APRIL 2009

The Impact of 

Ethanol Use on

Food Prices and

Greenhouse-Gas

Emissions

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

P A P E R

CBO
Pub. No. 3155
The Congress of the United States O Congressional Budget Office

A

PAPER

CBO

The Impact of Ethanol Use on 

Food Prices and 

Greenhouse-Gas Emissions

April 2009
Notes

Unless otherwise indicated, all years referred to in this report are calendar years. 

On the cover: Cornfield, copyright JupiterImages; bowl of breakfast cereal, photo by 

Scott Bauer, courtesy of the U.S. Department of Agriculture; and grocery store and traffic, 

images by Maureen Costantino. 
Preface

The production and use of ethanol in the United States have been steadily increasing 

since 2001, boosted in part by long-standing production subsidies. That growth has exerted 

upward pressure on the price of corn and, ultimately, on the retail price of food, affecting both 

individual consumers and federal expenditures on nutritional support programs. It has also 

raised questions about the environmental consequences of replacing gasoline with ethanol.

This Congressional Budget Office (CBO) analysis, which was prepared at the request of 

Representatives Ron Kind, Rosa DeLauro, and James McGovern, examines the relationship 

between increasing production of ethanol and rising prices for food. In particular, CBO estimated how much of the rise in food prices between April 2007 and April 2008 was due to an 

increase in the production of ethanol and how much that increase in prices might raise federal 

expenditures on food assistance programs. CBO also examined how much the increased use of 

ethanol might lower emissions of greenhouse gases. In keeping with CBO’s mandate to provide objective, impartial analysis, the report contains no recommendations.

The report was written by Ron Gecan and Rob Johansson of CBO’s Microeconomic Studies 

Division and Kathleen FitzGerald of CBO’s Budget Analysis Division under the guidance of 

Joseph Kile, David Moore, and Sam Papenfuss. Within CBO, Robert Dennis, Terry Dinan, 

David Hull, Robert Shackleton, Natalie Tawil, and Thomas Woodward (who has since left 

the agency) provided helpful comments, as did Joseph Cooper, Ephraim Leibtag, and Paul 

Wescott of the Department of Agriculture; Ralph Heimlich of Agricultural Conservation Economics; Tim Searchinger of Princeton University; and Michael Wang of Argonne National 

Laboratory. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)

Leah Mazade edited the study, and Sherry Snyder proofread it. Maureen Costantino designed 

the cover and, with the assistance of Allan Keaton, prepared the study for publication. Lenny 

Skutnik printed the initial copies, Linda Schimmel handled the print distribution, and 

Simone Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf 

Director 

April 2009

Contents

CBO

Summary vii

Ethanol Production in the United States 2

The Production Subsidy 2

Import Tariffs 2

Federal Mandates 3

Ethanol Production and Consumption Under Subsidies, Tariffs, and Mandates 3

Ethanol Production and Food Prices 6

The Increased Price of Corn 7

The Impact of Higher Corn Prices on the Cost of Food 8

Ethanol, Food Prices, and Federal Food Assistance 11

Supplemental Nutrition Assistance and the Federal Child Nutrition Programs 11

The Special Supplemental Assistance Program for Women, Infants, and Children 12

Ethanol Production and Greenhouse-Gas Emissions 12

Greenhouse-Gas Emissions During a Fuel’s Life Cycle 13

Changes in Land Use 14
VI THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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Tables

1. The Supply and Uses of Corn in the United States 10

2. Federal Spending for Selected Food Assistance Programs 12

3. How Land Conversion to Grow Crops for Ethanol Production May 

Delay Reductions in Greenhouse-Gas Emissions Resulting from the 

Use of Ethanol 16

Figures

1. Effect of Mandates in the Energy Independence and Security Act of 2007 on the 

Consumption of Biofuels 3

2. Components of Consumers’ Expenditures on Farm Foods, 2006 9

3. Life-Cycle Greenhouse-Gas Emissions from Selected Fuels 15

Box

1. The Economic Viability of Producing Corn Ethanol 4
CBO

Summary

The use of ethanol in gasoline has increased substantially over the past decade. Currently, most ethanol in the 

United States is produced from domestically grown corn, 

and the rapid rise in the fuel’s production and usage 

means that roughly one-quarter of all corn grown in the 

United States is now used to produce ethanol. Since 

2006, food prices have also risen more quickly than in 

earlier years, affecting federal spending for nutrition programs (such as school lunches) and the household budgets of individual consumers. The increased use of ethanol accounted for about 10 percent to 15 percent of the 

rise in food prices between April 2007 and April 2008, 

the Congressional Budget Office (CBO) estimates. In 

turn, that increase will boost federal spending for the 

Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program) and child nutrition programs by an estimated $600 million to $900 million in 

fiscal year 2009. Last year, the use of ethanol reduced 

gasoline consumption in the United States by about 

4 percent and greenhouse-gas emissions from the transportation sector by less than 1 percent.

Ethanol and Food Prices

Over the past several years, the use of ethanol as a motor 

fuel in the United States has grown at an annual average 

rate of nearly 25 percent. That growth was driven by rising prices for gasoline coupled with long-standing subsidies for producing ethanol, which encouraged makers of 

ethanol to increase production. All told, despite a slowdown in production in the last quarter of 2008 as a result 

of falling prices for gasoline, overall consumption of 

ethanol in the United States last year hit a record high, 

exceeding 9 billion gallons. 

In 2008, nearly 3 billion bushels of corn were used to 

produce ethanol in the United States. That amount constituted an increase over the previous year of almost a billion bushels. The demand for corn for ethanol production, along with other factors, exerted upward pressure on 

corn prices, which rose by more than 50 percent between 

April 2007 and April 2008. Rising demand for corn also 

increased the demand for cropland and the price of animal feed. 

Those effects in turn raised the price of many farm commodities (such as soybeans, meat, poultry, and dairy 

products) and, consequently, the retail price of food. 

Pushed up in part by those effects and by surges in the 

price of energy, food prices rose by almost 21⁄2 percent in 

2006, by 4 percent in 2007, and by more than 5 percent 

in 2008. That those increases coincided with higher 

prices for corn raises questions about the link between 

ethanol production, the demand for corn, and food 

prices. 

CBO estimates that from April 2007 to April 2008, 

the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices 

measured by the consumer price index (CPI). Over the 

same period, certain other factors—for example, higher 

energy costs—had a greater effect on food prices than did 

the use of ethanol as a motor fuel. 

Beyond the one-year period that ended in April 2008, 

food prices are likely to be higher than they would have 

been if the United States did not use ethanol as a motor 

fuel. However, ethanol’s effect on future food price inflation is uncertain because the forces determining that 

impact move in opposite directions. Federal mandates 

now in place require additional use of ethanol in the 

future, which would continue to put upward pressure on 

prices. In contrast, increases in the supply of corn from 

cultivating more cropland, increasing crop yields, or 

improving the technology for making ethanol from corn 

or other feedstocks (raw materials) would tend to lower 

food prices.
VIII THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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Ethanol, Food Prices, and Federal 

Food Assistance

Changes in food prices affect spending for federal food 

assistance.1

 The federal government administers several 

assistance programs that are operated at the local level by 

state agencies and other providers. The largest of those 

programs are SNAP and the National School Lunch and 

School Breakfast Programs. Federal reimbursements and 

benefits for those programs are adjusted automatically 

each year according to the change in various food price 

indexes. The change in food prices from 2007 to 2008, 

the period covered by this analysis, determines the benefits for those programs for fiscal year 2009. As a result, 

the rise in food prices attributable to increased production of ethanol will lead to higher federal spending for 

those programs: specifically, an estimated $600 million to 

$900 million of the more than $5 billion increase in 

spending projected for fiscal year 2009 as a result of the 

rising price of food. 

The Special Supplemental Assistance Program for 

Women, Infants, and Children—better known as 

WIC—is another federal food assistance program whose 

spending could be affected by increased ethanol production. Because WIC provides a specific basket of goods to 

recipients—as opposed to a set cash benefit, as in SNAP

—the program’s costs can vary month by month. Therefore, changes in food prices in 2008 had an immediate 

impact on costs for the program (in contrast to nutrition 

assistance programs, whose reimbursements lag behind 

changes in prices).

Although WIC assistance is funded through a different 

mechanism than are SNAP and the school programs 

(WIC is not an entitlement program but instead receives 

an annual appropriation), ethanol’s effects on the cost of 

the basket of goods available through WIC could be similar to the impact that its production has had on food 

prices in the other federal nutrition assistance programs. 

Under the assumption that the effects are much the same, 

increased production of ethanol would have added less 

than $75 million in fiscal year 2008 to the cost of serving 

the same number of WIC participants as in 2007.

Ethanol and Greenhouse-Gas 

Emissions

Research conducted by the Argonne National Laboratory 

(ANL) and used by federal agencies suggests that in the 

short run, the production, distribution, and consumption 

of ethanol will create about 20 percent fewer greenhousegas emissions than the equivalent processes for gasoline. 

