The productions costs of ethanol Essay Example | Topics and Well Written Essays - 1000 words

The productions costs of ethanol - Essay Example Ethanol is better known as ethyl alcohol is basically a flammable, volatile and a colorless liquid. The drug is found in alcoholic drinks, people commonly call it alcohol but many of them aren't quite aware that it is called Ethanol. The same is also extensively used in perfumes, medicines and for many other uses. This paper will throw light upon the production cost of Ethanol and how does its production affect corn."In 2003, the U.S. Department of Agriculture surveyed 21 dry-mill ethanol plants to estimate their 2002 production costs, including both variable (feedstock and plant operation) and capital expenses. These plants produced about 550 million gallons of ethanol in 2002. Net feedstock costs for the surveyed plants ranged from 39 to 68 cents per gallon in 2002. For cash operating expenses, the average energy expenditure was 17.29 cents per gallon. Labor costs ranged from 3 to 11 cents per gallon, maintenance costs from 1 to 7 cents, and administrative costs from 1 to 18 cents. For capital expenditures, new plant construction costs from $1.05 to $3.00 per gallon of ethanol." (Ethanol, 16 September 2008).There has been a significant rise in the production of Ethanol over the years, the facts speak for themselves and it is found that only 200 million gallons were produced in the year 1980, on the other hand the year 2004 saw a high increase in this figure, it was found that 200 million of Ethanol was produced during the year, the same also gave rise to the no of Ethanol plants. Way back in 1980s Ethanol was only produced as a fuel meant to extend the supply of gasoline. "In 2004, more than 80 percent of the ethanol produced was used in State oxygen-mandated markets and in a winter-oxygenated program. The rest was used to enhance the octane rating in gasoline throughout the United States. Ethanol production has also been boosted by improved technologies for growing corn, a major input; corn yields increased an average of 40 percent per acre from 1979-81 to 2 002-04." (Ethanol, 16 September 2008). When the operational cost of Ethanol is taken into account, it basically involves two factors, namely capital costs and variable costs. Some of the components which come under variable costs include electricity, water etc. This is called variable cost because it never remains constant, the price keeps varying. As far as the largest operating expenses are concerned, it was found that in the year 2002 on an average 17.29 cents per gallon of ethanol was produced, which is way too high. In the Capital costs segment it was found that "For new plants, construction costs ranged from $1.05 to $3.00 per gallon of ethanol. The average cost of building new plants is lower than in the past, possibly due to designs that exploit economies of scale. Of the 21 plants responding to the survey, 16 increased their capacity in 2002 by a combined 253 million gallons per year. Average investment to expand existing ethanol production capacity was 50 cents per gallon, ranging from 20 cents to $1.00. Hence, expansion tends to cost less than new capacity. (Ethanol, 16 September 2008). Another factor which makes Ethanol expensive is the labor force involved in the production of the same. Not only is the labor force which contributes to the same but there are numerous other factors which contribute in the high price of Ethanol, for instance the water used in the production, the cost of fermentation, electricity used in the whole process and the list does not stop with this, it goes on. "Because the energy content of ethanol is less than that of gasoline, it will cost more to drive the same distance using ethanol fuel than it will using gas, unless the price of ethanol fuel drops significantly." (The Genuine Article, 16 September 2008). Considering the above case it is not unfair to say that the production of Ethanol is very expensive and it is certainly more than it's