The Economics of U.S. Ethanol Policy: A Rebuttal
by John M. Urbanchuk (ENTRIX/The Hill) In his July 27 blog posting “The economics of U.S. ethanol policy” Professor Bruce Babcock of Iowa State University reports the results of new research suggesting that allowing the current 45-cent-per-gallon ethanol blender’s tax credit (Volumetric Ethanol Excise Tax Credit, or VEETC) and 54-cent-per-gallon ethanol tariff to expire on Dec. 31, 2010 would have little or no adverse impact on the domestic ethanol industry.
That’s true only if you take a “Field of Dreams” view of the ethanol industry: If we mandate that Americans use more ethanol, then someone, somewhere will produce that ethanol.
The problem is: That someone doesn’t have to be an ethanol producer here in the United States. And, if the U.S. ends up importing ethanol, then we will once again lose a growth industry, export American jobs, and become dependent on foreign energy producers. As it happens, these are three of the problems that public policymakers sought to solve when the nation encouraged the development of a domestic ethanol industry three decades ago.
… As Professor Babcock admits, failure to reauthorize the ethanol tax credit will reduce ethanol prices. A study commissioned by the Renewable Fuels Association earlier this year estimated that elimination of the ethanol tax incentive would prompt a 17.8 percent drop in net revenue for ethanol producers. A decline in profitability of this magnitude can be expected to force marginal producers to either cut operations or cease production. READ MORE
Related posts:
- Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals
- Reducing Ethanol Protections Won’t Hurt Industry, Report Finds
- The Conclave: Biofuels in the Balance as Congress Decides Energy, Jobs, Carbon Policy
- Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies
- Economics Improve for First Commercial Cellulosic Ethanol Plants
