Biofuels Testimony 9-6-2006

Biofuels Testimony 9-6-2006 - STATEMENT OF KEITH COLLINS...

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STATEMENT OF KEITH COLLINS CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE BEFORE THE U.S. SENATE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS September 6, 2006 Mr. Chairman, thank you for the invitation to discuss the implications of the growing biofuels industry on American agriculture. Since the energy crisis of the 1970s, developing new energy sources from agricultural materials has been viewed as a way to expand the domestic energy supply and help lessen our dependence on imported oil. My comments today address recent growth in biofuels, the prospects for future growth, and the current and future implications of that growth for the U.S. agricultural economy. Ethanol Market Production and Corn Use In 2000, 1.6 billion gallons of ethanol were produced in the United States. By 2005, 4 billion gallons of ethanol were produced, a 150-percent increase in 5 years. In 2006, nearly 5 billion gallons of ethanol are expected to be produced, a one-year increase of 20 percent. Today, over 100 ethanol plants operate in 20 states. The Renewable Fuels Association reports 42 ethanol plants are under construction and another 7 are expanding. When that construction and expansion is completed, ethanol capacity in the United States will be 7.7 billion gallons per year. Despite the rapid growth in U.S. ethanol production, the 4 billion gallons produced in 2005 was equal only to about 3 percent of the 140 billion gallons of motor gasoline used. However, ethanol’s economic importance to agriculture is quite significant. In 2000, about 6 percent of U.S. corn production was used to produce ethanol. About 14 percent of the 2005 U.S. corn crop is estimated to have been used for ethanol, and USDA projects nearly 20 percent of the 2006 U.S. corn crop will be converted into ethanol. For the first time, in the 2006/07 corn marketing year, corn used in ethanol is expected to equal to the amount of corn exported. This rapid increase in the share of corn production used in ethanol highlights two key issues: (1) as more corn supplies ethanol plants, rising corn prices and increased corn acreage will have implications for other agricultural commodity markets and (2) because the supply of corn is relatively small
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compared with U.S. gasoline demand, other domestic sources of renewable and alternative energy must be developed to replace petroleum-based fuels if the United States is to reduce its dependence on imported oil. A number of factors have contributed to the rapid increase in ethanol production, including the 51 cent per gallon tax credit provided to blenders, high crude oil and gasoline prices, low corn prices, the Renewable Fuels Standard (RFS) under the Energy Policy Act of 2005, and the sharp reduction in use of ethanol’s main oxygenate competitor, methyl tertiary butyl ether (MTBE). Ethanol Production Cost
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Biofuels Testimony 9-6-2006 - STATEMENT OF KEITH COLLINS...

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