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Roles for evolving markets, policies, and technology improvements in U.S. corn ethanol industry development

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  • Paul W. Gallagher
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    This article reviews changes in markets, technologies, and policies that affect corn ethanol profit-ability and industry expansion. Historically, the corn ethanol industry was stimulated by high petro-fuel prices, successful corn and processing technology improvements, and government incentives, such as a blenders' tax credit and mandated markets defined by the leaded fuel ban and reformulated fuel. Presently, the corn ethanol industry has expanded slightly beyond the point of a normal capital return, which is defined by limits on corn resource availability and ethanol marketing infrastructure. A renewable fuel standard, included in a recent energy law, may eventually define minimum consumption levels for ethanol and, implicitly, production levels for corn ethanol. Potentially impending marketing changes, such as voluntary E20 (20 percent ethanol) sales or expanded sales of E85-equipped automobiles, may expand ethanol markets. Potential technology advances include growth of corn yields, corn-processing improvements for lower costs or higher revenue, and development of a corn-stoves (leaves and stalks)-based biomass industry. Government policies to induce biomass-fuel capacity investment are economically justified and probably necessary if biofuel industry development remains a public priority. Still, more efficient policy approaches could be developed.

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    Article provided by Federal Reserve Bank of St. Louis in its journal Regional Economic Development.

    Volume (Year): (2009)
    Issue (Month): Apr ()
    Pages: 12-33

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    Handle: RePEc:fip:fedlrd:y:2009:i:apr:p:12-33:n:v.5no.1
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    1. Paul Gallagher & Donald Johnson, 1999. "Some New Ethanol Technology: Cost Competition and Adoption Effects in the Petroleum Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 89-120.
    2. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Center for Agricultural and Rural Development (CARD) Publications 06-bp49, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Paul W. Gallagher & Daniel M. Otto & Mark Dikeman, 2000. "Effects of an Oxygen Requirement for Fuel in Midwest Ethanol Markets and Local Economies," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 22(2), pages 292-311.
    4. Paul Gallagher & Hosein Shapouri & Heather Brubaker, 2007. "Scale, Organization, and Profitability of Ethanol Processing," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 55(1), pages 63-81, 03.
    5. Gallagher, Paul W. & Johnson, Donald, 1999. "Some New Ethanol Technology: Cost Competition and Adoption Effects in the Petroleum Market," Staff General Research Papers Archive 5265, Iowa State University, Department of Economics.
    6. N. De Liso & G. Filatrella, 1999. "On technology competition," Working Papers 337, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Gallagher, Paul W. & Otto, Daniel & Shapouri, Hosein & Price, Jeff & Schamel, Guenter & Dikeman, Mark & Brubaker, Heather, 2001. "The Effects of Mtbe Bans on Ethanol Production, Feed Markets, and Local Economies," Staff General Research Papers Archive 2004, Iowa State University, Department of Economics.
    8. Gallagher, Paul W. & Brubaker, Heather & Shapouri, Hosein, 2005. "Plant Size: Capital Cost Relationships in the Dry Mill Ethanol Industry," Staff General Research Papers Archive 12306, Iowa State University, Department of Economics.
    9. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-995, December.
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