Extending the current ethanol tax credit and tariff would boost corn-based fuel production and corn prices, according to University of Missouri economists.
The current 45-cent tax credit for biofuel blenders and related 54-cent tariff on ethanol imports were analyzed by the University of Missouri’s Food and Agricultural Food and Policy Research Institute (FAPRI).
Economists ran different scenarios on FAPRI computer models of the U.S. farm economy in regards to both tax laws that are set to expire Dec. 31, 2011.
With incentives in place, the economists projected fuel production from corn would go up 1.2 billion gallons a year and corn prices would rise 18 cents per bushel.
Increased demand for corn as an ethanol fuel source would expand corn acreage by 1.7 million acres, says Seth Meyer, FAPRI economist who authored the study released this week.
The report is available on the FAPRI Web site: http://fapri-mu.org/.
“The study considers only changes in the ethanol tax credit and tariff, but not changes in current mandates to use a set amount of biofuels,” Meyer says.
FAPRI prepares an annual 10-year baseline of agricultural production to analyze effects of policy changes on farm income.
“The baseline prepared earlier this year assumed biofuel tax credit and tariff expire at the end of 2011, as provided in current law,” says Pat Westhoff, director of FAPRI. “This analysis looks at an alternative scenario that keeps ethanol tax credit and tariff at current levels.
“There is debate about federal support of the ethanol industry,” Westhoff notes. “At a Paris meeting last week, G-20 nation-trading partners raised concerns about U.S. support of biofuels
“The revised baseline gives FAPRI a tool to study proposed policy changes.”
Current legislation provides that blenders who add ethanol to gasoline receive a 45 cents-per-gallon tax credit. A 54-cent-per-gallon tariff restricts imports of foreign ethanol.
The nation’s ethanol policy is complex, Westhoff says. “When you give fuel blenders a tax credit, they keep part of the benefit and charge service stations less for blended fuels. In turn, service stations should charge consumers less for blended fuel at the pump.
“At the same time, blenders can pay more to ethanol plants, who in turn pay farmers more for corn,” he says.
“Our work suggests that how benefits of the blender’s tax credit are shared among fuel consumers, ethanol plants and corn farmers is very sensitive to market conditions,” Westhoff says.
FAPRI is part of the University of Missouri’s College of Agriculture, Food and Natural Resources.