For 2008, such a finding translates into a reduction of 

about 14 million metric tons of carbon dioxide and 

equivalent gases (a standard measure of greenhouse-gas 

emissions), or CO2e.2

 In the long run, the result is less 

clear. If increases in the production of ethanol led to a 

large amount of forests or grasslands being converted into 

new cropland, those changes in land use could more than 

offset any reduction in greenhouse-gas emissions—

because forests and grasslands naturally absorb more carbon from the atmosphere than cropland absorbs.

In the future, the use of cellulosic ethanol, which is made 

from wood, grasses, and agricultural plant wastes rather 

than corn, might reduce greenhouse-gas emissions more 

substantially, but current technologies for producing cellulosic ethanol are not commercially viable. Research by 

ANL suggests that increased use of cellulosic ethanol in 

the amounts specified in the Energy Independence and 

Security Act of 2007 could reduce greenhouse-gas emissions from the nation’s transportation sector by as much 

as 130 million metric tons of CO2e by 2022—which 

would equal about 6 percent of emissions from that sector or slightly more than 2 percent of total projected U.S. 

emissions from all sources in that year. However, that 

potential would be realized only if cellulosic ethanol 

could be produced on a large scale and if the effects of 

changes in land use did not offset the reduction that producing, distributing, and consuming ethanol could make 

in greenhouse-gas emissions.

1. Such changes also affect spending for other federal programs 

through their impact on the CPI, which is used to calculate 

annual cost-of-living adjustments in benefits for programs such as 

Social Security. Those effects on other programs, however, are 

beyond the scope of this report. 

2. Individual greenhouse gases have different warming characteristics 

and persist in the atmosphere for different lengths of time. To 

simplify matters, researchers commonly refer to emissions and 

atmospheric concentrations of those greenhouse gases in terms of 

metric tons (a metric ton is approximately 2,200 pounds) of carbon dioxide equivalent, or CO2e—the amount of carbon dioxide 

that would cause an equivalent amount of warming over a certain 

period (typically 100 years).
CBO

Implications of Ethanol Use for 

Food Prices and Greenhouse-Gas Emissions

Over little more than a decade, the use of ethanol 

as a motor fuel in the United States has expanded nearly 

sevenfold.1

 Ethanol production rose by 34 percent 

between 2006 and 2007 and by another 42 percent 

between 2007 and 2008.2

 Last year, overall consumption 

of ethanol in the United States reached a record high, 

exceeding 9 billion gallons, which reduced the nation’s 

demand for gasoline by nearly 5 percent.3

 Mandates for 

increased usage included in the Energy Independence and 

Security Act of 2007 (EISA) are slated to keep ethanol 

production high in the future.4

Much of the increased production and usage in recent 

years was spurred by a steady rise in the price of gasoline 

from 2006 to the record highs of the summer of 2008. 

Those high prices, in addition to long-standing subsidies 

for producing ethanol, encouraged ethanol producers to 

boost production despite the rise in prices for corn during 

the same period, which would generally lead to cuts in 

production. To meet the rapidly increasing demand for 

ethanol, producers used nearly 1 billion more bushels of 

corn in 2008 than they did during the previous year—an 

increase of about 40 percent. 

The increase in the amount of corn used to produce ethanol has exerted upward pressure on corn prices, boosted 

the demand for cropland, and raised the price of animal 

feed. Those effects, in turn, have lifted the prices of many 

farm commodities (for example, soybeans, meat, poultry, 

and dairy products) and, consequently, the retail price of 

food. The rise in food prices has affected not only the 

costs to individual consumers but also spending for the 

federal government’s food assistance programs.

This Congressional Budget Office (CBO) paper examines the period from April 2007 to April 2008, during 

which the rapidly increasing production of ethanol 

coincided with rising prices for corn, food, and fuel. In 

particular, CBO estimates how much of the rise in food 

prices during that time was due to an increase in the consumption of ethanol and how much the rise in food 

prices would have boosted federal expenditures on food 

assistance programs. In addition, CBO examines how the 

increased use of ethanol may lower emissions of greenhouse gases.

Domestic production and consumption of ethanol may 

lead to other effects that are not addressed in this report. 

For example, increased production of ethanol has probably led to some reduction in oil imports and the price of 

gasoline, to an increase in average farm income, and to 

some impact on the quality of the nation’s air and water 

resources. In addition, ethanol usage may affect other 

areas of the federal budget. The rise in food prices during 

the 2007–2008 period, some of which was attributable to 

ethanol, boosted the consumer price index, which is used 

to calculate annual cost-of-living adjustments in benefits 

for such programs as Social Security, military and civilian 

retirement, and Supplemental Security Income. Evaluating the pros and cons of ethanol production and consumption in the United States would also include 

1. Renewable Fuels Association, “Statistics: Historic U.S. Fuel 

Ethanol Production,” available at www.ethanolrfa.org/industry/

statistics.

2. Ibid.

3. Energy Information Administration, “Annual Energy Outlook 

2009” (March 2009), available at www.eia.doe.gov/oiaf/aeo/

aeoref_tab.html. 

4. Public Law 110-140, 141 Stat. 1492.
2 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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examining those factors, but that analysis is beyond the 

scope of this paper. 

Ethanol Production in the 

United States

Ethanol is produced from some form of sugar and can be 

readily derived from sugar crops, most notably sugarcane 

and sugar beets. In the United States, however, the potential to grow sugar crops as a feedstock (that is, the raw 

material) for ethanol production is limited; growing conditions are not as favorable here as in Brazil, for example, 

which has a thriving ethanol industry based on sugarcane.5

 As a result, almost all of the ethanol that is commercially produced in the United States (which is known 

as corn or conventional ethanol) is derived from cornstarch, or the corn kernel. Ethanol can also be produced 

from cellulose; however, the production process is more 

difficult than that for corn because the sugars contained 

within cellulose are tightly bound in the fibrous materials 

that give potential cellulosic sources—such as cornstalks 

and trees—their sturdiness. 

The more than 9 billion gallons of ethanol that Americans consumed during 2008 displaced about 6 billion 

gallons of gasoline. The difference in the number of 

gallons of ethanol on the one hand and gasoline on the 

other arises because the energy content of a gallon of gasoline is greater than that of a gallon of ethanol. About 

1.5 gallons of ethanol are required to provide as much 

energy as 1 gallon of gasoline.6

The federal government has supported the development 

and use of ethanol since the late 1970s through programs 

that subsidize the production of ethanol, impose tariffs 

on ethanol imports, and mandate particular amounts of 

consumption. Those programs provide support because, 

when the two fuels are assessed on the basis of their 

energy content, ethanol has often been more expensive 

than gasoline to produce in the United States. 

The Production Subsidy 

Since 1978, firms that blend ethanol with gasoline have 

received a tax incentive from the federal government. The 

incentive has been adjusted periodically; today, ethanol 

blenders receive a tax credit of 45 cents for each gallon of 

ethanol blended into the supply of gasoline. The subsidy 

has helped keep ethanol competitive with gasoline, even 

when prices for corn are high (see Box 1). In 2007, the 

cost of the credit in forgone federal tax revenues was 

$3 billion.7

Import Tariffs

The production subsidy for ethanol applies to both 

domestic and imported ethanol, but the United States 

charges importers of ethanol a tariff of 54 cents per gallon 

and an ad valorem tariff of 2.5 percent of the value of the 

imported ethanol. (Prices for ethanol sold in the United 

States fluctuated between $1.61 and $2.90 per gallon in 

2008, resulting in ad valorem tariffs that ranged from 

4 cents to 7 cents per gallon.)8

 The two tariffs effectively 

offset the production subsidy for imported ethanol unless 

the imports arrive duty-free. The United States imports a 

relatively small amount of ethanol duty-free from countries that participate in the Caribbean Basin Initiative: 

an annual amount equal to as much as 7 percent of the 

nation’s ethanol consumption over the previous 12-

month period ending on the preceding September 30.9

In 2007, domestic production accounted for about 

95 percent of the U.S. ethanol supply. Imports amounting to approximately 330 million gallons accounted for 

the rest.10 (Half of that imported ethanol came from 

Brazil, either directly or indirectly, on a duty-free basis, 

through a Caribbean nation.) The Energy Information 

Administration (EIA) has estimated that imports of ethanol remained about the same in 2008 as in 2007. 

5. Department of Agriculture, The Economic Feasibility of Ethanol 

Production from Sugar in the United States (July 2006), available 

at www.usda.gov/oce/reports/energy/EthanolSugarFeasibility

Report3.pdf.

6. According to the Energy Information Administration (“Errata for 

Biofuels in the U.S. Transportation Sector as of 10/15/07,” available at www.eia.doe.gov/oiaf/analysispaper/errata_biofuels.html), 

a gallon of ethanol contains about 84,000 British thermal units, or 

Btus (the standard measure for the amount of energy that a fuel 

contains); a gallon of gasoline has about 125,000 Btus. 

7. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, SR/CNEAF/2008-01 

(April 2008).

8. See, for example, the monthly data from the Nebraska Energy 

Office, “Ethanol and Unleaded Gasoline Average Rack Prices,” 

available at www.neo.ne.gov/statshtml/66.html. 

9. For information about that trade agreement, see Brent D. 

Yacobucci, Ethanol Imports and the Caribbean Basin Initiative 

(CBI), CRS Report for Congress RS21930 (Congressional 

Research Service, March 2008). 

