Regional Differences in Corn Ethanol Production: Profitability and Potential Water Demands

Through the use of a stochastic simulation model this project analyzes both the impacts of the expanding biofuels sector on water demand in selected regions of the United States and variations in the profitability of ethanol production due to location differences. Changes in consumptive water use in the Texas High Plains, Southern Minnesota, and the Central Valley of California, as impacted by current and proposed grain-based ethanol plants were addressed. In addition, this research assesses the potential impacts of technologies to reduce consumptive water use in the production of ethanol in terms of water usage and the economic viability of each ethanol facility. This research quantifies the role of corn ethanol production on water resource availability and identifies the alternative water pricing schemes at which ethanol production is no longer profitable. The results of this research show that the expansion of regional ethanol production and the resulting changes in the regional agricultural landscapes do relatively little to change consumptive water usage in each location. The California Central Valley has the highest potential for increased water usage with annual water usage in 2017 at levels 15% higher than historical estimates, whereas Southern Minnesota and the Texas High Plains are predicted to have increases of less than 5% during the same time period. Although water use by ethanol plants is extremely minor relative to consumptive regional agricultural water usage, technological adaptations by ethanol facilities have the potential to slightly reduce water usage and prove to be economically beneficial adaptations to make. The sensitivity of net present value (NPV) with respect to changes in water price is shown to be extremely inelastic, indicating that ethanol producers have the ability to pay significantly more for their fresh water with little impact on their 10 year economic performance.