How To Fix The Ethanol Industry

The key goal here is to get the federal government out of the position of strongly impacting the market for ethanol.

The Saudi Arabia of Ethanol

Over the years, I have often referred to Iowa as “The Saudi Arabia of Ethanol.” That was once a more appropriate title when Saudi Arabia was the undisputed king of global oil production, but perhaps less so with the explosion of U.S. shale oil production.

Nevertheless, there are still important elements in the comparison. At present Iowa has the capacity to produce 4.3 billion gallons of ethanol per year, which is 26% of the nation’s total (Source). This is of course due to the large amount of corn production in Iowa, enabled by ample rainfall and rich topsoil.

Saudi Arabia produces 13% of the world’s oil. But Saudi Arabia differs from Iowa with respect to energy production in one very important detail: Saudi Arabia satisfies its own energy needs with the oil they produce, and exports the excess. Iowa produces lots of ethanol, and exports the vast majority of it. Iowa produces no oil at all, but that makes up the vast majority of its energy consumption.

Gasoline consumption in Iowa is presently around 1.5 billion gallons per year (Source). The state consumes another 800 million gallons per year of diesel. According to the Iowa Renewable Fuels Association, gasoline blended with 10% ethanol (E10) makes up about 86% of the fuel supply. E15 and other mid-level ethanol blends (20% to 30%) currently amount to about 9 million gallons per year sold, while 85% ethanol blends (E85) make up another 13.5 million gallons per year.

Add it all up, and Iowa consumes less than 150 million gallons a year of the ethanol it produces. It exports the vast majority, but then it must import gasoline and diesel to meet its fuel needs. Can you imagine Saudi Arabia exporting essentially all of its oil, but then having to import some other fuel to meet its energy needs?

The 4.3 billion gallons per year of ethanol that Iowa produces has the energy content of about 2.6 billion gallons of diesel and gasoline. Thus, Iowa produces more than enough ethanol to be self-sufficient — if it used the ethanol it produces. Yet, petroleum continues to supply over 90% of the fuel in Iowa, and virtually all of the fuel used in the farm equipment for growing all that corn. Meanwhile, Iowa is at the mercy of a trade war with China that is impacting its ethanol exports. Something is very wrong with this picture.