10. Energy Information Administration, “Annual Energy Outlook 

2009,” Table 11.
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 3

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Figure 1.

Effect of Mandates in the Energy Independence and Security Act of 2007 on the 

Consumption of Biofuels

(Billions of gallons)

Source: Congressional Budget Office based on data from the Energy Information Administration. 

a. The mandates enacted in the Energy Independence and Security Act of 2007, or EISA (Public Law 110-140), require that by 2022, a total 

of 36 billion gallons of renewable biofuels (fuels made from biological raw materials) be consumed annually. The law also requires that 

corn ethanol make up no more than 15 billion gallons of that total.

b. Advanced biofuels are renewable fuels not made from cornstarch that reduce greenhouse-gas emissions over the “life cycle” of the fuel 

(its production, distribution, and use) by at least 50 percent relative to emissions from gasoline. 

c. The Energy Information Administration estimates that annual corn ethanol usage will be 15 billion gallons between 2015 and 2022. 

Federal Mandates

The Energy Policy Act of 2005 laid out a schedule of 

mandates through 2012 for increasing the amount of biofuels used in the United States.11 The Energy Independence and Security Act of 2007 expanded the mandates 

and extended them through 2022 (see Figure 1). Under 

those laws, federal mandates requiring the use of biofuels 

are intended to encourage the domestic production of 

ethanol and other biofuels; the mandates also seek to generate increasingly large reductions in greenhouse-gas 

emissions from the transportation sector.12

Specifically, those mandates require usage of biofuels in 

the United States to be at least 20.5 billion gallons annually by 2015, or more than double the country’s usage in 

2008. Of that total, not more than 15 billion gallons may 

be refined from cornstarch. By 2022, the total amount of 

biofuels used (including conventional and cellulosic ethanol as well as biodiesel and other advanced biofuels) must 

be at least 36 billion gallons. By contrast, the United 

States’ current capacity for producing biofuels stands at 

15 billion gallons, 12.4 billion gallons of which represents capacity for producing corn ethanol.13

Ethanol Production and Consumption Under 

Subsidies, Tariffs, and Mandates

To date, ethanol usage has exceeded the amounts required 

by federal mandates, indicating that the mandates have 

not yet forced additional production or imports in any

1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021

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15

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25

30

35

40

Ethanol Consumption

Corn Ethanolc

All

Mandatesa

Advanced

Biofuelsb

Actual Mandated

11. A biofuel, such as ethanol or biodiesel (diesel fuel made from 

plants), is composed of or produced from biological raw materials. 

In contrast, a fossil fuel, such as oil or coal, is formed in the earth 

from plant or animal remains. 

12. EISA directed the Environmental Protection Agency to issue rules 

that ensured that biofuels would be sold or introduced into commerce in the United States, but it also gave the agency discretion 

to relax the standards if they were shown to result in severe economic or environmental harm to any state or region. 

13. Renewable Fuels Association, “Biorefinery Locations,” available at 

www.ethanolrfa.org/industry/locations. 
4 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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Continued

Box 1.

The Economic Viability of Producing Corn Ethanol 

The economic viability of producing corn ethanol—

whether manufacturers can show a profit—is intrinsically linked to the price of gasoline (for which ethanol is a substitute) and to the price that ethanol producers pay for corn. The Congressional Budget 

Office’s (CBO’s) analysis of current technologies and 

prices suggests that, without subsidies for producing 

ethanol, the “break-even ratio” of the price per gallon 

of retail gasoline to the price per bushel of corn is currently about 0.9.1

 In other words, when the price of a 

gallon of gasoline is more than 90 percent of the price 

of a bushel of corn, it is profitable to produce ethanol. At that point, revenues from the sale of ethanol 

would be sufficient to cover the fixed and variable 

costs of producing it. (Fixed costs include a return on 

the investment required to build the ethanol plant; 

variable costs include the cost of natural gas or coal to 

run an ethanol plant.) When ratios are above 0.9, 

producers have an incentive to invest in new structures and equipment to expand their capacity to 

make ethanol. But when ratios are lower than 0.9, the 

costs of producing ethanol exceed the fixed and variable costs of production unless subsidies are provided.

It is unlikely that, on average, ethanol producers over 

the past several decades would have turned a profit if 

they had not received production subsidies. The average ratio of a gallon of gasoline to the price of a 

bushel of corn fluctuates substantially from year to 

year and has exceeded 0.9 only once, in 2005 (see the 

figure to the right). However, fluctuations in the ratio 

of corn and gasoline prices are even more extensive 

within each year, suggesting that at different times, 

conditions will be more or less favorable for producing and selling ethanol. That volatility stems in large 

part from the sensitivity of corn prices to variability 

in weather patterns, both in the United States and in 

other countries. Uncertainty about future corn and 

gasoline prices makes it hard for ethanol producers to 

predict what their profits or losses will be and to 

determine whether they should plan on expanding 

their businesses or reducing production. Moreover, in 

any given year or month, a combination of increasing 

global demand for corn, a reduction (actual or 

expected) in the supply of corn because of bad 

weather, or a drop in the global demand for petroleum could raise the price of corn relative to the real 

(inflation-adjusted) price of gasoline, making it more 

difficult for ethanol producers to generate profits. All 

three of those phenomena occurred at different times 

in 2007 and 2008. 

Over time, the ratio of gasoline to corn prices has 

shown a slight upward trend, indicating that the production of ethanol from corn could become more 

profitable in the future. That trend has been reinforced as the detection and extraction of new supplies 

of petroleum become more costly and corn yields per 

acre increase. However, other economic conditions 

1. Values for fixed and variable costs and for distillers’ grain 

prices were derived from Gary Schnitkey, Darrel Good, and 

Paul Ellinger, Crude Oil Price Variability and Its Impact on 

Break-Even Corn Prices, Report No. FEFO 07-11 (University 

of Illinois at Urbana-Champaign, Farmdoc [Farm Decision 

Outreach Central], May 30, 2007); Wallace E. Tyner and 

Farzad Taheripour, “Future Biofuels Policy Alternatives” (presentation at the Farm Foundation/Department of Agriculture 

conference on biofuels, food, and feed trade-offs, 

St. Louis, Missouri, April 2007); Amani Elobeid and others, 

The Long-Run Impact of Corn-Based Ethanol on the Grain, 

Oilseed, and Livestock Sectors: A Preliminary Assessment, Briefing Paper 06-BP 49 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural Development, November 

2006); and Vernon R. Eidman, “Renewable Liquid Fuels: 

Current Situation and Prospects,” Choices, vol. 21, no. 1 

(2006), pp. 15–19. Assumptions regarding refining efficiency 

were taken from Simla Tokgoz and others, Emerging Biofuels: 

Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets, Staff Report 07-SR 101 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural Development, July 

2007).
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 5

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Box 1. Continued

The Economic Viability of Producing Corn Ethanol 

The Relationship Between the Price of Corn and the Price of Gasoline, 1970 to 2008

(2007 dollars) (Ratio)

Source: Congressional Budget Office based on data from the Energy Information Administration (average annual retail prices for 

motor gasoline, available at www.eia.doe.gov/emeu/aer/txt/ptb0524.html) and the Department of Agriculture (average 

annual prices for corn, available at www.ers.usda.gov/Data/Feedgrains). 

Note: The “break-even ratio” (of the price per gallon of retail gasoline to the price of a bushel of corn) indicates the point at which 

it is profitable to expand ethanol production capacity in the absence of subsidies for ethanol production. In CBO’s estimation,

that figure is currently about 0.9.

could make it more difficult for the production of 

ethanol to be profitable. For example, increases in the 

cost of the natural gas or coal required to run an ethanol plant would push the break-even ratio higher. 

The break-even ratio is also affected by technology, 

and improvements in the technologies and processes 

for refining ethanol would cause the ratio to fall. In 

1989, for instance, with the technology then available, each bushel of corn yielded about 2.5 gallons of 

ethanol. Today, with better technologies, a bushel of 

corn yields 2.8 gallons of ethanol, and newer facilities 

may improve yields to 3.0 gallons per bushel.2

 At 

yields of 3.0 gallons per bushel, the break-even ratio 

would fall to 0.8.

The break-even ratio also depends on federal policies. 

At the current subsidy of 45 cents per gallon of ethanol produced, the break-even ratio that would allow 

producers to cover their fixed and variable costs falls 

to 0.7. Similarly, policies in the future that provided 

incentives for reducing greenhouse-gas emissions 

would lower the break-even ratio if the production 

and burning of ethanol resulted in lower greenhousegas emissions than did the production and burning of 

gasoline. 

