Disrupting the market of the world’s largest industries is not easy. But if there were a textbook on how to do it, the bioethanol industry’s growth, particularly in the last 25 years, would provide the perfect case study. The will and ingenuity of America’s ag and biofuel sectors, combined with the support of federal and state lawmakers who understood the need to create inroads into an exclusive market, created a new frame for how our nation thinks about transportation fuel.
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The early days: bioethanol’s potential stalls
Bioethanol as fuel has been an option since the early days of combustion engines.
• In 1826, Samuel Morey created an engine that ran on bioethanol and turpentine.
• In 1876, Nicolaus Otto, who pioneered the four-cycle internal combustion engine, used bioethanol as a fuel.
• In 1926, Henry Ford said it was “a cleaner, nicer, better fuel for automobiles than gasoline.”
However, through the rest of 20th century, oil established itself as the primary fuel for the internal combustion engine due to factors including cheap fuel during
the oil boom in America, tax constraints around alcohol production and sales (including Prohibition), and more.
OPEC oil embargo drives new interest in bioethanol
It wasn’t until the 1970s, driven in large part by the OPEC oil embargo, that America looked again to bioethanol as a solution for powering our vehicles. The Energy Tax Act of 1978 encouraged bioethanol use through a 40-cent-per-gallon tax incentive. In 1979, President Jimmy Carter noted the potential of bioethanol in his energy address.
“From the products of our forests and croplands, we can produce more (bioethanol), already being used to replace gasoline in several Midwestern states,” he said.
However, the oil industry at the time put pressure on independent distributors to limit bioethanol’s availability. In response, Congress passed the Gasohol Competition Act of 1980, intended to stop discrimination against bioethanol at fuel stations.
Despite these efforts, the oil industry, through the 1980s, continued to undermine bioethanol, funding marketing campaigns around “no alcohol in my gas.”
Tax incentive, MTBE bans spark new growth for bioethanol
In the 1990s, supportive lawmakers worked to maintain the bioethanol tax incentive for bioethanol. Iowa Sen. Chuck Grassley recalls a hard fight against oil-state lawmakers to preserve it in 1997, as he and other advocates secured a 10-year extension of the program at 54 cents per gallon with steps down over time to 51 cents.
“I recall racing one late afternoon across the Capitol to connect with Speaker Gingrich to make my pitch for bioethanol. That conversation helped seal the deal, delivering much-needed certainty to unleash private investment in the maturing bioethanol industry, allowing producers to expand in communities across rural America,” Grassley said. “Even back then, the bioethanol industry was fueling job creation across the Corn Belt, diversifying markets for farmers, increasing net farm income, and reducing America’s dependence on foreign oil.”
At the same time, America became aware of the health effects of methyl tertiary-butyl ether (MTBE), a chemical used to increase the octane of gasoline. MTBE was seeping into groundwater, leading then-Gov. Gray Davis asserted that “on balance, there is significant risk to the environment from using MTBE in gasoline in California” in an executive order to eliminate MTBE use in California in 1999. Other states followed, and in 2000, the U.S. EPA recommended phasing it out.
The oil industry blamed the Clean Air Act, not MTBE, and campaigned against the oxygenate legislation. But ag supporters made sure America knew there was a home-grown alternative.
In a 2000 Senate floor address, Grassley asserted, “The answer is so simple and clear: Ban MTBE, but don’t gut the Clean Air Act’s oxygenate requirement. Let American farmers fill this void. And let them fill it today.”
This work had a measurable impact. Bioethanol production rose from 1.6 billion gallons in 2000 to nearly 4 billion gallons by 2005, according to the U.S. Department of Energy.
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Renewable Fuel Standard
The next great stride forward for the bioethanol industry came with President George Bush’s signing of the Energy Policy Act of 2005. This law set the framework for the Renewable Fuel Standard (RFS), calling for increasing amounts of bioethanol to be blended into the fuel supply, culminating in 7.5 billion gallons by 2012.
“The bill includes a flexible, cost-effective renewable fuel standard that will double the amount of ethanol and biodiesel in our fuel supply over the next seven years. Using ethanol and biodiesel will leave our air cleaner. And every time we use a home-grown fuel, particularly these, we’re going to be helping our farmers, and at the same time, be less dependent on foreign sources of energy,” President Bush said at the signing of the act in 2005.
In this legislation, the bioethanol tax incentive became the Volumetric Ethanol Excise Tax Credit (VEETC), and liability protection for MTBE was eliminated, officially ending its use in the U.S. fuel supply.
Only a couple of years later, The Energy Independence and Security Act of 2007 expanded the bioethanol blending target to 36 billion gallons by 2022 with a mix including cellulosic and other advanced biofuel use.
These two acts led to a rapid expansion of bioethanol production, which had increased to nearly 14 billion gallons by 2011.
According to Sen. Grassley, the RFS has impacted every aspect of agriculture and is a true victory for ag and energy policy.
“Since its creation in 2005, the RFS has had a proven track record of success, in many ways exceeding expectations to create jobs, restore vitality in rural communities, diversify markets for farmers, save consumers money at the pump, foster U.S. energy security, and reduce air pollution and greenhouse gas emissions,” he said. “Along the bioethanol industry supply chain, the RFS impacts the bottom lines of landowners, corn growers, livestock producers who feed the protein-rich co-product (dried distillers grain) to their cattle, hogs, and poultry, ag retail suppliers and bioethanol workers/producers. It’s truly an example of federal policy impacting the lives and livelihoods of the people I represent in Washington.”
E15 enters the market
In 2011, bioethanol policy took a sharp turn, away from the tax credits that had helped establish it and towards an acknowledgment that the nation’s vehicles can and should use more renewable biofuel.
That year, the tax credit was allowed to expire in a nod to bioethanol’s place as a mature industry with a sound foot in the fuel market. However, it was still hampered by a regulatory 10% cap on use, referred to as the “blend wall.”
To overcome that limitation, the EPA approved a new 15% bioethanol blend, called E15, for vehicles model years 2001 and newer. It was the next step in the growth of biofuels and the agriculture system that supports them.
“For the first time in 30 years, there is now a crack in the blend wall,” POET Founder and CEO Jeff Broin said in a 2011 speech to Growth Energy members. “And even with the incredible opposition to E15, I assure you that in time, we will overcome the hurdles to bring E15 to the market.”
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Jeff Broin, POET Founder and CEO, poses with first E85 car, owned by South Dakota Corn Growers, in front of South Dakota Capitol circa 1991
The next step for bioethanol
Approval of E15 has indeed increased biofuel use, with the industry producing 15.6 billion gallons in 2023. However, U.S. fuel regulations still ban its use during summer months for most drivers.
There have been attempts to lift this ban, most notably in 2019 when President Donald Trump’s administration approved E15 for year-round use. That approval was later overturned in federal court on a challenge by the oil industry.
Temporary lifting of E15 restrictions in summer months have been approved in special cases, during the COVID-19 pandemic, for instance. But a permanent lifting of the regulation remains a top priority for champions of biofuels and agriculture.
Sen. Grassley knows the work is not done, but he is proud of the public/private partnership he has been part of in helping the bioethanol industry grow.
“Without question, the federal commitment helped kick-start the maturing industry to bring much-needed certainty for investment and expansion,” he said. “Uncle Sam can’t put his foot on the brakes now. Homegrown renewable fuels are an American success story.”
