Crs Report for Congress: Fuel Ethanol: Background and Public Policy Issues: February 21, 2002 - Rl30369

In light of a changing regulatory and legislative arena, ethanol as a motor fuel has taken on a pivotal role in bringing together often conflicting environmental and energy security interests. Ethanol is produced from biomass (mainly corn) and is mixed with gasoline to produce cleaner-burning fuel called ÒgasoholÓ or ÒE10.Ó

The market for fuel ethanol, which utilizes 10 % of the nationÕs corn crop, is heavily dependent on federal incentives and regulations. A major impetus to the use of fuel ethanol has been the exemption that it receives from the motor fuels excise tax. Ethanol is expensive relative to gasoline, but it is subject to a federal tax exemption of 5.2 cents per gallon of gasohol (or 52 cents per gallon of pure ethanol). This exemption brings the cost of pure ethanol, which is higher than that of conventional gasoline and other oxygenates, within reach of the cost of competitive alternatives. In addition, there are other incentives such as a small ethanol producers tax credit. It has been argued that the fuel ethanol industry could scarcely survive without these incentives.

The Clean Air Act requires that ethanol or another oxygenate be mixed with gasoline in areas with excessive ...