1970 1975 1980 1985 1990 1995 2000 2005

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1

2

3

4

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6

7

8

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0.2

0.4

0.6

0.8

1.0

1.2

Ratio of Gasoline

Price to Corn Price

Corn Price per Bushel

Gasoline Price per Gallon

2. See Tokgoz and others, Emerging Biofuels.
6 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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given year. EIA estimates that domestic production of 

ethanol in 2008 was 8.9 billion gallons, an increase of 

nearly 45 percent from the 6.2 billion gallons produced 

in 2007. The federal government’s production subsidies 

and the relatively high prices for gasoline during most of 

2008 made that level of production profitable (see 

Box 1). However, individual producers may still suffer 

losses. Lags occur between the time producers make decisions about purchasing inputs to the production process 

(such as corn) and when they can sell their product at the 

pump. When coupled with potential volatility in the 

commodity markets as a result of weather and economic 

conditions, such lags can lead to losses and idled production capacity.14

In the future, the amount of ethanol produced will be 

determined by the interaction of conditions in the commodity markets, production incentives, and mandates 

for ethanol consumption. During periods when gasoline 

prices are high relative to corn prices, the impact of mandates and production incentives is likely to be smaller 

than in periods when the opposite is true.

Recent developments in the commodity markets indicate 

that prices for gasoline and corn will most likely be lower 

during the 2008–2009 corn marketing year (September 

2008 through the end of August 2009) than they were 

during the previous marketing year:

B As of March 10, 2009, EIA’s “Short Term Energy 

Outlook” projected an average price of gasoline of 

$2.05 per gallon during the 2008–2009 corn marketing year; and 

B On March 30, quotes from the Chicago Board of 

Trade on futures prices for corn for the rest of the marketing year (May and July deliveries) averaged $3.91 

per bushel.15

Under those prices (a ratio of gasoline to corn prices of 

about 0.5) and the current amount of federal support for 

domestic ethanol production, producers might not find it 

profitable to increase production of ethanol in existing 

facilities or to invest in new facilities. An estimated 

2 billion gallons of ethanol production capacity was idled 

in early 2009 in response to economic pressures.16 Yet the 

increases in mandated ethanol consumption and other 

factors may lead to a rise in production or imports. In 

fact, EIA estimates that domestic production of ethanol 

will climb to 10.5 billion gallons in 2009, an amount that 

will exceed the mandate for that year when coupled with 

production of biodiesel. By 2015, EIA projects, ethanol 

production and imports will top 16 billion gallons.17

Ethanol Production and Food Prices

Producing ethanol for use in motor fuels increases the 

demand for corn, which ultimately raises the prices that 

consumers pay for a wide variety of foods at the grocery 

store, ranging from corn syrup sweeteners found in soft 

drinks to meat, dairy, and poultry products. In addition, 

the demand for corn may help push up the prices of other 

commodities, such as soybeans. (Farmers that increase the 

number of acres they plant with corn to meet rising 

demand will most likely plant fewer acres with other 

crops.) From April 2007 to April 2008, the increasing 

demand for corn to produce ethanol contributed, in 

CBO’s estimation, between 0.5 and 0.8 percentage points 

to the 5.1 percent increase in the price of food overall as 

measured by the component of the consumer price index 

for all urban consumers (CPI-U) that measures food 

prices.18 That is, the growing use of corn for ethanol 

accounted for about 10 percent to 15 percent of the 

increase in the CPI-U for food over the April-to-April 

period. That estimate has two parts: an assessment of how 

the boost in ethanol production contributed to increases 

in the price of corn, animal products, and soybeans; and 

a reckoning of how higher prices for those commodities 

contributed to the price of the foods measured in the 

CPI-U for food.

14. See, for example, Mark Steil, “VeraSun Bankruptcy Hitting Minnesota Farmers in the Wallet,” Minnesota Public Radio, November 21, 2008, available at http://minnesota.publicradio.org/

display/web/2008/11/21/verasun/?refid=0.

15. A futures contract is a legal agreement, traded on an exchange, to 

make or take delivery of a commodity (such as corn) at a fixed 

future date and at a price determined at the time of dealing. 

16. Joseph W. Glauber, Chief Economist, Department of Agriculture, 

“Prospects for the U.S. Farm Economy in 2009” (speech at the 

Department of Agriculture’s 85th annual Agricultural Outlook 

Forum, February 26, 2009), available at www.usda.gov/oce/

forum/2009_Speeches/Speeches/Glauber.pdf.

17. Energy Information Administration, “Annual Energy Outlook 

2009,” Table 11.

18. The CPI-U is maintained by the Bureau of Labor Statistics. 

For percentage changes over the period, see Bureau of Labor 

Statistics, CPI Detailed Report: Data for April 2008, available at 

www.bls.gov/cpi/cpid0804.pdf.
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 7

CBO

The Increased Price of Corn

In estimating how the growing demand for corn affected 

what consumers paid at the grocery store, CBO used a 

range of estimates from the economics literature about 

the responsiveness, or “elasticity,” of the supply of corn to 

increases in its price. The upswing in the demand for 

corn to be used in producing domestic ethanol raised the 

commodity’s price, CBO estimates, by between 50 cents 

and 80 cents per bushel between April 2007 and April 

2008.19 That range is equivalent to between 28 percent 

and 47 percent of the increase in the price of corn, which 

rose from $3.39 per bushel to $5.14 per bushel during 

the same period.

That price increase occurred despite an increase in corn 

production—that is, in the amount of corn grown, harvested, and marketed.20 During the 2007–2008 corn 

marketing year, the United States harvested a record 

13.1 billion bushels of corn. Of that total, approximately 

3 billion bushels, or nearly a quarter (another record), 

was used to produce ethanol. Moreover, the total U.S. 

supply of corn—the 13.1 billion bushels that were harvested plus inventories of corn from previous years—rose 

from 12.5 billion bushels in the 2006–2007 marketing 

year to 14.4 billion bushels in the 2007–2008 marketing 

year. 

Globally, other countries’ biofuels policies—for example, 

those of Brazil and member countries of the European 

Union—also put upward pressure on prices for corn and 

other food commodities. (Those countries, together with 

the United States, account for 90 percent of worldwide 

production of biofuels.)21 One analysis of increasing ethanol production domestically and globally found that the 

rise in the United States’ production of ethanol could 

account for about 20 percent of the increase in corn 

prices in 2008, but that global ethanol production—

including the effects of ethanol production in the United 

States and increases in the production of ethanol in other 

countries—could account for 35 percent of the price 

increase.22 Measured over a longer period, global production of ethanol and other biofuels has tripled since 2000, 

which has raised demand for many biofuel feedstocks 

(such as corn and sugarcane for ethanol production and 

soybeans and rapeseed for biodiesel). Analysis from the 

International Food Policy Research Institute suggests that 

global biofuel production could account for 40 percent of 

the rise in corn prices between 2000 and 2007.23

In addition to the expanding demand for corn to produce 

ethanol, several other factors contributed to the rising 

price of corn in the United States between April 2007 

and April 2008:24

B Growing global demand for meat increased the 

demand for animal feed. 

19. CBO used a range of 0.3 to 0.5 for the elasticity of the supply of 

corn to changes in its price. Estimates of elasticity were taken from 

Harry de Gorter and David R. Just, The Welfare Economics of an 

Excise-Tax Exemption for Biofuels, Working Paper No. 2007-13 

(Ithaca, N.Y.: Cornell University, Department of Applied Economics and Management, February 2007); Bruce Gardner, “Fuel 

Ethanol Subsidies and Farm Price Support,” Journal of Agricultural 

and Food Industrial Organization, vol. 5, no. 2 (2007); Andrew 

Schmitz, Charles B. Moss, and Troy G. Schmitz, “Ethanol: No 

Free Lunch,” Journal of Agricultural and Food Industrial Organization, vol. 5, no. 2 (2007); and Paul W. Gallagher and others, 

“Some Long-Run Effects of Growing Markets and Renewable 

Fuel Standards on Additives Markets and the U.S. Ethanol Industry,” Journal of Policy Modeling, vol. 25, no. 6–7 (2003), pp. 565–

608. Data on corn prices are available from the Department of 

Agriculture, Economic Research Service, “Feed Grains Database,” 

available at www.ers.usda.gov/data/feedgrains.

20. Department of Agriculture, Economic Research Service, “Feed 

Grains Database.” Global production of corn increased between 

the 2006–2007 and 2007–2008 marketing years, but the percentage increase in the United States was much larger than the increase 

in the rest of the world. See Department of Agriculture, Office of 

the Chief Economist, World Agricultural Demand and Supply Estimates, Report No. WASDE-464 (November 10, 2008).

21. Department of Agriculture, Economic Research Service, “Corn 

Trade,” available at www.ers.usda.gov/Briefing/Corn/trade.htm.

22. See the statement of Edward Lazear, Chairman, Council of Economic Advisers (CEA), before the Senate Foreign Relations Committee, Responding to the Global Food Crisis, May 14, 2008. The 

price data and assumptions about the elasticity of the corn supply 

that the CEA used for its estimate were not described in the 

statement. 

23. See the statement of Mark W. Rosegrant, Director, Environment 

and Production Technology Division, International Food Policy 

Research Institute, before the Senate Committee on Homeland 

Security and Governmental Affairs, Fuel Subsidies: Is There an 

Impact on Food Supply and Prices? May 7, 2008). Also, the International Monetary Fund (IMF) estimated that 70 percent of the rise 

in corn prices could be due to global biofuels policies, but the 

period that the IMF’s analysts considered is unclear. See the 

remarks of John Lipsky, First Deputy Managing Director, IMF, on 

“Commodity Prices and Global Inflation,” at the Council on Foreign Relations, New York, N.Y., May 8, 2008). 

