According to the Renewable Fuels Association, gasoline refiners and marketers are required to pay the full rate of tax, which is 18.4 cents per gallon on the total gasoline-ethanol mixture but can claim the 45 cents per gallon tax credit or refund for each gallon of ethanol used in the mixture.
Is ethanol subsidized?
- The ethanol subsidy, which is commonly referred to as the “blender’s credit,” offers ethanol blenders registered with the Internal Revenue Service a tax credit of 45 cents for every gallon of pure ethanol they blend with gasoline.
Does the government subsidize ethanol?
The ethanol industry does not receive federal subsidies. Unlike those for the oil industry, tax incentives for corn ethanol disappeared years ago. Fuel is not sold in a free market.
How does the US government subsidies ethanol production?
The federal government provides an array of subsidies to increase the consumption of biofuels such as corn ethanol. The subsidies include tax breaks, grants, loans, and loan guarantees. The government also imposes a mandate to blend biofuels into gasoline and diesel fuels.
What is ethanol tax credit?
Qualified ethanol producers are eligible for an income tax credit of $1.00 per gallon of corn- or cellulosic-based ethanol that meets ASTM Standard D4806. The total credit amount available for producers is $5 million for each fuel type in each taxable year.
Why does the government subsidize corn based ethanol?
The intent was to allow the next generation of biofuels (advanced fuels made from non-food sources like agricultural residues, wood waste, and perennial grasses) to receive a greater share of grants, loan guarantees, and other subsidies.
What a subsidy is and why it’s significant?
A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut. In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.
Are US ethanol subsidies a good idea?
They also say such an incentive is unnecessary because legislation enacted in 2007 requires oil companies to produce 36 billion gallons of biofuels such as ethanol by 2022. “While born of good intentions, federal subsidies for ethanol have failed to achieve their intended goals of energy independence,” U.S. Sen.
What ethanol actually is and why it’s significant?
Ethanol is an important industrial chemical; it is used as a solvent, in the synthesis of other organic chemicals, and as an additive to automotive gasoline (forming a mixture known as a gasohol). Ethanol is also the intoxicating ingredient of many alcoholic beverages such as beer, wine, and distilled spirits.
Do we still use ethanol?
As an engine fuel, methanol has chemical and physical fuel properties similar to ethanol. Methanol was used in the 1990s but is no longer in use or being developed as a commercial transportation fuel.
How the US government action subsidy of ethanol contributes to world hunger?
Ethanol. Across the globe, people are discovering it’s a new contributor to world hunger. Led by the United States, governments are paying companies billions to make ethanol from corn and other crops. The result: these crops are diverted from the food supply, creating artificial shortages and higher prices.
What fuel is now being used by some US truck fleets instead of diesel?
Because of its lower emissions and the national drive to reduce reliance on petroleum, biodiesel is the U.S. government’s preferred fuel type. It is used by all four branches of the U.S. military, as well as state, city, and private fleets.
Who started ethanol in gas?
In 1860, German inventor Nicolaus Otto uses ethyl alcohol as a fuel in an early internal combustion engine. In 1862 and 1864, a tax on alcohol was passed in the U.S. to pay for the Civil War, increasing the price of ethanol to over $2.00 per gallon.
What is the price of ethanol?
The rate for ethanol from C-heavy molasses has been increased to ₹ 46.66 per litre from ₹ 45.69 per litre currently, and that of ethanol from B-heavy to ₹ 59.08 per litre from ₹ 57.61 per litre, Information and Broadcasting Minister Anurag Thakur said.
What percent of US corn production goes to ethanol?
Much of this growth in area and production is a result of expanding ethanol production, which now accounts for nearly 40 percent of total corn use.
What are the problems with ethanol?
In a 2018 report, EPA itself linked corn ethanol production to damaging land use change, air pollution, water pollution, soil erosion, and habitat loss.
Understanding the US Federal Ethanol Subsidy
Currently, the federal government’s principal ethanol subsidy is a tax incentive known as the Volumetric Ethanol Excise Tax Credit, which was established by Congress and signed into law by President George W. Bush in 2004. It became effective in 2005. A tax credit of 45 cents per gallon of pure ethanol blended with gasoline is available to ethanol blenders who are registered with the Internal Revenue Service under the terms of the ethanol subsidy, sometimes known as the “blender’s credit.” According to the United States Government Accountability Office, a nonpartisan congressional watchdog body, that specific ethanol subsidy cost taxpayers $5.7 billion in missed earnings in 2011.
Debate Over the Ethanol Subsidy
Federal ethanol subsidy supporters believe that the program stimulates the development and consumption of biofuel, reducing the quantity of foreign oil required to create gasoline and therefore moving the country closer to energy independence. Critics, on the other hand, contend that ethanol burns significantly less effectively than gasoline, increasing fuel consumption, as well as increasing the need for maize for fuel and artificially inflating the costs of farm commodities and food retail prices, among other arguments.
While “formed of good intentions,” U.S.
