Ethanol and Distiller’s Grain: Implications of the Multiproduct Firm on United States Bioenergy Policy

Abstract

The use of corn for ethanol production has spawned considerable debate. There is little agreement among economists as to whether U.S. ethanol policy generates a welfare net loss or welfare net gain to society [16]. In modeling the impact of ethanol policy, there are several key components, including, for example, the impact of increased ethanol output on gasoline prices. If the impact is positive, the benefits from ethanol policy exceed the costs, but the reverse can be true if the impact is small or nonexistent [15]. More recently, the potential effect of an ethanol byproduct (distiller’s grain) has become increasingly important. According to Dennis Conley “We’re set on ethanol as the product and distiller’s grain as the byproduct, but that could shift. Distiller’s grain may become the product and ethanol the byproduct” [2]. Given that the ethanol process removes nutritional content from the corn in the process of creating ethanol, the primary profit center for distillers will likely continue to be ethanol. However, the potential value of distiller’s grain undoubtedly affects the profitability of ethanol producers. This chapter incorporates some of the effects of distiller’s grain into the benefit-cost of ethanol policy. It is possible that some of these considerations may yield a benefit-cost ratio greater than one if that is not already the case in the absence of distiller’s grain.