO I 156.9 

KOAMO 1 158.3 

NANS t b3rO 

MAINE ill 

MIC~ I 91 04 

MINN t 196.0 

WONT I 68.5 

NEVR I 96.0 

N *EX I a9 

N3AU I 130.9 

OHIO r 39.2 

OREG I 17.9 

TEX I 33.7 

U~AU I 22.5 

*ASH I uz.4 

1/ ~LLATES TO rCAk 0: n4QvEsT. 

2/ ESTIMATES NOT MADE IN ALL YEARS. 

ANNUAL CROP SLWARY. JANWRY 1978 
- - - 

STrTC t A~CA ctrwv~~~~p I v I CLD I PPOOUCTION 

I 1975 I 1976 I 1977 I 1975 I 1976 I 1977 I 1975 I 1976 I 1977 

I 1.000 ~C~CS cr 1 lr000 C-1 

I 

AL A 8 19.6 19.7 18.0 139 142 112 2.728 2.799 2sOIO 

AR~Z I 6.2 6.8 6.5 265 270 270 1.519 1.836 1 0755 

CALIF I 59.9 66.0 60.7 351 364 361 ~1.015 24.066 21*89O 

COLU 1 39.7 63.8 43.6 264 257 260 101405 11~245 11.281 

CONN I 2.6 1.9 1.9 2 30 260 245 552 • 96 466 

DLL 8 6.0 5.4 5.3 175 200 210 l*USO 1.160 1,113 

?LA t 21 .S 3I.O 30.1 104 203 206 5 1364 6.293 be207 

lurmo I 322.0 363.0 360.0 266 246 265 70r475 88.455 89*200 

ILL I 2.8 2.8 2.3 190 190 200 532 5 32 660 

IN0 t 7.7 8- 1 6.8 227 237 220 1 176b 1.910 1.696 

10.4 I 2.7 2.5 2.1 200 105 225 540 463 473 

LA I 2.6 ?*6 2.3 7 0 76 7 6 182 195 173 

*AlNC I 122.0 112.0 118.0 220 265 240 26.860 2~~640 20r320 

MO I 1 .0 1.8 1.6 170 170 150 3 06 306 240 

MASS I 3.9 3.5 3.7 205 220 260 800 770 888 

MlCd I 36.6 61.6 398 222 231 257 8.076 9.622 lob243 *INN I bS.1 75.0 79.5 181 176 189 11,796 131055 15.023 mrss I 1 .s 1 .L 1.3 90 95 90 13s 133 11 7 