24. Ronald Trostle, Global Agricultural Supply and Demand: Factors 

Contributing to the Recent Increase in Food Commodity Prices,

Report No. WRS-0801 (Department of Agriculture, Economic 

Research Service, May 2008).
8 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

CBO

B The depreciation of the U.S. dollar increased the 

demand for U.S. corn abroad. Exports rose approximately 14 percent between the 2006–2007 and 2007–

2008 marketing years.25

B Concerns about a poor harvest because of unfavorable 

weather for spring planting caused corn prices to rise 

during the spring of 2008.26

Production rose despite the increased costs for producing 

corn that were caused by rapid hikes in the price of fuel, 

especially oil and natural gas. (Oil is used to produce diesel fuel and gasoline, both of which are used in growing, 

harvesting, and transporting corn to market; natural gas 

is used to produce fertilizers and to dry corn for storage.) 

Between 2007 and 2008, corn producers’ expenditures 

on energy (specifically, for fuel, machinery lubricants, 

and electricity) grew by 35 percent; expenditures on fertilizer climbed by 50 percent. Overall, during that period, 

the cost of producing corn rose by 31 percent.27 But rising demand allowed producers to pass along the increase 

in costs to consumers, who proved willing to pay the 

higher prices.

As the mandated use of biofuels rises over time, increased 

production of ethanol and biodiesel will probably continue to push up prices for corn and soybeans. According 

to an estimate by the Department of Agriculture, 3.7 billion bushels of corn will be used to produce ethanol during the 2008–2009 marketing year.28 That estimate represents an increase of about 0.7 billion bushels over the 

total for the previous marketing year, which could 

increase the price of corn by 10 percent to 17 percent 

over the 2008–2009 period, all else being equal.29 In the 

long run, upward pressure on prices caused by increasing 

ethanol production may be alleviated by planting additional acres in corn and soybeans, increasing crop yields 

per acre in the United States and abroad, and improving 

the technologies used at refineries to allow more ethanol 

to be produced from each bushel of corn.30

The Impact of Higher Corn Prices on the 

Cost of Food

The impact of higher commodity prices on how much 

consumers pay for food at the retail level depends on the 

portion of that food that comes from such commodities. 

Higher prices for corn can increase food prices directly 

because of the wide variety of food products that contain 

corn. Higher corn prices can also operate indirectly, 

through two different mechanisms. First, they can 

increase the price of meat, for which corn is used as an 

animal feed. Second, higher corn prices can raise the price 

of food by indirectly lifting the prices of other crops—for 

example, soybeans—if farmers take land that had been 

planted with those other crops and plant it instead with 

corn. 

The CPI-U for food comprises all of the retail costs of 

food and can be broken down to show the shares of that 

total that the various components account for. The cost 

of farm commodities, notably corn, is one of those components, as are the costs of transportation, energy, labor, 

and other elements required to produce food. The cost of 

commodities makes up about 19 percent of the price of 

food that originates on U.S. farms and that is sold in 

stores (see Figure 2). Consequently, an increase of 10 percent in the cost of all commodities would push retail food 

prices up by approximately 2 percent. Similarly, an overall increase of 10 percent in the cost of energy and transportation, which account for a smaller share of retail food 

prices, would push those prices up by 0.8 percent. 

To estimate the impact of changing corn prices on the 

CPI-U for food, CBO calculated how much U.S. consumers spent overall on food and how much corn was

25. Department of Agriculture, Economic Research Service, “Feed 

Grains Database.”

26. See, for example, Michael Woolverton, “Corn Planting Delay 

Pushes Price Higher” (Kansas State University, Department of 

Agricultural Economics, May 2, 2008).

27. CBO’s analysis of data from Department of Agriculture, Economic Research Service, “Commodity Costs and Returns,” available at www.ers.usda.gov/Data/CostsAndReturns.

28. Department of Agriculture, Office of the Chief Economist, 

World Agricultural Supply and Demand Estimates, Report 

No. WASDE-465 (March 11, 2009), available at www.usda.gov/

oce/commodity/wasde/latest.pdf.

29. By the last quarter of 2008, corn prices had fallen dramatically 

from their highs during the summer. In the absence of increasing 

demand for corn to produce ethanol, it is likely that the average 

price for corn in 2008 would have been even lower. 

30. See Adam J. Liska and others, “Improvements in Life Cycle 

Energy Efficiency and Greenhouse Gas Emissions of CornEthanol,” Journal of Industrial Ecology, vol. 13, no. 1 (2009), available at www3.interscience.wiley.com/cgi-bin/fulltext/121647166/

HTMLSTART.
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 9

CBO

Figure 2.

Components of Consumers’ 

Expenditures on Farm Foods, 2006

Source: Congressional Budget Office based on data from the 

Department of Agriculture’s Economic Research Service 

(available at www.ers.usda.gov/Data/FarmToConsumer/

Data/componentstable06.xls).

Note: Consumers’ expenditures on farm foods represent the market value of domestically produced farm foods consumed 

both at home and away from home (for example, in restaurants or institutions). 

a. Payments to farms for fruits, vegetables, field crops (for example, corn and soybeans), dairy products, and so on.

b. Includes depreciation, rent, advertising and promotion, interest, 

taxes, licenses, insurance, professional services, local for-hire 

transportation, food service (in schools, colleges, hospitals, and 

other institutions), and other items.

used in food production. Total expenditures on food in 

the United States in 2007 were $1.1 trillion.31 About 

1.4 billion bushels of corn were used in food production 

in that year (see Table 1). The increase in the average 

price of corn resulting from ethanol production in that 

year—about 50 cents to 80 cents per bushel—directly 

increased expenditures on food by between $700 million 

and $1.1 billion, or by about 0.1 percent.32 The higher 

prices for corn boosted food expenditures even more by 

affecting the cost of meat, dairy, and poultry products. 

Under the assumption that farmers passed along to consumers the increases that occurred in animal feed prices, 

the higher prices for corn resulting from the production 

of ethanol increased consumers’ expenditures on food by 

an additional 0.2 percent to 0.4 percent, in CBO’s 

estimation.33

Additional demand for corn can also affect the price 

of food indirectly by causing producers of corn to switch 

some of the acreage they have planted in other crops, primarily soybeans, to corn.34 Between the 2006–2007 and 

2007–2008 marketing years, the number of acres planted 

in corn increased by about 15 million, whereas the number of acres planted in soybeans fell by about 11 million. 

The increase of nearly 1 billion bushels in the corn used 

for producing ethanol required farmers to plant and 

Labor

 (39%)

Packaging

 (8%)

Transportation

 (4%)

Fuels and

Electricity

 (4%)

Pretax

Profits

 (5%)

Miscellaneousb

 (22%)

Value of Commoditiesa

 (19%)

31. Department of Agriculture, Economic Research Service, “Food 

CPI, Prices and Expenditures: Food and Alcoholic Beverages—

Total Expenditures” (briefing, June 17, 2008), available at 

www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/

table1.htm.

32. That computation used a “snapshot” from 2007 of the consumption and use of corn in the United States. As prices for different 

commodities change, consumers will tend to adjust and reallocate 

their purchases accordingly.

33. The Department of Agriculture has estimated that the production 

of biofuels could have raised food prices by between 0.1 percent 

and 0.2 percent in 2007, rising to as much as 0.9 percent after 

accounting for the increase in livestock feed prices. (See the 

letter from Samuel Bodman, Secretary of Energy, and Edward 

Schafer, Secretary of Agriculture, to the Honorable Jeff Bingaman, 

June 11, 2008, Appendix IV, available at www.energy.gov/media/

Secretaries_Bodman_and_Schafer_Ltr_to_Sen_Bingaman.pdf.)

Initially, the prices of animal products would be expected to 

decline in response to higher prices for feed because farmers would 

slaughter more animals for market. After that initial response, the 

prices of animal products would rise as a smaller supply resulted in 

higher prices (see Jerry Light and Thomas Shevlin, “The 1996 

Grain Price Shock: How Did It Affect Food Inflation?” Monthly 

Labor Review, August 1998, pp. 3–19). Because feed prices have 

been steadily increasing since 2004, CBO assumed that rising 

corn prices would increase prices for animal products during the 

period examined for this analysis. 

34. Paul Westcott, Ethanol Expansion in the United States: How Will 

the Agricultural Sector Adjust? Outlook Report No. FDS-07D-01 

(Department of Agriculture, Economic Research Service, May 

2007). 
10 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

CBO

Table 1.

The Supply and Uses of Corn in the 

United States

(Billions of bushels)

Sources: Congressional Budget Office based on data from the 

Department of Agriculture (available at www.usda.gov/

oce/commodity/wasde/latest.txt and www.ers.usda.gov/

Data/Feedgrains/FeedGrainsQueriable.aspx).

a. The marketing year for corn runs from September 1 of the first 

year through August of the following year.

b. Includes corn for seed, which totaled about 0.02 billion bushels 

in each year.

harvest about 6 million additional acres of cropland. 

