# Fun with Numbers: The New USDA Report on Corn Ethanol

The EROEI of Ethanol

Over the past decade, the United States Department of Agriculture (USDA) has published several papers in which they investigated the energy return of corn ethanol. The energy return on energy invested (EROEI) is simply the value of the energy outputs for a process divided by the energy inputs into the process. In simple terms, if a process required 1 BTU of energy to produce 2 BTUs of ethanol, the EROEI is 2.

However, in reality it is somewhat more complex than that. The way the energy inputs and outputs are allocated can have a very big influence on the answer. Just by changing the nature of the allocation – as I will show below – you can sharply change the EROEI value.

There are caveats one should apply when using EROEI. First, EROEI is most useful when fungible energy types are involved. One wouldn’t typically use 1 BTU of gasoline to make 1 BTU of ethanol, but it might be economically attractive to turn 2 BTUs of coal into 1 BTU of ethanol (EROEI = 0.5). Second, there is no time factor involved in EROEI calculations, so it is possible for a lower EROEI process to be more attractive than a higher EROEI process if the former returns the energy over a shorter time interval.

There are also often byproducts to consider. When a gallon of ethanol is produced, some byproducts are also produced. The main byproduct is the remnants of the grains used to produce the ethanol. There are several versions of the byproduct depending on the exact process, but Distillers Dried Grains with Solubles (DDGS) is probably the most common. Each gallon of ethanol produced results in approximately 6.25 pounds of DDGS as a byproduct.

So if it takes 1 BTU of energy to produce 1 BTU of ethanol and some quantity of DDGS, how do you account for the energy content of the DDGS? The way the USDA has accounted for this has evolved over the years. One way would be just to calculate the energy content of the DDGS. This has problems in that DDGS is not typically used for producing energy. Another method is to calculate it on a replacement value basis. As DDGS is produced, something else of similar nutritional value was in theory displaced in the market. The replacement value considers the energy it would have taken to produce the replacement, and credits that energy to the energy balance of ethanol.

The 2002 USDA Report

In 2002, the USDA published The Energy Balance of Corn Ethanol (1). The authors estimated the energy inputs required to produce one gallon of ethanol. They calculated that across nine major corn producing states the average input was 77,228 BTUs to produce 83,961 BTUs of ethanol (the higher heating value, or HHV* of ethanol).

If the outputs are 83,961 BTUs of ethanol plus 14,372 BTUs of byproducts and the inputs were 77,228, I would calculate the energy return as 1.27. However, the authors reported: “We show that corn ethanol is energy efficient as indicated by an energy output:input ratio of 1.34.” Why the apparent discrepancy? Because instead of adding the byproduct to the output side, they treated it as an offset to the energy inputs. In other words, they said “Since we got 14,372 BTUs of byproducts, our inputs were really 77,228 BTUs minus 14,372 BTUs, or 62,856 BTUs.” Using the lower input allowed them to report a higher energy balance of 1.34. However, 1.34 was NOT the actual output:input ratio.

Imagine if financial returns were calculated in this manner. Say you invested \$100, and got a return of \$35 cash plus goods (byproduct) that you valued at \$30. What is the return on investment? Most people would say that you got a total return of \$65 on the investment of \$100, for a total return of 65%. Or we could say the cash return is 35%. But if we utilize the USDA’s ethanol accounting, we would use the \$30 co-credit to offset our initial investment. We could then argue that we only “really” invested \$70 to get a cash return of \$35, for a cash return of 50%. So, the answer to the question – “When can a \$35 return on a \$100 investment amount to a 50% return on investment?” – is “Whenever we apply the rules the USDA uses for ethanol accounting.”

That’s not to say it’s the “wrong” way to do it, but it is certainly a method that inflates the energy returns for ethanol. In the example above, the \$35 cash return is analogous to ethanol production, and you can see how a 35% return gets inflated to 50%.