The effort to Kill the Ethanol Subsidy
In June 2011, Coburn led an effort to repeal the ethanol subsidy, claiming that it was a waste of taxpayer money – he claimed that the Volumetric Ethanol Excise Tax Credit cost $30.5 billion between 2005 and 2011 – because consumption remained a small portion of the country’s total fuel consumption. Coburn was successful. His attempt to get the ethanol subsidy repealed in the Senate was defeated by a vote of 59 to 40. In a statement, Coburn stated that while he was unhappy that his amendment did not pass, taxpayers should remember that when he proposed an amendment to defund theBridge to Nowherein Alaska in 2005, the measure was defeated by an 82 to 15 vote.
“For the time being, the earmark favor plant is largely closed.
We will see the tax code for what it is – an obscenity that favors the well-connected at the expense of working families and small companies – as a result of this discussion and many others to come.”
History of the Ethanol Subsidy
Credit for Ethanol Excise Tax (Volumetric Excise Tax Credit) The American Jobs Creation Act, signed into law by President George W. Bush on October 22, 2004, established the ethanol subsidy program in the United States. The Volumetric Ethanol Excise Tax Credit was one of the provisions of that piece of legislation. According to the original plan, ethanol blenders were eligible for a tax credit of 51 cents for every gallon of ethanol they blended with gasoline. As part of the Farm Bill of 2008, Congress cut the tax incentive by 6 cents per gallon of gasoline.
It is multibillion-dollar integrated oil firms like BP, ExxonMobil, and Chevron that gain from the ethanol subsidies.
The First Ethanol Subsidy
- The Energy Policy Act of 1978 was the first piece of federal legislation to provide a subsidy for ethanol. According to Purdue University, it allowed for a 40-cent tax exemption per gallon of ethanol
- The Surface Transportation Assistance Act of 1982 increased the tax exemption to 50 cents per gallon of ethanol
- The 1990 Omnibus Budget Reconciliation Act extended the ethanol subsidy until 2000 but reduced the amount to 54 cents per gallon
- And the Energy Policy Act of 1990 extended the ethanol subsidy until 2000 but decreased the amount to 54 cents per gallon. By 2005, the Transportation Efficiency Act of the Twenty-First Century, which was passed in 1998, had lowered the ethanol subsidy to 51 cents per gallon. The Jobs Creation Act, signed by President Bush, marked a significant shift in the way the current ethanol subsidies operated. A direct tax credit was granted to producers instead
- The “blender’s credit” was made possible by the law.
President Trump Protects the Ethanol Subsidy
During his presidential campaign in 2016, President Donald Trump came out as one of the most vocal proponents of the ethanol subsidies. The president remarked in Iowa, where maize is king, on January 21, 2016, that “the EPA should guarantee that biofuel. mix levels match the statutory threshold set by Congress.” He also expressed his support for the continuation of government subsidies for ethanol, saying he was “there with you 100 percent.” “I’m going to give you a really fair shake,” says the author.
As a result of the idea, the Corn Belt and its Republican congressional defenders were rocked to their cores.
Chuck Grassley accused Trump of engaging in a “bait and switch,” referring to his campaign vow to treat people with empathy.
The governors of the majority of Corn Belt states got together to send a letter to President Donald Trump warning him that any reduction in subsidies for the Renewable Fuel Standard program would be “extremely disruptive, unprecedented, and perhaps catastrophic.” Faced with the prospect of losing influence over some of his most ardent congressional supporters, Trump instructed Pruitt to refrain from discussing the possibility of reducing the ethanol subsidy in the future.
Pruitt resigned on July 5, 2018, following many allegations of ethical infractions concerning his excessive and unlawful use of government funds for personal gain.
COVID and the Ethanol Industry
The COVID-19 epidemic had a significant impact on the American ethanol sector, which was similar to the impact on other travel and transportation-related companies. According to the Renewable Fuels Association, the sector lost an estimated $4 billion in income in 2020 and would continue to lose money as long as the epidemic lasted into 2021, according to the association. In today’s world, many ethanol facilities are still shuttered, and demand for transportation fuel is declining as new economic shutdowns take place in a number of states.
The package contains $11.2 billion in aid to be awarded by the Office of the Secretary of the United States Department of Agriculture, which gives newly appointed Secretary Tom Vilsack the authority to grant assistance to biofuel producers under certain conditions.
The law also extended a number of biofuels tax credits, including a one-year extension of the biofuel producer tax credit, a $1.01 credit per gallon of second-generation biofuel produced, and a $1.01 credit per gallon of third-generation biofuel produced.
Understanding U.S. Corn Ethanol and Other Corn-Based Biofuels Subsidies
Because of the energy crisis that erupted in the 1970s, the federal government has nurtured and supported the corn ethanol sector by providing it with a regular supply of subsidies since that time. Ethanol, which was once marketed as a means of achieving energy independence while also reducing greenhouse gas (GHG) emissions, has long been a favorite of policymakers in the Corn Belt. In addition to advantageous tax treatment, ethanol producers have obtained tariff protection from international competition, a government mandate for its usage, infrastructural subsidies, and other benefits.
