Ethanol as Biofuel “Implausible” for U.S., New Study Says

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Christine Hall, 202.331.2258


Washington, DC, February 15, 2007— Ethanol is unlikely to have a significant impact on the market for oil the United States, and thus would not help reduce America’s dependence on petroleum.  That’s the finding of a new study published by the Competitive Enterprise Institute: The Brazilian Sugarcane Ethanol Experience.


Biofuels are attracting increasing interest around the world, with some governments announcing commitments to biofuel programs as a way to reduce greenhouse gas emissions and diversify energy sources.  Advocates of biofuel subsidies and mandates often point to Brazil as a model.  But in this careful analysis, Brazilian economist Marcus Renato S. Xavier finds similarities between his country’s bioethanol industry and that of the United States—but also many crucial differences.    He concludes that ethanol’s success in Brazil cannot be replicated in the United States.


“Advocates of biofuel subsidies and mandates frequently cite Brazil’s experience with sugar cane-based biomass ethanol as a success story and model for increasing energy security,” writes Xavier.  But “even in Brazil, where climate and labor market conditions favor ethanol production, ethanol is cost-competitive with gasoline only during periods when oil prices are high.”


Other important findings:

  • In the U.S., corn-based ethanol does not compete in the market on the same basis as other fuels. American taxpayers today pay twice for ethanol: once in crop subsidies to corn farmers and again in a 51-cent subsidy for every gallon of ethanol. Without such a subsidy, ethanol simply would not be cost-competitive with gasoline.
  •  Corn-based ethanol produced in quantities large enough to displace a significant percentage of U.S. petroleum consumption could have significant environmental impacts.
  •  Brazil’s ethanol infrastructure model required huge taxpayer subsidies over decades before it could become viable.