WONT I 706 8.6 8.6 230 215 260 1. 768 1 *806 29016 

NCUR I 705 1.1 8.1 217 229 209 1 *bZS 1 r62b 1.695 

Ni V I 1205 16.0 15.0 330 380 350 *el25 5,320 5r250 

N M I • * m3 230 260 235 * 106 

92 It976 

7 1 

N J 8 7.0 7.6 0.1 195 260 265 b r 365 2 I 1 b7 

U WtX t 3.5 3.2 2.C 200 180 190 700 576 551 

N Y I 67.3 68.0 63.6 257 277 278 12.178 13,510 12.082 N C 8 16.0 17.0 17.6 149 1 60 156 2 e 380 2 * 385 21711 

N OAI 1 110.0 121.0 130.0 160 160 160 17*600 lbt9bO 20,800 

OW10 I 13.5 13.6 13.0 22 1 11 9 237 2,985 31332 3*Uhb 

ORCG I 55.5 65.6 50.6 46 0 46 1 641 26.608 28,913 25~776 

I 

I 

29.0 28.0 25.5 235 255 250 6,815 7,160 6,315 

R r 1.2 L.Z 4. 1 23s 250 230 961 1 voso 9~3 

S DAU I 5.2 4.6 5.9 11s 6 5 180 598 2116 1*062 

TCNk I S-0 6.7 6.5 85 PI 90 425 467 605 

1LX I 16.1 16.7 15.0 211 207 223 2.975 3,153 3 ,339 

UTIW 8 5.6 5.2 5.6 260 260 260 1 ,508 1 *268 1 -206 

Vl I l .D 1-1 la0 2 36 206 Z35 235 ZZC 235 

VA I 25.0 28.5 27.7 96 123 125 2*1.00 3*5Ob 3.463 

~4lM I 105.0 124.0 107.0 460 150 455 689300 55*800 48.685 # VA I 2.8 2.6 2.6 72 76 66 202 198 156 

MIS I 6q.q 53.0 66.6 300 PO0 3PS 16~830 15r373 t8r038 

uvo I 6*@ 6.3 64 7 240 270 220 Irb3Z lt7Ol 1 .67c 

U s I It26r-0 113lb.5 1*3L9.0 255 2b0 261 322r256 357.676 352~010 

ANNW cw SWY. JANWV ,978 
Appendix VIII-2 

Computed high protein grain consuming animal units 

STATE 

HA1NF .......... 1 

NE# HAIPSwINE .. 1 

Vthrl0hT ........ 1 

YaSSACru$ETI.?. . 8 

QH11uE 1Sl .r.0 ... 8 

Cvh;dEC 1 lCUf .... r 

NF* ~091 ....... 1 hFb1 JEi.'jF.V.. ... 1 

Pt.l..StI . Vh..fA ... t 

DFL&*AdE ....... 1 

HAf+VLfi"O ....... 1 

*ICM1G4'< ...*... 1 

WlSClJf .. SIN...... 1 

Ulf4kFSI'14 ...... 1 

0410 ........... 1 

ltil!lAh4 ........ t 

ILLI*IUIS ....... r 

1'l*b ........... 1 

MJSSOlJul e.. t 7 *10'?1'* D4RUTA.. .. rU scbl~rv ~>afiorh ... I 

a ~L~tAS*~ ....... I 

%4.JSA5. ........ 1 

vlw~In~l~ ....... 1 

*ESl vlhtilfdlb .. 1 

NC'QlU CAkkll.(lJA,: 

r(tFI1 lIL4 i ....... 1 

1~1lhfli9~k ...... 9 

SlllJlW C~.hbt.lsA.; 

GFOQSI*. ....... 8 

FLU# f')J ........ 8 

ALAJ3t'h ........ I 

~ISSIS~l~~~~ .... I 

ARSZ'@S\S ....... 8 

LuI~ISlh.14 ...... 1 

0r(LA~tl4A ....... 1 

TEkAQ .......... 1 

"OQrAhA ...... 0.1 

13AAf'. .......... 1 

*f31r. . .G ........ : 

C~ILCYAOU ........ I 

NEJ MEXICu ..... l 

rqtzo?.~ ......... t 

U1Ad o.... 1 

YEVbi)P. ........ 1 

WAY!+ [IJG Ill.< ..me. 1 

09EGOk ......... 1 

CALIFUYnl4 ..... 1 

=..IJ. !i . 111TAC.. 

COMPUTED HI(;H PHCIlEIN GHdlN CONSUMI~G AIdTflbL UNITS (HIIX Cna BASF) 

1tN VFAR PC:RIbD 

1967 1968 19h9 1070 1971 1972 1073 1974 1975 1076 

120n.997 

t 27 . ne~ 

?OR. 134 

223.137 

22.47d 

29H.376 

l73n . 14s 

7ek.757 

2~~61.11~ 

9b4.3b9 

153R.393 

lSl?5.072 

3Q71.344 

55QA.RZR 

2hUh.bSZ 

3642.568 

ulas.Po5 

(r~n7 .i 13 

34U7.33" 

7u4.553 

27e4.006 

307a.i 75 

251R.51h 

1500.n23 

372.C42 

crfs2.aeo 

1170. ShlJ 

17~7.007 

l r1.39.420 

4705. 007 

iPsn.?eS 

3~vn.73~ 

23bn.079 

ue71 . 957 

AII.837 

I?RQ.~O~ 

4667.652 

53U.l I1 

ll33.bbd 

7211.159 

1~An.3cn 

477.01b 

51?. 7Ul 

577. 144 

13i?.'Jlh 

703.058 

090. QbCr 

5610. Ubl 

Qb719.hb7 
Gasoline consumption by major end-use category in 1975 

Mill ions Percent of 

of qallons - 11 t o t a 1 

Private and comnercial use 100,221 96.8 

HI g hway 97,470 94.2 

Non h i g hway 2,751 2.7 

Agricultural use 1,565 1.5 

Marl ne 730 0.7 

Industrlal and comnerclal . 179 0.2 

Other 278 0.3 

Pub1 ic use 2,364 2.3 

Federal (highway civi 1 ian use only) 195 0.2 

State, county, and municipal 2,169 2.1 

Losses (evaporation, hand1 i ng , etc . ) 922 0.9 

Total Consumption 2J 103,507 100.0 

42 gallons eonrti tute 1 barrel. 

1/ Figures may not add exactly due to rounding. 