Under the assumption that those acres came from cropland previously planted in soybeans (typically, corn and 

soybeans are grown in rotation on the same land), the 

increase in the price per bushel of soybeans caused by 

planting 6 million fewer acres was between $1.09 and 

$1.82.35 Such an increase in soybean prices raised expenditures on food by between 0.2 percent and 0.3 percent, 

bringing the total effect to between 0.5 percent and 

0.8 percent.

The impact on food prices resulting from hikes in the 

price of corn related to ethanol production was smaller 

than the effect of higher prices for energy, which contribute to the CPI-U for food directly through higher costs 

for transportation and electricity and indirectly through 

higher costs for producing commodities. As an example, 

the CPI-U for energy rose by 16 percent between April 

2007 and April 2008.36 Given the contributions that the 

prices of transportation, fuel, and electricity make to the 

CPI-U for food, the increase in the CPI-U for energy 

implies a direct boost in the CPI-U for food of 1.1 percentage points (22 percent) of the 5.1 percent increase in 

food prices during the April 2007–April 2008 period. 

Alternatively, the producer price index for intermediate 

energy products could be used as a measure (and may 

better reflect the costs that the retail food sector faces for 

energy). Using that measure leads to an increase in energy 

prices between April 2007 and April 2008 of 25 percent, 

which implies a direct increase in the CPI-U for food of 

1.8 percentage points (36 percent) of the increase in food 

prices during that period.37

The impact of higher prices for food will probably be 

greater in other countries than in the United States 

because the percentage of households’ income that is 

spent on food in those other nations is larger and the 

value of commodities makes up a bigger share of the cost 

of food. (In 2007, the share of spending for goods and 

services that a household allocated to food purchases for 

consumption at home was less than 6 percent in the 

United States but more than 32 percent in India.)38 In 

contrast to countries that export commodities, countries 

that import a large percentage of their food will also be 

adversely affected by rising global prices for commodities. 

The United Nations’ Food and Agriculture Organization 

has estimated that, in contrast to steadily declining real 

(inflation-adjusted) prices for food commodities between 

1974 and 2000, real prices for commodities (including 

corn, soybeans, and sugarcane) increased by 135 percent 

between January 2000 and April 2008.39

35. That calculation is based on the following: an assumed elasticity 

of supply for soybeans ranging from 0.3 to 0.5, as reported in William Lin and others, Supply Response Under the 1996 Farm Act and 

Implications for the U.S. Field Crops Sector, Report No. TB1888 

(Department of Agriculture, Economic Research Service, September 2000); soybean production totaling 76 million acres in the 

2006–2007 marketing year; and a price for soybeans of $6.88 per 

bushel in April 2007. CBO did not consider how the relatively 

small amount of biodiesel produced in 2007 and 2008 affected 

prices for corn and soybeans.

Beginning Stocks 2.0 1.3 -35

Production 10.5 13.1 25

Animal Feed 5.6 6.0 7

Ethanol 2.1 3.0 43

Exports 2.1 2.4 14

Foodb 1.4 1.3 -5

Stocks 1.3 1.6 23

Supply

Uses

Marketing Yeara Percentage

2006-2007 2007-2008 Change

36. Bureau of Labor Statistics, CPI Detailed Report, Table A. 

37. Bureau of Labor Statistics, PPI Detailed Report: Data for April 

2008—Mining, Manufacturing, and Services, Table B, available at 

www.bls.gov/ppi/ppidr200804.pdf.

38. Department of Agriculture, Economic Research Service, “Food 

CPI, Prices and Expenditures: Expenditures on Food, by Selected 

Countries, 2007” (briefing, updated December 19, 2008), available at www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/

Data/2007table97.htm.

39. U.N. Food and Agriculture Organization, “Food Outlook: Global 

Market Analysis—The FAO Price Index” (June 2008), available at 

www.fao.org/docrep/010/ai466e/ai466e16.htm.
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 11

CBO

Ethanol, Food Prices, and Federal 

Food Assistance 

The federal government oversees a number of food assistance programs, including the Supplemental Nutrition 

Assistance Program, or SNAP (formerly known as the 

Food Stamp program), and various child nutrition programs to provide meals to school-age children.40 Those 

programs are operated at the local level by state and local 

governments and other public and private providers. In 

SNAP, the federal government provides participants with 

a cash benefit each month to purchase food for their 

household. Institutions that participate in one of the 

child nutrition programs are entitled to a federal cash 

reimbursement for each meal they provide (the reimbursement varies by the type of meal served and the 

household income of the child). Those benefits are 

adjusted automatically each year depending on changes 

in various indexes of food prices.

Any increase in food prices attributable to a rise in the 

production of ethanol will result in higher spending for 

the federal government’s food assistance programs. It 

will also increase spending for certain other federal 

programs—such as Social Security, military and civilian 

retirement programs, and Supplemental Security 

Income—through its effects on the CPI, which is used to 

calculate annual cost-of-living adjustments in those programs’ benefits. (This report does not address increases in 

such spending.) For programs such as SNAP, in which 

reimbursements and benefits are adjusted automatically 

each year with changes in food price inflation, the use of 

ethanol as a motor fuel, in CBO’s estimation, will result 

in an increase of 1 percent to 1.5 percent in spending for 

fiscal year 2009. The use of ethanol could have a similar 

effect on spending for such programs as the Special 

Supplemental Assistance Program for Women, Infants, 

and Children—better known as WIC—which serves 

postpartum or pregnant women, infants, and children up 

to the age of 5. 

Supplemental Nutrition Assistance and the Federal 

Child Nutrition Programs

Once a year, the government adjusts the benefits paid 

under SNAP and the child nutrition programs. Each 

October, the maximum benefit for SNAP is adjusted by 

the June-to-June percentage change in the cost of the 

Thrifty Food Plan, which constitutes a nutritious diet for 

one month at a minimal cost, as determined by the 

Department of Agriculture. In June 2008, the cost of the 

Thrifty Food Plan for a family of four was $588, an 

increase of 8.5 percent over the cost of the plan in June 

2007. (The recently enacted American Recovery and 

Reinvestment Act of 2009 increased the maximum SNAP 

benefit for the second half of fiscal year 2009 by 13.6 percent, to $668.) Each July, the government also adjusts the 

payments it makes to institutions for most of the meals 

served through programs such as the National School 

Lunch Program and the School Breakfast Program; the 

adjustment constitutes the May-to-May percentage 

change in the component of the CPI-U that measures 

inflation in the price of food consumed away from 

home.41

Because reimbursement payments for nutrition programs 

are determined by changes from the prior year, the effect 

of price changes over the 2007–2008 period will not be 

felt until fiscal year 2009. CBO projects that for 2009, 

increases in food prices will result in a boost in spending 

for those programs of about $5.3 billion (see Table 2). Of 

that projected increase, which excludes the effects of 

greater participation in the program and other factors, 

increased production of ethanol most likely accounts for 

an estimated $600 million to $900 million, or roughly

40. The name of the Food Stamp program was changed by the Food, 

Conservation, and Energy Act of 2008 (Public Law 110-246, 

122 Stat. 1651). 

41. In addition to the cash reimbursement, the National School 

Lunch Program (and certain other federal food assistance programs) provide a specified quantity of commodities for every 

meal, the value of which is adjusted annually. In addition to the 

lunch and breakfast programs, several smaller food programs 

authorized by the Child Nutrition Act and the Richard B. Russell 

School Lunch Act use the same or similar indexes to adjust their 

reimbursement rates for inflation. 
12 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

CBO

Table 2.

Federal Spending for Selected Food 

Assistance Programs

(Billions of dollars)

Source: Congressional Budget Office.

Note: The years referred to in this table are federal fiscal years. 

a. The Supplemental Nutrition Assistance Program, formerly 

known as the Food Stamp program.

b. Includes the National School Lunch Program, the School Breakfast Program, and other, smaller, programs.

c. CBO baseline projections as of March 2009. Estimates include 

the effects of the American Recovery and Reinvestment Act of 

2009 (Public Law 111-5), which added almost $5 billion to SNAP 

spending for 2009.

d. Does not include legislative changes, changes as a result of 

increases or decreases in program participation, and other 

factors.

10 percent to 15 percent of the change in federal spending for those programs as a result of higher food prices.42

The Special Supplemental Assistance Program for 

Women, Infants, and Children

Unlike SNAP and the child nutrition programs, WIC is 

not an entitlement program; that is, lawmakers do not set 

aside funds to allow every eligible individual to participate in the program. Rather, WIC is a federal grant program for which a specific amount of funding is appropriated each year for the program’s operations. The Food 

and Nutrition Service, which administers the program at 

the federal level, provides those funds to WIC state agencies (state health departments or comparable agencies) to 

pay for food, nutrition education, and administrative 

costs.

In contrast to SNAP, in which recipients receive a cash 

benefit to purchase food, the WIC program provides specific food packages tailored to supplement the diets of 

pregnant or postpartum mothers and children age 5 or 

younger. Participants receive checks or vouchers to purchase specific foods each month. (A few state agencies 

distribute the WIC foods through warehouses or deliver 

the foods to participants’ homes.) The foods provided are 

high in one or more of the following nutrients: protein, 

calcium, iron, and vitamins A and C—the nutrients frequently lacking in the diets of the program’s target population. The cost of those foods can vary monthly; consequently, the rise in food prices in 2008 had an immediate 

impact on the WIC program’s costs. 

