The productions costs of ethanol - Essay Example

Running head: Production cost of Ethanol Production cost of Ethanol In APA Format Ethanol is better known as ethyl alcohol is basically a flammable, volatile and a colorless liquid. The drug is found in alcoholic drinks, people commonly call it alcohol but many of them aren't quite aware that it is called Ethanol. The same is also extensively used in perfumes, medicines and for many other uses. This paper will throw light upon the production cost of Ethanol and how does its production affect corn. The Production Cost of Ethanol "In 2003, the U.S. Department of Agriculture surveyed 21 dry-mill ethanol plants to estimate their 2002 production costs, including both variable (feedstock and plant operation) and capital expenses. These plants produced about 550 million gallons of ethanol in 2002. Net feedstock costs for the surveyed plants ranged from 39 to 68 cents per gallon in 2002. For cash operating expenses, the average energy expenditure was 17.29 cents per gallon. Labor costs ranged from 3 to 11 cents per gallon, maintenance costs from 1 to 7 cents, and administrative costs from 1 to 18 cents. For capital expenditures, new plant construction costs from $1.05 to $3.00 per gallon of ethanol." (Ethanol, 16 September 2008). There has been a significant rise in the production of Ethanol over the years, the facts speak for themselves and it is found that only 200 million gallons were produced in the year 1980, on the other hand the year 2004 saw a high increase in this figure, it was found that 200 million of Ethanol was produced during the year, the same also gave rise to the no of Ethanol plants. Way back in 1980s Ethanol was only produced as a fuel meant to extend the supply of gasoline. "In 2004, more than 80 percent of the ethanol produced was used in State oxygen-mandated markets and in a winter-oxygenated program. The rest was used to enhance the octane rating in gasoline throughout the United States. Ethanol production has also been boosted by improved technologies for growing corn, a major input; corn yields increased an average of 40 percent per acre from 1979-81 to 2002-04." (Ethanol, 16 September 2008). When the operational cost of Ethanol is taken into account, it basically involves two factors, namely capital costs and variable costs. Some of the components which come under variable costs include electricity, water etc. This is called variable cost because it never remains constant, the price keeps varying. As far as the largest operating expenses are concerned, it was found that in the year 2002 on an average 17.29 cents per gallon of ethanol was produced, which is way too high. In the Capital costs segment it was found that "For new plants, construction costs ranged from $1.05 to $3.00 per gallon of ethanol. The average cost of building new plants is lower than in the past, possibly due to designs that exploit economies of scale. Of the 21 plants responding to the survey, 16 increased their capacity in 2002 by a combined 253 million gallons per year. Average investment to expand existing ethanol production capacity was 50 cents per gallon, ranging from 20 cents to $1.00. Hence, expansion tends to cost less than new capacity. (Ethanol, 16 September 2008). Another factor which makes Ethanol expensive is the labor force involved in the production of the same. Not only is the labor force which contributes to the same but there are numerous other factors which contribute in the high price of Ethanol, for instance the water used in the production, the cost of fermentation, electricity used in the whole process and the list does not stop with this, it goes on. "Because the energy content of ethanol is less than that of gasoline, it will cost more to drive the same distance using ethanol fuel than it will using gas, unless the price of ethanol fuel drops significantly." (The Genuine Article, 16 September 2008). Considering the above case it is not unfair to say that the production of Ethanol is very expensive and it is certainly more than it's worth. Comparison between the cost of production of Ethanol and Gasoline (Price of Ethanol vs. Gasoline, data 360.org) It can be clearly made out from the price chart that the price of gasoline is much higher when compared to Ethanol and this automatically goes to that the cost of production of gasoline is much cheaper when compared to Ethanol. The graph also goes to show the fluctuating price of Ethanol, the price almost touch 6$ on the other hand there is not much fluctuation in the case of Ethanol. "Either way, gasoline is far more efficient. Groppe estimates that it produces 94 percent more energy than it takes to make it. Ethanol's pump prices are misleading, too, he argues, because the government subsidizes the cost by 51 cents a gallon. "If it weren't for the subsidies, we wouldn't be producing a gallon of ethanol in the U.S. today," Groppe said, adding that the corn production required to meet our fuel needs with ethanol simply isn't sustainable. Technology to produce ethanol from switch grass, wood chips and other biological sources isn't commercially viable yet. Nonetheless, Groppe believes the world is running out of cheap oil and America needs to look for efficient alternatives. He favors electric vehicles, mass transit and conservation." (A Test Tells, 16 September 2008). Price of Corn being affected "A "dry mill" process is the most common technology and is used in about 80% of U.S. ethanol plants. This is a basic but technologically innovative process that converts a bushel of corn into three products that differ in volume, but are nearly equal in weight." (The Impact of Ethanol, 16 September 2008). There is a direct link between corn and Ethanol, as the market of Ethanol grows the demand of corn also will rise and the same will throw many challenges. There a direct connection between the two because a corn yield Ethanol, corn gives ethanol and it is usually understood that one bush of "corn yields one-third its weight in Ethanol" (The Impact of Ethanol, 16 September 2008). "As of February 2006, the annual capacity of the U.S. ethanol sector stood at 4.4 billion gallons, and plants under construction or expansion are likely to add another 2.1 billion gallons to this number (map). If this trend and the existing and anticipated policy incentives in support of ethanol continue, U.S. ethanol production could reach 7 billion gallons in 2010, 3.3 billion more than the amount produced in 2005. (Ethanol Reshapes, 16 September 2008). (A graph which shows the rapid increase in the usage of corn for the sole motive of extraction of Ethanol, Ethanol reshapes the corn market.) So looking at the chart it becomes very obvious that the price of the corn is directly related to the price of Ethanol because Ethanol is extracted from corn and the direct affect is undeniable. References A Test Tells the Story. In Chron.com. Retrieved on 16 September 2008 from: http://www.chron.com/disp/story.mpl/business/steffy/4618413.html Ethanol Cost of Production Survey. In Ethanol.rfa. Retrieved on 16 September 2008 from: http://www.ethanolrfa.org/objects/documents/126/usdacostofproductionsurvey.pdf Ethanol Reshapes the Corn market. In ERS.USDA. on 16 September 2008 from: http://www.ers.usda.gov/AmberWaves/April06/Features/Ethanol.htm Is Ethanol Economical In Suite101. Retrieved on 16 September 2008 from: http://environmentalism.suite101.com/article.cfm/is_ethanol_a_viable_alternative Price of Ethanol vs. Gasoline. In data 360.org. Retrieved on 16 September 2008 from: http://www.data360.org/graph_group.aspxGraph_Group_Id=980 Read More