The 2004 Report: More Creativity

In an update two years later (2), the authors of the 2002 report noted that the report had a number of critics:

It is argued that USDA underestimates energy used in the production of nitrogen fertilizer and the energy used to produce seed-corn, over estimating the energy allocated to produce corn ethanol byproducts. They also argued that USDA excludes energy used in corn irrigation and secondary energy inputs used in the production of corn, such as farm machinery and equipment and cement, steel, and stainless steel, used in the construction of ethanol plants.

They sought to address some of the criticisms with an update in 2004. They acknowledged that certain energy inputs had been previously underestimated. They noted that the estimate of the energy required to produce a pound of nitrogen fertilizer had been underestimated in the 2002 report by 25%. In addition, they had initially assumed that the energy required for seed corn production was 1.5 times that of producing regular corn. In the 2004 report they said that it actually requires 4.7 times as much energy to produce seed corn. They pointed out that they did not include any secondary energy inputs (such as the energy to actually produce an ethanol plant) in either their 2002 or 2004 paper:

Energy used in the production of secondary inputs, such as farm machinery and equipment used in corn production, and cement, steel, and stainless steel used in the construction of ethanol plants, are not included in our study. Available information in this area is old and outdated. Pimentel, in his latest report (2003), used the 1979 Slesser and Lewis to estimate the energy used in the production of steel, stainless steel, and cement.

So they pointed out that Professor Pimentel used 1979 data, but in their calculations they used no data. That caveat in the 2004 report is always overlooked when the energy returns are reported.

In light of all of the corrections to the 2002 report, one might presume that the energy return had been corrected downward. But amazingly, despite having underestimated key energy inputs in the earlier report, in 2004 they reported the energy return at 1.67, much better than the 1.34 in their 2002 report.

Had the industry made such enormous strides in two short years? No, the reported increase was due to a change in the way they allocated the energy inputs. In contrast to the previous replacement method, starting with the 2004 report they applied the following logic:

Only starch is converted to ethanol. On the average, starch accounts for 66 percent of the corn kernel weight (15 percent moisture). Therefore, 66 percent of energy used to produce and transport corn to ethanol plants is allocated to ethanol and 34 percent to byproducts.

Again, there isn’t a perfect method here for allocating energy inputs, but this one seems fairly arbitrary. One thing the change did do was dramatically increase the apparent energy balance. Using the method from the 2002 report would have caused the EROEI to drop because of the corrections that were made, but by shifting more of the energy inputs into the byproducts the 2002 reported energy balance of 1.34 became an EROEI of 1.67 in 2004.

This resulted in a general impression among many that the ethanol industry had made great strides in increasing their energy efficiency when the truth was just an accounting change. If we simply go to the numbers, we find the following from the 2004 report. Ignoring byproduct credits, they have energy inputs of 72,052 BTUs to produce 76,375 BTUs of ethanol (they also changed from using higher heating values in 2002 to lower heating values in 2004), for an energy return on energy invested (EROEI) of 1.06.

In 2002 they estimated a byproduct value at 14,372 BTU/gallon of ethanol. If we add that to the BTUs of the ethanol they reported in the 2004 report, we get (76,375 + 14,372) BTUs out, or 90,747 BTUs out. Given their input of 72,052 BTUs, then their EROEI with byproducts is 90,747/72,052, or 1.26. (Actually, by going to lower heating values the previously reported 14,372 BTUs for byproducts would have also dropped, but there isn’t enough information available to calculate by how much.  Needless to say the EROEI based on the replacement methodology would have been lower in the 2004 report were it not for the accounting change).

The 2010 Update

Now in 2010, the USDA has released an update to their earlier reports (3). The new release is 2008 Energy Balance for the Corn-Ethanol Industry. One of the authors is Hosein Shapouri, who was the only author also listed on the previous two reports. The most interesting aspect of the report – which has gotten quite a bit of attention among ethanol proponents – was that the energy return for ethanol is now reportedly over 2 to 1:

A dry grind ethanol plant that produces and sells dry distiller’s grains and uses conventional fossil fuel power for thermal energy and electricity produces nearly two times more energy in the form of ethanol delivered to customers than it uses for corn, processing, and transportation. The ratio is about 2.3 BTU of ethanol for 1 BTU of energy in inputs, when a more generous means of removing byproduct energy is employed.

