Ethanol: Where It Comes From and Where It's Going

With California ramping up its ethanol consumption, we thought now would be a good time to get back to the basics.

What is ethanol? How is it produced? What makes it more efficient than gasoline?

This article, excerpted from The Citizen-Powered Energy Handbook: Community Solutions to a Global Crisis by Greg Pahl, explains.

Whether it’s made legally or illegally, ethanol (ethyl alcohol, alcohol, or grain spirits) is made by converting the carbohydrate portion of biomass into sugar, which is then converted into ethanol in a fermentation process that is similar to brewing beer. This is the drinkable version of alcohol, and the active ingredient in beer, wine, and spirits (the nondrinkable version, known as methanol or wood alcohol, is poisonous). Simply stated, here is how the process works. The grain that is used as the feedstock is usually ground up to make the starches more available. The ground grain is mixed with water, cooked briefly, and enzymes are added to convert the starch to sugar using a chemical reaction called hydrolysis. The sugar is then fed to yeast, which digests the sugar and water to produce alcohol (ethanol) and carbon dioxide. The ethanol is separated from the mixture by distillation and the water is removed from the mixture using a dehydration process. The ethanol is then normally “denatured” with the addition of between 1 and 5 percent gasoline, making it unfit for human consumption, but usable as a fuel for internal combustion engines. Moonshiners would be appalled at this last step.

Ethanol offers a number of advantages over gasoline. Unlike gasoline, ethanol contains oxygen, which increases the efficiency of the combustion process, reducing tailpipe emissions of carbon monoxide (CO), nitrogen oxides (NOx), particulate matter, and ozone-forming air toxins. Much of the octane needed for the performance of today’s gasoline comes from highly toxic aromatic chemicals such as benzene, toulene, and xylene. Ethanol enhances fuel octane and generally provides a cleaner-burning alternative, although a few researchers have raised questions about increased ozone levels in warmer climates where low blends (5 to 10 percent) of ethanol with gasoline are used. Ethanol also has a lower energy content than gasoline, 83,333 Btu per gallon versus 124,800 Btu for gasoline. On the other hand, ethanol has a higher octane rating than gasoline (129 versus 91), making up somewhat for the reduced fuel economy. Ethanol also tends to clean out dirty deposits in fuel systems, sometimes requiring more frequent fuel filter changes, and acts as a gas-line antifreeze (or “dry gas”) by absorbing moisture. Ethanol is biodegradable, with no lasting harmful effects on the environment if accidentally spilled.

Ethanol is the most widely used liquid biofuel today around the world, with about 12 billion gallons produced annually. Feedstock crops include sugarcane, corn, wheat, sugar beets, and a variety of other grains. The top five producers are the United States, Brazil, China, India, and France— which combined account for almost 90 percent of global production.4 Since the mid 1970s, Brazil has had a deliberate government program to replace imported gasoline with domestically produced ethanol made from locally grown sugarcane. Originally the program was heavily subsidized, but those subsidies were ended in the mid 1990s, and even without them the price of ethanol today is only half that of gasoline. Ethanol currently accounts for 40 percent of the fuel sold in Brazil, and the nation intends to meet virtually all of the fuel needs of its automobile fleet with ethanol in the near future.5 Not surprisingly, flexible-fuel vehicles that can run on gasoline, ethanol, or any mixture of the two have become extremely popular in Brazil, and seven out of every ten new cars sold in Brazil are flex-fuel.6

In 2005, U.S. production of ethanol was 3.9 billion gallons annually from 96 refineries based mainly on corn as a feedstock, according to the Department of Energy. But demand for ethanol is strong—and growing dramatically (as of August 2006, those figures had risen to 4.8 billion gallons annually from 101 refineries). The industry set a new production record in January 2006 with 288,000 barrels per day (b/d), compared with 241,000 b/d the previous year, according to the U.S. Energy Information Administration. There are 41 plants and 7 expansions under construction that will soon add another 2.8 billion gallons to the annual production capacity.7 Despite this dramatic growth, current ethanol production represents only 3 percent of the approximately 145 billion gallons of gasoline consumed in the United States annually. Ethanol has been blended with about 30 percent of the U.S. gasoline supply as an oxygenate or fuel extender for use in gasoline-powered vehicles. More recently, ethanol has been the choice of the oil industry to replace MTBE, a gasoline additive that was supposed to reduce air pollution but wound up polluting groundwater instead. This switch has spurred unprecedented demand for ethanol since early 2006, and the industry has been hard-pressed to meet that demand.

The dramatic growth in new ethanol plant construction, however, has a darker side. One of the most worrisome aspects is the appearance of new coal-fired ethanol refineries. That’s right, coal-fired. This bizarre development even has some long-time ethanol supporters scratching their heads. In December 2005, a new ethanol refinery in Goldfield, Iowa, began producing what supporters describe as the “clean, renewable fuel of the future.” The only problem is that this refinery uses three hundred tons of coal a day in the production process instead of natural gas. Another coal-fired ethanol plant is being constructed in the town of Nevada, Iowa, and at least three other refineries that will rely on coal are being built in Montana, North Dakota, and Minnesota. This trend, which is based on the lower price of coal compared to natural gas, has the potential to undermine the whole rationale for switching to ethanol in the first place, according to many observers, and is quickly becoming a public relations nightmare for an industry that doesn’t need any more problems. “If your goal is to reduce costs, then coal is a good idea,” says Robert Brown, director of Iowa State University’s Office of Biorenewables. “If the goal is a renewable fuel, coal is a bad idea. When greenhouse-gas emissions go up, environmentalists take note. Then you’ve got a problem.”8

In a related development, the huge surge in interest in ethanol has resulted in a dramatic shift in plant ownership patterns since 2005. In prior years well over 50 percent of ethanol plants were owned by farmers’ cooperatives. But beginning in 2005, the number of farmer-owned plants plummeted to only six of the forty-two new projects under construction, according to the Iowa Renewable Fuels Association.9 This dramatic shift has raised some concerns, especially among farmers, who view local community ownership of these plants as a bright spot in an otherwise difficult environment that has repeatedly challenged their survival skills in recent years. The real impetus for the recent surge has been the passage of the Energy Policy Act in August 2005, which set a target of 7.5 billion gallons of renewable fuels by 2012 and offered incentives to help reach that goal. The excellent financial returns on ethanol investment—often in the 20 to 30 percent range in recent years—has also finally attracted the attention of Wall Street. Not everyone is happy with this development. “Today the rise of giant plants and absentee plant ownership threatens to divorce our agricultural and even economic development goals from our goal of reducing dependence on imported oil,” says David Morris from the Institute for Local Self-Reliance. “Something needs to be done. Now.”10

  1. Earth Policy Institute, “World ethanol production, 2004,” (accessed on March 12, 2006).
  2. Earth Policy Institute, “Ethanol’s potential: Looking beyond corn,” June 29, 2005, (accessed on March 15, 2006).
  3. David Luhnow and Geraldo Samor, “Brazil fills up on ethanol, weans off energy imports,” The Wall Street Journal, January 12, 2006,
  4. EERE Network News, August 30, 2006, (accessed on August 30, 2006).
  5. Mark Clayton, “Carbon cloud over a green fuel,” Christian Science Monitor, March 23, 2006,
  6. Philip Brasher, “Ethanol ownership shifting from farmers,”, March 1, 2006, BUSINESS01/603010350/1029/BUSINESS (accessed on March 15, 2006).
  7. David Morris, Institute For Local Self-Reliance, “Ownership matters: Three steps to ensure a biofuels industry that truly benefits rural America,” February 2006, (accessed on March 15, 2006).
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