BioFuels Policy and Impact on
U.S. Agriculture
Juan Sesmero jsesmero@purdue.edu
&
Chris Hurt hurtc@purdue.edu
Ag Economists
Three Legs of BioFuels Policy
( Until January 1, 2012)
• 1. Mandate for U.S. biofuels usage
– Energy Independence & Security Act (EISA) December 2007
– Renewable Fuels Standard (RFS)
– Government Law MANDATES the use of various types of
biofuels by type and gallons each year
– 2004 = 4 billion gallons
– 2022 = 36 billion gallons
• 2. Blenders’ Tax Credit
– Volumetric Ethanol Excise Tax Credit (VEETC)
– Originally 54 cents per gallon
– Most recently 45 cents per gallon
• 3. Import Tariff of 54 cents per gallon
– Meant to be an offset to the Blenders Tax Credit
Renewable Fuel Standard
YEAR
Conventional
Biofuels:
Billion Gallons
Advanced Biofuels
Primarily Corn
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
4.00
4.70
9.00
10.50
12.00
12.60
13.20
13.80
14.40
15.00
15.00
15.00
15.00
15.00
15.00
15.00
15.00
Cellulosic
Advanced:
Not
Happening
YET??
0.60
0.95
1.35
2.00
2.75
3.75
5.50
7.25
9.00
11.00
13.00
15.00
18.00
21.00
=A+B+C
Non-cellulosic Biomass- Total Renewable
Advanced: based Diesel Fuel Standard
For Example
from Sugar
Cane
0.10
0.20
0.30
0.50
0.75
1.00
1.50
2.00
2.50
3.00
3.50
3.50
3.50
4.00
0.10
0.25
0.50
1.00
1.75
3.00
4.25
5.50
7.00
8.50
10.50
13.50
16.00
A
B
0.50
0.65
0.80
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
C
4.00
4.70
9.00
11.10
12.95
13.95
15.20
16.55
18.15
20.50
22.25
24.00
26.00
28.00
30.00
33.00
36.00
Where Does the $.45 Come From?
Taxpayers = $6 billion per Year in 2011
Where Does the $.45 Go?
Land
Returns
Corn/Soy
Price-Grower
Ethanol
Plant
Blender-Oil
Company
Gasoline
Consumer
FAPRI Analysis When Tax Credit & Tariff Goes Away?
(first three years with assumptions)
Lowers Returns by:
Corn
-$25/acre
Soybeans -$ 8/acre.
Land
Returns
Lowers Farm Prices by:
Corn -16 cents/bu.
Beans -17 cents/bu.
Corn/Soy
Price-Grower
Source: FAPRI-MU report #07-11, June 2011
Ethanol Plant:
Lowers Ethanol Price
20 cents per gallon
Ethanol
Plant
Blender Oil
Company
Retail Gasoline Rises:
+1 to 2 cents per
gallon??
Gasoline
Consumer
Elimination of Tariff
1. Imported ethanol had received 45 cent/gallon tax credit
but had to pay 54 cents/gallon tariff or a net of a 9
cent/gallon added costs to enter the country
2. With Tariff eliminated there is no net costs to enter the
country
3. This slightly benefits imports of biofuels
4. Elimination of the tariff sends the signal of freer trade
with the U.S. and will probably help stimulate sugar
cane production in the Caribbean and S. America
5. Non-cellulosic advanced category is growing rapidly and
can be met by sugar cane ethanol
6. Brazil is investing in sugar cane production to capture all
of the 4 billion gallons of in this category by 2022.
Implications
Mandate-RFS-Guaranteed Market Volume
Subsidy-Additional Stimulation to
Produce Ethanol—Probably Important to
Get Ethanol Plants Built
Tariff
-Offset Subsidy
-Provided some protection for infant ethanol industry
Overall, there is less political support for biofuels. Ethanol production is
no longer an infantile industry---It must stand more on it’s own. The most
important leg of the policy support stays in place----the RFS Mandate