This report provides background and discussion of policy issues relating to U.S. ethanol production, especially ethanol made from corn. It discusses U.S. fuel ethanol consumption both as a gasoline blending component and as an alternative to gasoline. The biggest use of fuel ethanol in the United States is as an additive in gasoline. 109-58 ) established a renewable fuels standard (RFS), which mandates the use of ethanol and other transportation renewable fuels. About 1% is consumed as "E85" (85% ethanol and 15% gasoline), and alternative to gasoline. Critics of the ethanol industry in general—and specifically of the ethanol tax incentives—have argued that the tax incentives for ethanol production equate to "corporate welfare" for a few large producers. Further, they concluded that the level of concentration has been decreasing in recent years. Under various federal and state laws and incentives, consumption has increased from 1.8 billion gallons per year in 2001 to 6.8 billion gallons per year in 2007. Higher the corn prices lead to lower profits for ethanol producers; higher gasoline prices lead to higher profits. Recently, high corn prices have cut into corn ethanol producers' profits. It is expected that much of this requirement will be met with ethanol. Another obstacle is that, as stated above, fuel ethanol is often more expensive than gasoline or diesel fuel. Other potential benefits from the development of cellulosic ethanol include lower greenhouse gas and air pollutant emissions and a higher energy balance than corn-based ethanol. Further, starting in 2016, and increasing share of the RFS must come from "advanced biofuels," such as cellulosic ethanol, ethanol from sugar cane, and biodiesel. The 108 th Congress replaced this exemption with an income tax credit of 51 cents per gallon of pure ethanol used in blending ( P.L. Proponents of the tax incentive argue that ethanol leads to better air quality and reduced greenhouse gas emissions, and that substantial benefits flow to the agriculture sector due to the increased demand for corn to produce ethanol. Energy Consumption and Greenhouse Gas Emissions

		Energy Balance

A frequent argument for the use of ethanol as a motor fuel is that it reduces U.S. reliance on oil imports, making the U.S. less vulnerable to a fuel embargo of the sort that occurred in the 1970s. 109-58 ) and the Energy Independence and Security Act of 2007 ( P.L. 110-140 ), signed by President Bush on December 19, 2007, significantly expanded the RFS, requiring the use of 9.0 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons in 2022. 110-140 requires an increasing amount of the mandate be met with "advanced biofuels"—biofuels produced from feedstocks other than corn starch (and with 50% lower lifecycle greenhouse gas emissions than petroleum fuels). The incentives allow fuel ethanol to compete with other additives, since the wholesale price of ethanol is so high. Proponents of ethanol argue that the incentives lower dependence on foreign imports, promote air quality, and benefit farmers. Enacted as part of the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007, the renewable fuels standard will continue to drive growth in the ethanol market, as it mandates a minimum annual amount (increasing yearly) of renewable fuel in gasoline. Any discussion of U.S. energy policy includes promotion of alternatives to petroleum.
Ethanol plays a key role in policy discussions about energy, agriculture, taxes, and the environment. In the United States it is mostly made from corn; in other countries it is often made from cane sugar. Fuel ethanol is generally blended in gasoline to reduce emissions, increase octane, and extend gasoline stocks. Recent high oil and gasoline prices have led to increased interest in alternatives to petroleum fuels for transportation. Further, concerns over climate change have raised interest in developing fuels with lower fuel-cycle greenhouse-gas emissions. Supporters of ethanol argue that its use can lead to lower emissions of toxic and ozone-forming pollutants, and greenhouse gases, especially if higher-level blends are used. They further argue that ethanol use displaces petroleum imports, thus promoting energy security. Ethanol's detractors argue that various federal and state policies supporting ethanol distort the market and amount to corporate welfare for corn growers and ethanol producers. Further, they argue that the energy and chemical inputs needed to turn corn into ethanol actually increase emissions and energy consumption, although most recent studies have found modest energy and emissions benefits from ethanol use relative to gasoline, depending on how the ethanol is produced.
The market for fuel ethanol is heavily dependent on federal incentives and regulations. Ethanol production is encouraged by a federal tax credit of 51 cents per gallon. This incentive allows ethanol—which has historically been more expensive than conventional gasoline—to compete with gasoline and other blending components. In addition to the above tax credit, small ethanol producers qualify for an additional production credit. It has been argued that the fuel ethanol industry could scarcely survive without these incentives.
In addition to the above tax incentives, the Energy Policy Act of 2005 (P.L. 109-58) established a renewable fuel standard (RFS). This RFS was expanded by the Energy Independence and Security Act of 2007 (P.L. 110-140), and requires the use of 9.0 billion gallons of renewable fuels in 2008, increasing each year to 36 billion gallons in 2022. Much of this requirement will likely be met with ethanol. In addition, the bill requires that an increasing share of the mandate be met with "advanced biofuels"—biofuels produced from feedstocks other than corn starch. Potential "advanced biofuels" include domestic ethanol from cellulosic material (such as perennial grasses and municipal solid waste), ethanol from sugar cane, and diesel fuel substitutes produced from a variety of feedstocks. The United States consumed approximately 6.8 billion gallons of ethanol in 2007, mostly from corn. A significant supply of cellulosic ethanol is likely several years off. Some analysts believe the RFS could have serious effects on motor fuel suppliers, leading to higher fuel prices.
Other issues of congressional interest include support for purer blends of ethanol as an alternative to gasoline (as opposed to a gasoline blending component), promotion of ethanol vehicles and infrastructure, and imports of ethanol from foreign countries. This report supersedes CRS Report RL30369, Fuel Ethanol: Background and Public Policy Issues, by [author name scrubbed] and [author name scrubbed] (out of print but available from the authors).