Overview Outline of Report This study evaluates proposals to increase the use of ethanol motor fuel blends through government intervention. Legislative and regulatory proposals have been made which would mandate@ nationwide or locally@ the marketing of ethanol blends and other oxygenated fuels. In addition@ there have been proposals to extend current subsidies and provide other governmental benefits for ethanol fuel blends. The primary objective of this study is to analyze potential economic consequences of ethanol mandates@ particularity mandates that would be nationwide in scope. These consequences include costs and benefits which can not easily be converted to dollar figures. such as air quality effects. Complementary to the analysis is a discussion of factors that@ in addition to affecting overall economic welfare@ may cause income transfers between various groups in society. This study begins with an overview of the fuel ethanol industry. Chapter 1 discusses: proposals now under consideration at the federal and state levels that would increase ethanol use; federal and state tax exemptions and other concessions that presently support the ethanol industry; the structure of the industry in terms of participants and facilities; processes of ethanol production; and@ economically important byproducts of ethanol production. Chapter 2 presents a detailed economic analysis of ethanol supply and demand@ both under current conditions and under the proposed legislative alternative. It also considers the economic implicates of shifts in supply and demand brought about by policies that affect the ethanol industry. Every gallon of ethanol currently produced has direct market costs about $0.87 higher than a gallon of gasoline. Under a broad national mandate@ which would require a large expansion of production capacity@ ethanol would cost about $ 1.45 more per gallon at wholesale than gasoline. Chapter 3 examines non-market impacts of ethanol fuel use@ air quality@ energy security@ and savings in line management of movement com stocks. It highlights the uncertain magnitudes of these effects and how they should be valued. Different circumstances could produce quite different estimates of non-market gains. In chapter 4@ the market and non-market effects are integrated in a cost-benefit framework. The conclusion is that a national mandate would impose costs that far outweigh benefits. Increased ethanol use associated with local programs tailored to control of carbon monoxide also is not generally efficient. Studies that have explored carbon monoxide control strategies suggest that alternatives to ethanol often will be more cost-effective. In addition to the economic impacts on society as a whole@ an ethanol fuel mandate would have distributional effects@ causing transfers from some segments of society to others. Chapter 5 examines some of these sectoral impacts. While not directly relevant to the evaluation of benefits and costs of a program@ impacts on certain key sectors often are important to interest groups and legislators. This section highlights impacts on farm income and food prices@ as well as probable impacts on state and federal budgets.