ECONOMIC COMPETITIVENESS OF RENEWABLE FUELS DERIVED FROM GRAINS AND RELATED BIOMASS
Location: Sustainable Biofuels and Co-Products
Title: Understanding the reductions in US corn ethanol production costs: an experience curve approach
Submitted to: Energy
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: August 1, 2008
Publication Date: September 30, 2008
Citation: Hettinga, W.G., Junginger, H.M., Dekker, S.C., Hoogwijk, M., Mcaloon, A.J., Hicks, K.B. 2009. Understanding the reductions in US corn ethanol production costs: an experience curve approach. Energy Policy. 37:190-203.
Interpretive Summary: The US is the world's largest producer of fuel ethanol and the Renewable Fuel Standard (RFS) in the 2007 Energy Independence and Security Act (EISA) calls for the production of 15 billion gallons per year of corn ethanol by 2015. Ethanol production from corn is controversial due to contradictory information being disseminated by different groups about ethanol's cost of production and energy balance. To clarify these issues, we conducted a study to determine the estimated cost of production and amount of energy required to make fuel ethanol from corn using the common "dry grind" process in the United States during the period of 1985 until 2005. To do this work, we interviewed knowledgeable experts all over the US and studied all published information available. What we found was that corn production costs in the US declined by 62% over these 30 years due to better production methods and improved yields. We also found that
processing costs for conversion of corn to ethanol declined by 45% from 1983-2005 and the total costs of production (including capital and net corn costs) declined approximately 60% during this period. Energy costs also decreased approximately 50% over this period despite increasing costs of energy. This is due to the development of improved energy-saving technology by the industry. By examining the trends in costs and energy use, it is proposed that corn ethanol production is not a "mature" technology and that the efficiency and energy balance will continue to improve as time goes on. This information is now available for all to use to determine the true cost and energy balance of US ethanol production. It should be useful to those in industry, government, and universities who are studying the economics and sustainability of fuel ethanol.
The US is currently the world's largest ethanol producer. An increasing percentage is used as transportation fuel, but debates continue on its cost competitiveness and energy balance. In this study, technological development of ethanol production and resulting cost reductions are investigated by using the experience curve approach, scrutinizing costs of dry grind ethanol production over the timeframe 1980–2005. Cost reductions are differentiated between feedstock (corn) production and industrial (ethanol) processing. Corn production costs in the US declined by 62% over these 30 years, down to $100 (in 2005 dollars) /tonne in 2005, while corn production volumes almost doubled since 1975. A progress ratio (PR) of 0.55 was calculated indicating a 45% cost decline over each doubling in cumulative production. Higher corn yields and increasing farm sizes are the most important drivers behind this cost decline. Industrial processing costs of ethanol declined by 45% from 1983-2005, to below $130 (in 2005 dollars) /m3 (excluding costs for corn and capital), equivalent to a PR of 0.87. Total ethanol production costs (including capital and net corn costs) declined approximately 60% from $800 (in 2005 dollars)/m3 in the early 1980s, to $300 (in 2005 dollars)/m3 in 2005. Higher ethanol yields, lower energy use and the replacement of beverage alcohol-based production technologies have mostly contributed to this substantial cost decline. In addition, the average size of dry grind ethanol plants increased by 235% between 1990 and 2005. For the future it is estimated that solely due to technological learning, production costs of ethanol may decline another 28–44%, though this excludes effects of the current rising corn and fossil fuel costs. It is also concluded that experience curves are a valuable tool to describe both past and potential future cost reductions in US corn-based ethanol production.