In fiscal year 2008, policymakers appropriated roughly 

$6 billion in funding for the WIC program. Because the 

program is funded through an annual appropriation, 

there is no well-defined relationship between changes in 

funding and changes in food costs. Nevertheless, the 

effect of increased ethanol production on the cost of the 

basket of goods available through WIC could be similar 

to the impact that ethanol production has had on food 

prices in the SNAP and school meals programs. Under 

the assumptions that increases in domestic ethanol production contributed about 10 percent to 15 percent of 

the increase in the cost of the WIC food package and that 

participation in the program remained roughly constant, 

increased production of ethanol would have accounted 

for less than $75 million of the program’s spending for 

fiscal year 2008, CBO estimates.

Ethanol Production and 

Greenhouse-Gas Emissions

Research suggests that the use of ethanol currently 

reduces greenhouse-gas emissions relative to the use of 

gasoline because, over the “life cycle” of the two fuels—

that is, during their production, distribution, and 

combustion—ethanol uses less fossil fuel energy than 

does gasoline. Yet if ethanol production continues to 

increase, whether use of the fuel reduces greenhouse-gas 

42. To calculate the change in expenditures for those federal programs, CBO estimated the changes in the CPI-U categories for 

food consumed at home and food consumed away from home 

that were attributable to increased production of ethanol. Those 

calculations incorporated the assumption that 66 percent of calories were consumed at home and 34 percent of calories were consumed away from home. See Biing-Hwan Lin, Elizabeth Frazão, 

and Joanne Guthrie, Away-From-Home Foods Increasingly Important to Quality of American Diet, Report No. AIB749 (Department of Agriculture, Economic Research Service, 1999). 

Actual Outlays, 2008 39.3 13.9 53.2

54.4 15.4 69.8

Total Change in Outlays 15.1 1.5 16.6

4.7 0.6 5.3

0.5 to 0.8 0.6 to 0.9 0.1

Projected Outlays, 2009c

Memorandum:

Change Attributable to 

Increased Food Pricesd

Change Attributable to 

Ethanol Production

Child Nutrition

Programsb SNAPa Total
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 13

CBO

emissions will also depend on changes in land use that 

might offset the potential reduction in emissions. For 

example, a substantial amount of carbon already stored in 

forests or grasslands could be released if those lands were 

converted into land to grow crops (such as corn) that 

would be used to make ethanol, or to grow crops that had 

been displaced by the ethanol feedstocks. 

Greenhouse-Gas Emissions During a Fuel’s 

Life Cycle

Analysis of greenhouse-gas emissions from ethanol and 

gasoline depends on measurements during all stages of 

their product life cycles, including production, distribution, and combustion of the fuels. In that regard, ethanol 

has advantages over gasoline during certain stages but disadvantages during others. On balance, the use of corn 

ethanol that has been produced at plants fueled by natural gas (which accounts for most of the United States’ 

production of ethanol) is estimated to generate fewer 

greenhouse-gas emissions than the use of gasoline. 

Producing ethanol from corn and distributing it emits 

more greenhouse gases than producing gasoline from 

crude oil and distributing it. (That is, planting, fertilizing, and harvesting corn as an ethanol feedstock uses 

more fossil-fuel energy than does drilling for petroleum, 

refining it into gasoline, and delivering it to customers.) 

But the relationship is reversed for other phases of the 

fuels’ life cycles: After accounting for the carbon dioxide 

that is removed from the atmosphere when the corn is 

grown, net emissions from the combustion of gasoline are 

greater than those from burning ethanol.

Looking at the entire life cycle of the two fuels, research 

conducted at Argonne National Laboratory (ANL) compared the greenhouse-gas emissions of ethanol and gasoline.43 That research, which has been widely accepted by 

federal agencies, found that the use of corn ethanol as it is 

currently produced—using coal-fired and natural gasfired plants—reduces life-cycle greenhouse-gas emissions 

by about 20 percent when compared with the use of gasoline.44 Calculated on the basis of the volume of ethanol 

used in the United States last year, that percentage reduction is equivalent to about 14 million metric tons of carbon dioxide and equivalent gases, or CO2e.45 That 

amount is about 0.7 percent of the total greenhouse-gas 

emissions generated in the transportation sector during 

2008.46

The reduction in greenhouse-gas emissions depends critically on which fuel is used to produce ethanol. The ANL 

researchers found that if corn ethanol was produced at a 

plant that used natural gas to fuel its production processes, the life-cycle greenhouse-gas emissions for ethanol 

would be about 30 percent lower than those for gasoline. 

In contrast, corn ethanol that was produced by using 

energy derived from burning coal would increase lifecycle greenhouse-gas emissions by 3 percent compared 

with gasoline (because the burning of coal produces a 

much greater volume of emissions than does the burning 

of natural gas). Most ethanol plants in the United States 

are fueled by natural gas. The rest are coal fired or fired 

jointly by coal and natural gas. 

The ANL researchers’ finding that ethanol releases fewer 

life-cycle greenhouse-gas emissions than gasoline releases 

has been challenged by some analysts. An alternative 

viewpoint is that the production of corn ethanol produces more life-cycle greenhouse-gas emissions than gasoline does because the production of such ethanol relies 

more heavily on fossil fuels than the ANL researchers’

43. Michael Wang, May Wu, and Hong Huo, “Life-Cycle Energy and 

Greenhouse Gas Emission Impacts of Different Corn Ethanol 

Plant Types,” Environmental Research Letters, vol. 2, no. 2 (2007). 

44. ANL’s estimate of the reduction in life-cycle greenhouse-gas emissions from using corn ethanol in place of gasoline is consistent 

with a range of other recent estimates. For example, a 2006 study 

found that the use of corn ethanol reduced life-cycle greenhousegas emissions by 12 percent (see Jason Hill and others, “Environmental, Economic, and Energetic Costs and Benefits of Biodiesel 

and Ethanol Biofuels,” Proceedings of the National Academy of Sciences, vol. 103, no. 30, July 25, 2006), whereas a 2009 study 

found a reduction of 50 percent to 60 percent (see Adam J. Liska 

and others, “Improvements in Life Cycle Energy Efficiency and 

Greenhouse Gas Emissions of Corn-Ethanol,” Journal of Industrial 

Ecology, vol. 13, no. 1, 2009).

45. Individual greenhouse gases have different warming characteristics 

and persist in the atmosphere for different lengths of time. To 

simplify matters, researchers commonly refer to emissions and 

atmospheric concentrations of those greenhouse gases in terms of 

metric tons (a metric ton is approximately 2,200 pounds) of carbon dioxide equivalent, or CO2e—the amount of carbon dioxide 

that would cause an equivalent amount of warming over a certain 

period (typically 100 years).

46. Energy Information Administration, “Annual Energy Outlook 

2009,” Table 18.
14 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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estimates recognize.47 Such analysts also contend that the 

reductions in greenhouse-gas emissions derived from 

using by-products of ethanol production to displace the 

production of other goods—such as animal feeds or fertilizer—are smaller than those assumed in the ANL analysis.48 Those criticisms are not widely embraced, however. Some observers argue that such contentions are 

based on outdated data, on overestimates of how much 

fossil fuel is used in farming and in ethanol production, 

and on underestimates of the extent to which the use of 

by-products from ethanol production reduces the 

amount of fossil fuels used for producing other goods.49

Cellulosic ethanol—produced by using switchgrass (a 

North American grass used for hay and forage), corn stover (the leaves and stalks of the corn plant), or forest 

residues (in general, small or dead wood items not useful 

for resale and wastes from lumber operations) as feedstocks—offers the potential for greater reductions in 

greenhouse-gas emissions (see Figure 3). Relative to corn 

ethanol, cellulosic ethanol is expected to produce fewer 

net greenhouse-gas emissions because cellulosic wastes 

(rather than fossil fuels) might be used as a source of 

energy for an ethanol plant’s operations or in cogeneration facilities (facilities that produce electricity as well as 

steam that can be used for the plant’s operations). Electricity produced by such facilities could be transmitted to 

the electric grid, which might reduce the use of fossil fuels 

in coal-fired or natural gas-fired power plants.50

According to researchers, cellulosic ethanol, if successfully 

developed, could reduce greenhouse-gas emissions by 

85 percent to 95 percent relative to emissions associated 

with the production of gasoline.51 In the long run, if cellulosic ethanol could be produced on a large scale and if 

that fuel along with corn ethanol was substituted for gasoline at the levels called for under the EISA mandate, 

greenhouse-gas emissions might be reduced by about 

130 million metric tons of CO2e by 2022, or 6 percent of 

total projected emissions from the transportation sector 

and 2 percent of total emissions generated in the United 

States.52

The technology for large-scale commercial production of 

the fuel, however, has not yet been developed. Estimates 

of the reductions in emissions that might be gained from 

producing and using cellulosic ethanol reflect assumptions about potential future technology and production 

processes. Considerable technical hurdles must be overcome—to access the sugars within the cellulose and convert them into ethanol—before commercial production 

of the fuel can occur on a large scale. EIA projects that 

those technological constraints are substantial enough 

that the federal mandate for the use of advanced biofuels, 

including cellulosic ethanol, in 2022—21 billion 

gallons—will not be met until 2027.53

Changes in Land Use

In addition to the life-cycle considerations that form the 

basis of the ANL research, changes in patterns of land use 

could also affect the total greenhouse-gas emissions associated with producing and using ethanol. Increased 

47. David Pimentel and Tad W. Patzek, “Ethanol Production Using production of ethanol may cause direct changes in such 

Corn, Switchgrass, and Wood; Biodiesel Production Using Soybean and Sunflower,” Natural Resources Research, vol. 14, no. 1 

(March 2005).

