The ethanol industry in the United States: Rapidly expanding capacity, but regulatory uncertainty

The U.S. ethanol industry is in the midst of an unprecedented period of growth. Margins have been positive, and 19 states have announced that they would ban the use of a competing gasoline additive, methyl tertiary butyl ether (MTBE). Most notably, bans went into effect in California and New York at the beginning of this year. The U.S. Congress is debating an omnibus energy bill, and its passage is uncertain. If it were enacted, it would fundamentally change the nature of the ethanol market. The federal clean air programs that have been central to the consumption of ethanol since the early 1990s would become less important, and the Renewable Fuels Standard (RFS) contained in the energy bill would drive future levels of ethanol use. This article explores the market structure and politics of ethanol and provides a look at the road ahead.