Ethanol and the Local Economy

Abstract

Ethanol has been embraced enthusiastically as a solution to many problems, including national energy security, global warming, air pollution, farm incomes, and local economic development. The industry has boomed in the United States: There were 54 ethanol plants in 2000, 134 by the end of 2007, 171 in mid-September 2008. Estimates of the industry's effects on local economies vary wildly, chiefly because of assumptions regarding the corn industry. This article presents an overview of the industry, its location, and the public policy umbrella that supports its growth. It analyzes what happens to the local economy when a county adds an ethanol plant, demonstrates what must be done to modify input–output models to capture those effects, and applies the approach to proposed plants in four counties. An ethanol plant provides the enticing benefits of a manufacturing plant with 35 to 40 jobs, but several characteristics and uncertainties of the industry merit a careful look when making local economic development decisions.

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