48. Coproduct credits—ethanol by-products that reduce the amount 

of fossil-fuel energy used in other industries—are assumed to 

reduce the net amount of fossil-fuel energy consumed in producing ethanol. The use of distillers’ dried grains as animal feed, for 

example, displaces some production of other feeds and reduces the 

overall use of fossil fuels. The resulting decrease in greenhouse-gas 

emissions is credited to the production of ethanol.

49. For example, see the discussion in Environmental Protection 

Agency, Office of Transportation and Air Quality, Regulatory 

Impact Analysis: Renewable Fuel Standard Program, Report 

No. EPA420-R-07-004 (April 2007), p. 226.

50. See, for example, R.V. Morey, D.G. Tiffany, and D.L. Hatfield, 

“Biomass for Electricity and Process Heat at Ethanol Plants,” 

Applied Engineering in Agriculture, vol. 22, no. 5 (2006), 

pp. 723–728. 

51. Wang, Wu, and Huo, “Life-Cycle Energy and Greenhouse Gas 

Emission Impacts”; M.R. Schmer and others, “Net Energy of Cellulosic Ethanol from Switchgrass,” Proceedings of the National 

Academy of Sciences, vol. 105, no. 2 (January 13, 2008), p. 464; 

and May Wu, Michael Wang, and Hong Huo, Fuel-Cycle Assessment of Selected Bioethanol Production Pathways in the United 

States, ANL/ESD/06-7 (Chicago: Argonne National Laboratory, 

Center for Transportation Research, Energy Systems Division, 

November 2006), p. 41.

52. That estimate is based on the Energy Information Administration’s forecast of total greenhouse-gas emissions from transportation (available at www.eia.doe.gov/oiaf/aeo/excel/aeotab_18.xls)

and incorporates the assumption that the ethanol mandates for 

2022 under EISA are fully met. 

53. Energy Information Administration, Annual Energy Outlook 

2009, DOE/EIA-0383(2009) (March 2009), p. 81, available at 

www.eia.doe.gov/oiaf/aeo/pdf/0383(2009).pdf.
THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS 15

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Figure 3.

Life-Cycle Greenhouse-Gas Emissions from Selected Fuels

(Pounds of CO2e per energy-equivalent gallon of gasoline)

Source: Congressional Budget Office based on Michael Wang, May Wu, and Hong Huo, “Life-Cycle Energy and Greenhouse Gas Emission 

Impacts of Different Corn Ethanol Plant Types,” Environmental Research Letters, vol. 2, no. 2 (2007).

Notes: Life-cycle emissions are those generated during production, distribution, and consumption of gasoline and ethanol.

For the ethanol-based fuels, greenhouse-gas emissions are measured as the pounds of carbon dioxide equivalent (CO2e) generated by 

the amount of ethanol—generally about 1.5 gallons—whose energy content corresponds to that of a gallon of gasoline. (Because 

individual greenhouse gases vary in their warming characteristics and persistence in the atmosphere, researchers commonly measure 

emissions in CO2e—an amount of carbon dioxide that would cause an equivalent amount of warming over 100 years.)

Plants that produce ethanol require a source of thermal energy for their operations. Most ethanol-producing plants in the United 

States that use corn as a feedstock are natural gas-fired facilities. The remainder use either coal or both coal and natural gas. 

a. Reflects average greenhouse-gas emissions generated from the mix of U.S. coal- and natural gas-fired facilities that produce corn ethanol.

b. Emissions expected from the use of a future technology that would allow ethanol to be produced from switchgrass.

patterns. For example, land that was not previously used 

for farming may be brought under cultivation to grow 

corn or other ethanol feedstocks. Increased ethanol production may also cause indirect changes in land use; for 

instance, new farmland may be cultivated to grow crops 

that have been displaced elsewhere by the growing of ethanol feedstocks. 

Some researchers believe that if sufficient grasslands and 

forests are converted into cropland for producing ethanol 

feedstocks and for producing the crops displaced by those 

feedstocks, the potential benefits of ethanol in terms of 

lower greenhouse-gas emissions will be reduced or eliminated. Those researchers contend that the conversion of 

those lands releases greenhouse gases and reduces their 

ability to sequester carbon—that is, to capture and store 

carbon to prevent its release into the atmosphere—

because cropland absorbs less carbon than do grasslands 

and forests. The use of ethanol produced from land that 

had previously been grassland or forest can reduce 

greenhouse-gas emissions relative to the use of gasoline 

only after offsetting both the carbon released by converting that land into new farmland and the reduction in the 

future carbon sequestration those lands will provide.54

Gasoline Corn Ethanol

Produced

Using Coal

Corn Ethanol

(Average)

Corn Ethanol

Produced Using

Natural Gas

Cellulosic Ethanol

(Projected)

0

5

10

15

20

25

30

a b

54. Congressional Budget Office, The Potential for Carbon Sequestration in the United States (September 2007).
16 THE IMPACT OF ETHANOL USE ON FOOD PRICES AND GREENHOUSE-GAS EMISSIONS

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Table 3.

How Land Conversion to Grow Crops for Ethanol Production May Delay 

Reductions in Greenhouse-Gas Emissions Resulting from the Use of Ethanol 

Source: Congressional Budget Office based on Joseph Fargione and others, “Land Clearing and the Biofuel Carbon Debt,” Science, vol. 319, 

no. 5867 (2008), pp. 1235–1238; Timothy Searchinger and others, “Use of U.S. Croplands for Biofuels Increases Greenhouse Gases 

Through Emissions from Land-Use Change,” Science, vol. 319, no. 5867 (2008), pp. 1238–1240; and Renewable Fuels Agency, The 

Gallagher Review of the Indirect Effects of Biofuels Production (study commissioned by the Secretary of State for Transport, United 

Kingdom, July 2008).

a. Prairie biomass constitutes mixtures of native perennial prairie grasses and other flowering plants.

b. Switchgrass is a type of grass native to North America and used primarily as rangeland forage and hay. 

The impact on net greenhouse-gas emissions from changing the way land is used depends on the feedstock harvested to produce ethanol and the type of land converted 

(see Table 3). For example, some research indicates that 

the use of ethanol produced from switchgrass may require 

more than 50 years to offset the carbon being released 

into the atmosphere by converting land to agricultural 

use, and that the use of ethanol made from corn grown 

on land converted from forests and grassland may require 

almost 170 years to achieve that outcome. 

The effects of changes in land use—such as converting 

forests into cropland—would reduce or eliminate some of 

the greenhouse-gas emission benefits that the ANL 

researchers found for ethanol. Yet critics of the view that 

land-use changes would greatly reduce biofuels’ ability to 

reduce greenhouse-gas emissions maintain that such 

potential changes represent a worst-case scenario and that 

improved land-management practices will prevent them 

from having a large impact on the net reduction in greenhouse-gas emissions to be gained from the use of biofuels. 

Furthermore, certain land-use changes are highly 

unlikely; for example, switchgrass will probably not be 

grown on cropland previously used to grow corn because 

a nonfood crop is likely to remain less valuable than a 

food crop.55 In addition, critics assert that estimates of 

changes in greenhouse-gas emissions that might result 

from changes in land use depend on complicated and 

uncertain economic relationships and are necessarily 

imprecise. 

Biofuel/Land Converted Location Study

Corn Ethanol

Grassland United States 93 Fargione and others

Abandoned Cropland United States 48 Fargione and others

Mix of Forest and Grassland United States 167 Searchinger and others

Prairie Biomassa/Abandoned Cropland United States 1 Fargione and others

Sugarcane Ethanol

Forest Brazil 17 Fargione and others

Grazing Land Brazil 4 Searchinger and others

Rainforest Brazil 45 Searchinger and others

Grassland Brazil Renewable Fuels Agency

Forest Brazil Renewable Fuels Agency

Switchgrass Ethanolb

/Cropland United States 52 Searchinger and others

Wheat Ethanol

Grassland United Kingdom Renewable Fuels Agency

Forest United Kingdom Renewable Fuels Agency

20 to 34

80 to 140

Years Until Net 

Carbon Reduction

3 to 10

15 to 39

55. Department of Energy, “New Studies Portray Unbalanced Perspective on Biofuels: DOE Committed to Environmentally Sound 

Biofuels Development” (news release, May 23, 2008), available 

at www1.eere.energy.gov/biomass/news_detail.html?news_

id=11794. See also Roger A. Sedjo, “Biofuels: Think Outside the 

Cornfield” (letter), Science, vol. 320, no. 5882 (2008), pp. 1420–

1421.