Published January 2015
Consumption of ethanol as a fuel now accounts for more than 85% of total global consumption. Hydrous ethanol can be used as a direct replacement for gasoline in specially designed vehicles such flex-fuel vehicles, or blended with gasoline as anhydrous ethanol, at various levels depending on local mandates. The majority of modern vehicles are able to run on blends up to 10% ethanol (E-10) without any engine modifications. Ethanol may also be used to produce the fuel ether, ethyl tertiary-butyl ether (ETBE), which is added to gasoline as an oxygenate and octane improver. The dramatic growth in ethanol consumption as a fuel has been driven by political, economic, and social agendas that have sought to
- Reduce national dependencies and expenditure on fossil fuels
- Reduce the emission of greenhouse gases (GHG)
- Develop new economies based on indigenous resources
- Stimulate employment and economies in rural areas
- Generate innovation and technology for future generations
To encourage demand, governments have provided various incentives, subsidies, protectionist policies, and legislative policies such as fuel mandates.
The following pie chart shows world consumption of ethanol:
In the major fuel ethanol–consuming regions, the industry has experienced much more turbulence over recent years as a result of higher feedstock prices, overcapacity, falling ethanol prices, and political uncertainty, with renewed concern and pressure surrounding the utilization of land and crops for fuel purposes as opposed to food supplies. At the time of publication, crude oil prices had also fallen more than 50% from their 12-month highs to less than $50 per barrel, placing even more uncertainty on the future of social and political sentiment toward biofuels.
In the United States, the industry has reached a plateau, with corn-based ethanol capacity now in line with the EPAs Renewable Volume Obligations (RVOs), and alternative cellulosic ethanol projects still in their infancy. Ethanol consumption in the United States has reached the mandated 10% "blend wall," and while higher blends such as E-15 have been approved, the lack of infrastructure and concerns over compatibility and car warranties have restricted expansion.
In Brazil, the ethanol industry is going through a period of consolidation with a limited number of new plants coming onstream. Brazilian ethanol producers are able to balance the supply of sugar or ethanol depending on the economics of each market and the particular harvest in any given year. The fuel market is heavily distorted by the governments cap on gasoline prices, which has resulted in declining hydrous ethanol consumption for the nations dominant fleet of flex-fuel vehicles.
In Europe, the latest proposals to amend the Renewable Energy Directive—capping conventional production techniques and considering indirect land-use change in the calculation of GHG emission savings—have left the industry and member states with a strong headwind in meeting 2020 targets in the absence of second-generation fuel alternatives.
Overall, the global ethanol market is forecast to grow at a much more modest rate of 2.4% per year over the next five years. Growth rates could be significantly higher, but would require a commitment from governments, industry, and consumers generally toward the increased use of biofuels through mandates and incentives. In addition, any changes to legislation surrounding the use of diesel fuel could reignite demand for gasoline. In Europe, proposed changes to the taxation of fuels to account for energy content and CO2 emissions could benefit gasoline at the expense of the dominant diesel market. In the longer term, advanced fuels provide exciting alternatives to conventional ethanol production. However, these will not provide major contributions over the next five years, leaving the conventional ethanol industry with a difficult climate, especially in the light of recent declines in crude oil prices and tightening national budgets.