Of course I went straight to the numbers, and here is what they said. There have indeed been reported improvements in the efficiency of the corn ethanol process. The 2004 report estimated 72,052 BTUs to produce a gallon of ethanol, but the latest report estimates 53,785 BTUs to produce a gallon of ethanol. They then allocate 20,409 BTUs to the byproduct in the 2010 report, once again subtracting that from the energy inputs. This inflates the energy return by pretending that only 33,375 BTUs were required to produce the ethanol.

If we return to the method employed in the 2002 report, we find that 53,785 BTUs of inputs produced 76,375 BTUs of ethanol and 14,372 BTUs of byproducts (presumably, the value of byproducts per gallon of ethanol production wouldn’t change much) for a total output of 90,747 BTUs. That results in an energy return of 1.69, ironically almost the same number they had reported in the 2004 report when they changed their accounting methodology.

Methodology Comparison

So if we keep the accounting methodologies consistent, here are the ethanol-only energy returns (ethanol output/total energy input) from the raw data in the USDA reports:

2002 – 1.09
2004 – 1.06
2010 – 1.42

Here are the ethanol plus byproduct energy returns (ethanol plus byproduct output/total energy input):

2002 – 1.27
2004 – 1.26
2010 – 1.69

Here are the ratios from utilizing the USDA’s 2002 methodology (subtracting byproducts from the inputs) across all three reports:

2002 – 1.34
2004 – 1.32
2010 – 1.93

Finally, the ratios that the USDA highlighted and reported across all three reports:

2002 – 1.34
2004 – 1.67
2010 – 2.34

Conclusions

That is a respectable improvement to be sure, but we should keep in mind that they have admittedly not accounted for certain inputs (the secondary inputs they mentioned in the 2004 reports). But it also begs the question of whether the USDA’s methodologies are unbiased, or whether there is a consistent pattern of favoring calculation methods that inflate ethanol’s energy return. (If the EROEI for gasoline was calculated in this manner, it would be greater than 10:1 because fuel gas is generated in the process that is fed back into the refinery).

One final word about energy allocations for byproducts. If the idea is to find a scalable replacement for gasoline, consideration must be given to the amount of byproducts that result as the scale of fuel production is increased. At some point, the byproducts can saturate the market, which can cause other unintended consequences. This is the case with biodiesel and the glycerin byproduct that results; biodiesel producers often have a hard time getting rid of the byproduct.

For that reason, when I consider ethanol as a replacement contender for gasoline, I am more interested in the expenditure of energy to produce ethanol, and less interested in how creative we can get with allocating energy inputs to byproducts. In any case, what was approximately one BTU of ethanol output for one BTU of fossil fuel input in 2002 is now 1.4 BTUs of ethanol out for 1 BTU in, with the caveat that secondary inputs have not been considered.

References

1. Shapouri, H., J.A. Duffield, and M. Wang. 2002. The Energy Balance of Corn Ethanol: An Update. AER-814. Washington, D.C.: USDA Office of the Chief Economist.

2. Shapouri, H., J.A. Duffield, and M. Wang. 2004. The 2001 Net Energy Balance of Corn Ethanol. Washington, D.C.: USDA Office of the Chief Economist.

3. Shapouri, H., P. Gallagher, W. Nefstead, R. Schwartz, S. Noe, and R. Conway. 2010. 2008 Energy Balance for the Corn-Ethanol Industry. Washington, D.C.: USDA Office of the Chief Economist.

* The higher heating value of a substance that produces water vapor when combusted – such as ethanol – presumes that the water is condensed and the heat recovered. In practice, this doesn’t happen as the water exits the vehicle as vapor. So in practice, the lower heating value is the important value for understanding how much energy is available for fueling your car.