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- Summary
- When this report was begun in 1986 it was intended to be a review of the first years' experience (1985) with the ethanol tax exemption in Louisiana. When it became apparent to the author in April 1986 that the gasohol law would be profoundly changed by the 1986 Legislature the report was set aside and has been extensively revised since October 1986. Last September the gasohol tax exemption ended and the new gasohol direct subsidy began. The report has been updated to reflect how the Agricultural Industry Board which administers the subsidy, has interpreted the 1986 legislation. The wide variations in alcohol selling prices before and after October 1986 are correct for the year for which they are stated. Much of the analysis of the 1985 data was retained in the report because only one crop was consumed in Louisiana for fuel alcohol production that year, thereby greatly simplifying the cause and effect relationship between the fuel alcohol tax incentive and its impact on agriculture. This information was then supplemented with the developments of 1986.
- The following is a set of significant observations and points covered in this report.
- - The 1985 Louisiana gasohol exemption was 28 million dollars. The first full year of operation for the state's gasohol industry was 1985. Gasohol sales then represented approximately 8.8 percent of the gasoline market.
- - If all 10 of the gasohol plants operating or under construction in 1986 were able to sell their gasohol in Louisiana the gasohol tax subsidy would be 217 million dollars, at $1.40 per gallon of alcohol. The gasohol industry's capacity would represent 75 to 80 percent of the state's gasoline market. The total gasohol payments are currently capped at $52 million, however.
- - The primary benefit to farmers in 1985 was an increase of 5.3 million dollars in the total price of the sugarcane molasses crop. Molasses was the only agricultural crop used for a fuel alcohol feedstock until 1986.
- - There were 178 new jobs created in the gasohol industry in 1985.
- - Corn and milo will be the chief new agricultural feedstock from 1987 onward. The molasses supply was already almost completely dedicated to alcohol in 1986. In September, l986, the home grown requirement went to l00 percent, plus ethanol capacity was sharply increasing. Additional molasses in large amounts would require new sugar mills, which are prohibitively expensive.
- - Louisiana's gasohol tax exemption is the largest in the nation both in total dollar amount and in amount per gallon.
- - There must continue to be a significant home grown feedstock requirement of some sort to insure a tangible benefit to farmers.
- - Without the subsidy, it is presently uneconomical to produce ethanol for fuel.
- Additionally the report contains information on the various Louisiana crops viable for fuel alcohol feedstock and a detailed summary of the process economics of alcohol production.
- Other developments, not addressed, in this report, were not insignificant in their effect on the ethanol market. Texaco, Tenneco, Time Saver, and Southland Corporation (7-Eleven) have all been reported to cease their gasohol marketing operations.
- Introduction
- The purpose of this report is to answer the many types of questions, which the Department of Natural Resources receives regarding fuel ethanol. The report contains sections on benefits to agriculture, the gasohol tax exemption, basic ethanol production, appendices on Louisiana ethanol plants, Department of Commerce tax packages, Department of Revenue materials, federal alcohol fuel requirements, a bibliography, and a glossary. Gasohol is a blend of 10 percent anhydrous ethanol and 90 percent gasoline and is completely exempt from 14 cents of Louisiana's 16-cent motor fuel tax and 6 cents of the 9-cent federal tax.
- The first full year of gasohol operation in Louisiana (1985) is examined in detail. A great deal can be learned from the state's viewpoint from 1985 when only one crop, sugarcane molasses, was being used for fuel alcohol production. While additional Louisiana molasses is strictly limited by sugar factory capacity, grain crops will not be so limited. Corn and grain sorghum production has greatly expanded in 1984 and 1985 (Table III "Benefits to Agriculture" section) without any influence from alcohol production.
- Background
- The spontaneous fermentation of fruits probably led to the discovery of alcohol. The earliest written records contain reference to intoxicating spirits, so it is reasonable to assume that their accidental discovery probably predates writing by many years. Ethanol production flourished as an "art" or "craft" until 1810 when the chemist, Gay-Lussac, demonstrated that glucose was the basic starting block for ethanol fermentation.
- The essential role of yeast in the fermentation process was not clearly established until 1837. The French microbiologist, Pasteur, discovered that not only does the process require no air, but the alcohol yield is reduced by its presence. To distinguish this reaction from those that require oxygen, he dubbed this process fermentation.
- In 1897, Buchner discovered he could accomplish fermentation without living yeast cells by using extracts from the cell. This amounted to the discovery of the enzymes that yeast produces which cause the conversion of glucose to ethanol to take place. During the next 40 years, such yeast extracts were used by distinguished biochemists to piece together the pathway by which fermentation occurs.
- Distillation, the separation of alcohol and water by successive evaporation and condensation, also made a gradual transition from art to science. The first text on the subject, Das Kliene Distillierbuch, was published in Strasbourg in the 1500s. The first known continuously operating still was built in France in the late 1800s.
- Otto, the man generally credited with invention of the spark-ignited internal combustion engine, ran his first engine on ethanol. Almost all subsequent early experimentation in self-propelled vehicles used engines fueled with ethanol. Henry Ford originally presumed it would be the fuel for all of his vehicles and continued experimentation with it well into the 1930s.
- The U.S. Department of Agriculture published a report called "Use of Alcohol and Gasoline in Farm Engines" in 1907. The U.S. Department of Agriculture again published on the subject in 1936 with a booklet called "Motor Fuel from Farm Products". Also in 1936, a man named Named Bridgeman published a treatise titled "Utilization of Ethanol Gasoline Gasoline Blends" (*Source: "Alcohol Fuels: Use, Production Principles, and Economics", Solar Energy Research Institute).
- Louisiana defines gasohol to mean a fuel that contains not more than ninety percent gasoline and at least ten percent ethanol. Ethanol is ethyl alcohol. For a Louisiana fuel ethanol producer to be eligible for the $1.40 per gallon state ethanol subsidy the ethanol must be fermented from agricultural products. The law has been interpreted to mean that 100 percent of the feedstocks must be from Louisiana farmers.
- Ethanol is one of a series of chemicals called oxygenates which have begun to be added to gasoline as octane enhancers as lead has been phased out. These chemicals are called oxygenates because they have oxygen in their molecular makeup. Ethanol is the only one made from agricultural products such as grain or sugarcane molasses. Only ethanol fermented from agricultural products receives a subsidy from Louisiana or the federal government. Other oxygenates include methyl alcohol (methanol) and ethers such as methyl tertiary butyl ether (MTBE). MTBE is in widespread use throughout the U.S. and Europe as an octane enhancer in gasoline.
- Methanol has received a lot of attention because it is cheap. However, methanol is corrosive and will attack plastic fuel system components if the system is not specifically designed to handle methanol. Methanol has long been a preferred fuel for racing engines because of the higher compression ratios at which methanol may be burned relative to gasolines. Refiners have added methanol to aircraft fuels in small amounts as an anti icing or an anti stalling agent. Methanol has been produced by the destructive distillation of wood but is largely obtained from synthesis gas produced by the partial oxidation of natural gas. Synthesis gas may also be produced by the gasification of coal or virtually any carbonaceous fuel.
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This page updated June 1989
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