SPILLOVER EFFECTS OF THE BIOFUEL REVOLUTION ON THE U.S. COTTON INDUSTRY

Rising oil prices, global instability in the world petroleum market, and concern over greenhouse gas emissions are all factors contributing to the rapid expansion of the ethanol industry in the United States (Semple, 2006). Public and political support for the development of alternative fuel sources can be seen in the mandates of The Energy Policy Act of 2005 and the rate at which ethanol production capacity is expanding in the U.S. One of the principal components of The Energy Policy Act establishes a national renewable fuel standard (RFS) requiring that gasoline sold in the U.S. contain specific amounts of biofuel (Neff, 2005). Ethanol, principally derived from corn, is the dominant biofuel used in the United States. The Food and Agricultural Policy Research Institute (FAPRI), in its January 2006 Baseline, projected ethanol production to increase from 4 billion gallons in 2006 to close to 7 billion gallons by 2010. FAPRI’s projections were primarily driven by the RFS of the 2005 Energy Policy Act. But the U.S. is experiencing a surge in ethanol plant expansion and construction. Figure 1 shows the number and location of ethanol production facilities currently in operation and under construction. The rate of investment and development in the ethanol industry has caused FAPRI to offer a mid-season revision of its earlier ethanol production projections (FAPRI, 2006b). The pace at which U.S. ethanol production capacity is expanding has resulted in production estimates outpacing earlier estimates by over 2 billion gallons by 2010 (Figur