Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

lesser extent. Corn feedstock minus DDGS sale credits represents about 50% of the final
per-gallon cost, while utilities, capital and labor comprise about 20%, 10%, and 5%,
respectively. For this work, we used corn price projections from USDA of $2.23 per bushel
in 2012 for the 7.2 bill gal/yr case, and an adjusted value of $2.31 per bushel for the 9.6 bill
gal/yr case 61 . The adjustment at the higher volume case was taken from work done by
FAPRI and EIA. 62,63 Prices used for DDGS were $65 per ton in the 7.2 bill gal/yr case and
$55 per ton in the 9.6 case, based on work by FAPRI and EIA. 64 Energy prices were derived
from historical data and projected to 2012 using EIA’s AEO 2006. 65 While we believe the
use of USDA and FAPRI estimates for corn and DDGS prices is reasonable, additional
modeling work is being done for the final rulemaking using the Forestry and Agricultural
Sector Optimization Model described further in Chapter 8 of the RIA.
The estimated average corn ethanol production cost of $1.20 per gallon in 2012 (2004
dollars) in the case of 7.2 bill gal/yr and $1.26 per gallon in the case of 9.6 bill gal/yr
represents the full cost to the plant operator, including purchase of feedstocks, energy
required for operations, capital depreciation, labor, overhead, and denaturant, minus revenue
from sale of co-products. It does not account for any subsidies on production or sale of
ethanol. This cost is independent of the market price of ethanol, which has been related
closely to the wholesale price of gasoline for the past decade. 66,67
Under the Energy Act, starch-based ethanol can be counted as cellulosic if at least
90% of the process energy is derived from renewable feedstocks, which include plant
cellulose, municipal solid waste, and manure biogas. 68 It is expected that the 250 million
gallons per year of cellulosic ethanol production required by 2013 will be made using this
provision. While we have been unable to develop a detailed production cost estimate for
corn ethanol meeting cellulosic criteria, we assume that the costs will not be significantly
different from conventionally produced corn ethanol. We believe this is reasonable because
these processes will simply be corn ethanol plants with additional fuel handling mechanisms
that allow them to combust waste materials for process energy instead of natural gas. We
expect them to be in locations where the very low or zero cost of the waste material or biogas
itself will likely offset the costs of hauling it and/or the additional capital for processing and
firing it, making them cost-competitive with conventional corn ethanol plants. Furthermore,
because the quantity of ethanol produced using these processes is still expected to be a
61
USDA Agricultural Baseline Projections to 2015, Report OCE-2006-1
62
EIA NEMS model for ethanol production, updated for AEO 2006
63
Food and Agricultural Policy Research Institute (FAPRI) study entitled “Implications of Increased
Ethanol Production for U.S. Agriculture”, FAPRI-UMC Report #10-05
64
Food and Agricultural Policy Research Institute (FAPRI) U.S. and World Agricultural Outlook, January
2006, FAPRI Staff Report 06-FSR 1
65
Historical data at http://tonto.eia.doe.gov/dnav/pet/pet_pri_allmg_d_nus_PTA_cpgal_m.htm (gasoline),
http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm (natural gas),
http://www.eia.doe.gov/cneaf/electricity/page/sales_revenue.xls (electricity),
http://www.eia.doe.gov/cneaf/coal/page/acr/table28.html (coal); EIA Annual Energy Outlook 2006, Tables
8, 12, 13, 15; EIA website
66
Whims, J., Sparks Companies, Inc. and Kansas State University, “Corn Based Ethanol Costs and
Margins, Attachment 1” (Published May 2002)
67
Piel, W.J., Tier & Associates, Inc., March 9, 2006 report on costs of ethanol production and alternatives
68
Energy Policy Act of 2005, Section 1501 amending Clean Air Act Section 211(o)(1)(A).
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