Source: Energy Information Center, Federal Energy Admi ni strati on Month1 r 

Uerav Review, July 1977. 
Gasoline consumption by type of vehicle in the U.S. in 1975 

Passenger vehicles 

Buses 

Cars and Comner- A1 1 Total Trucks and All motor 

motorcycles cia1 School buses passenger combinations vehicles 

Fuel consumed (mi 1 1 Ion gal . ) 

Avg. per vehicle (gal.) 

Avg. miles per gal. 

Vehicles registered (thousands) 

P Avg. miles traveled 

2 Vehicle .miles traveled (a11 11 ions) : 

Main rural roads 

Local rural roads 

Urban streets 

Total travel 1975 1,050,472 2,648 2,500 5,148 H ,055,620 274,454 1,330,074 

1974 1,013,068 2,610 2,450 5,060 1,018,128 267,519 1,285,647 j 

i 

Source : Natibonal Petroleum News FActbook Issue, PilcGraw-Hi 11 , New York , 1977. 
Projections by comnodity for selected years 1985 and 2010 under 

- 

1985 tolo 41 

Million Perceni Perccnr 

bTrpdit~ Unl ts 72-74 Hodcrate Hlgh Change lbdcrstt Hish Chafl~e 

Crop Wheat bu. 1.681 1 2,206 25 2,109 2,637 ZS 

bu. 24.9 40 3 51.4 52.7 3 

Rice cwt. 88 118 125 41 6 159 168 6 

Corn for grain bu. 5,290 6,618 7,783 18 9,271 10.933 18 

Sllbgr tDM 140 1/ 146 153 5 174 182 5 

Grain Sorghum bu. 789 1,132 1,305 15 1,664 1.018 15 

OJU kr. 660 885 937 6 1,106 1.171 5 

Brrlmy bu. 384 550 58 1 6 699 7 33 6 

lrutts and Nuts I bs. 48,413 I 48.795 21 50.554 4 50.603 60.716 4 

Ve~eublas cut. 49.457 56,745 55,924 4 70,416 73.129 a 

MY tont 130 140 148 6 173 183 6 

Soybeans bu. 1,350 1.835 2,129 16 3,071 3.563 16 

f laxsad bu. 14.4 28.0 28 0 23.9 23.9 0 

Peanuts lbs. 3.476 4.813 4.996 4 6.998 7,264 4 

Cotton bales 12.7 10.7 10.7 0 4/ 10.8 10.8 0 

Sugarcane tons 16.9 19.7 20.1 26.5 27.8 5 

Sugbrkets toru 25.1 33.6 35.2 : p 43.2 45.3 5 

Tobacco Ibs. 1,828 2.140 2.120 -1 2,348 2,326 -1 

Irlsh 1 Sweat Potatoes cut. 324.8 367.9 38 1 4 446.1 462 a 

Dry leans L Peas lbs. 2,167 2,234 2,259 1 2.245 2,270 1 

Livestock 

braf and Veal Ibs. 22,669 30.051 32.419 8 39,563 42,620 8 

Pork lbs. 13.304 15,745 16.352 4 1B,979 20.7r9 1 

Lamb and Mutton lbr. 509 195 209 7 202 t16 7 

Chlckrnr lbs. 9,028 11,973 12,552 5 16,136 16.916 5 

Turkga lbs. 2,569 2.639 2,777 5 3.727 3.922 5 

%I: dor. 5,610 6.353 6,386 1 7,349 7,387 1 

Ibs. 1,169 1,211 1,240 2 1,273 1,303 2 

tam Output Index 

1967 . 100 110 130 142 9 166 18 1 9 

1/ Production for 1971. 

Citrus and non-citrus fruits only. 

- 3/ Prallmlnary. 

Interpolated from 2020. 

Source: USDA, "Agriculture the Third Century," ERS, 1916 and OBERS, "1972 OBERS 

Projections Supplement," U.S. Water Resources Counci 1, 1975. 
Projected yields for selected crops in the 17 stites. Corn Be1 t 

and High Plains 

%P bulac ioo 111 122 132 ,143 

Grain sorghum bu/ac 6 1 66 7 1: 7 5 8 0 

Wheat :- bulac 3 1 34 37 . :40 42 

Production weighted bu/ac 68.5 75.7 83.i 89.6 96.5 

Ethanol Yield 1/ 

Corn' . gallac 260 289 3 17 343 372 

Grain sorghum gal/ac 159 172 185 195 2 08 

Wheat ga.l/ac 81 88 96' 104 109 

Production weighted gal /ac .I98 197 216 .. 233 251 

1' Based on 2.5 galslbu. 

Source: DPRA, x. G. 

*u.s. GOVERNMENT PRINTING OFFICE: 1979-640-092/1001 .