- The subsidies have failed to mitigate climate risks or act as a transitional step to next-generation, non-food-based biofuels, and they have had various unforeseen consequences, including the waste of government cash and the distorting of markets.
- The Renewable Fuel Standard (RFS) mandates a specified volume of biofuels to be mixed with gasoline and diesel in the United States each year.
- While maize ethanol accounts for the vast majority of biofuels produced in the United States, corn is also used to make alternative biofuels (including corn butanol and biodiesel).
- These subsidies are in addition to Department of Energy (DOE) programs and subsidies from the United States Department of Agriculture (USDA).
- Biodiesel made from corn oil qualifies for the latter credit.
- BPAB, trade programs like as the Market Access Program, and other commodity and crop insurance payments for corn and ethanol blender pumps have accounted for the vast bulk of farm bill assistance for corn ethanol.
- Even though ethanol blender pumps were supported by the Rural Energy for America Program (REAP) beginning in 2011, the 2014 agriculture bill outlawed such subsidies going forward.
- Despite more than 40 years of federal assistance for corn ethanol, the Consolidated Appropriations Act of 2021, which was passed in December 2020, was the latest legislative vehicle to contain maize ethanol subsidies.
- ethanol facilities are eligible for CCC subsidies.
- Instead of continuing to promote special interests and subsidize biofuels that are causing more harm than good to the environment, authorities should assure that the ethanol business can stand on its own two feet, as they have done for decades.
Download the whole reporthere, or scroll down to read the highlights below: a link to the page’s load
Stop the Ethanol Madness
The concept of requiring a particular proportion of renewable biofuel to be included in the nation’s gasoline supply was conceived during a short-lived doomsday craze in the early 1970s. The shocks of 1973 and 1979, which came as experts warned that the globe was on the verge of running out of oil, prompted President Jimmy Carter to advocate for wartime-style rationing of petroleum and other severe measures to prevent a “national catastrophe” from occurring. The good news is that his plans didn’t get much further than a tiny incentive for maize ethanol production.
- Oil prices plummeted over the world, resulting in a decades-long surplus of crude oil.
- As a means of replenishing depleting oil stocks, ethanol subsidies had a certain cruel logic, especially in light of the fact that oil prices were expected to continue rising indefinitely.
- Despite the fact that corn ethanol is potentially worse for the climate than fossil fuels, the program has caused substantial harm to both the economy and the ecology.
- Read more about how mysterious luminous clams might aid in the preservation of the environment.
The Renewable Fuel Standard (RFS) establishes a complicated network of standards for both maize ethanol and “advanced biofuels.” Biofuels such as biodiesel (from sources such as palm oil and recycled cooking oil) and future cellulosic ethanol (from sources such as prairie grass and tree bark) must have a much lower greenhouse effect than maize ethanol in order to be considered “advanced.” The Renewable Fuel Standard (RFS) program established a gradually increasing biofuel mandate, as well as a gradually increasing proportion of advanced biofuels (particularly cellulosic ethanol) relative to corn ethanol within that mandate, with the goal of advanced biofuels accounting for the majority of the mandated volume by the year 2022.
- However, the Environmental Protection Agency (EPA) has significant discretion to disregard the statutory goals.
- Furthermore, because cellulosic ethanol has never been able to overcome the scientific obstacles that must be overcome in order for it to be commercially viable, the Environmental Protection Agency has had to waive the overall objective every year since 2013.
- A refinery’s gasoline must include a certain proportion of ethanol, which is calculated by multiplying those percentages by federal forecasts of overall fuel use.
- An individual renewable identity number is provided to each new gallon of 100% pure renewable biofuel in order to facilitate the creation of a credit-trading mechanism.
- A big dispute arises as a result of the program between two of the most powerful special-interest organizations in America: oil producers and refineries on the one hand, and corn-ethanol producers on the other.
- For lack of a better term, the “blend wall” refers to the amount of ethanol that may be blended into the nation’s gasoline supply without corroding automotive engines or exceeding the Environmental Protection Agency’s own air pollution guidelines for ozone and particulate matter.
- Nevertheless, because many refineries have a percentage-volume obligation that is higher than their actual blended ethanol volume, they nevertheless “owe” the EPA large amounts of RINs even after blending as much of their ethanol as is practically possible into their gasoline.
As a result, a large number of refiners are going after a tiny amount of surplus RINs.
Read about how the United States has protected the environment from Nixon to Trump.
As a result, small refineries exerted significant pressure on the White House and the Environmental Protection Agency to exclude them from the RFS.
The White House is then besieged by an army of hired lobbyists and members of Congress, who demand that the Environmental Protection Agency authorize the sale of greater-percentage ethanol blends and publish a higher total target-volume RFS.
Despite the fact that ethanol mandates are a fantastic candidate for deregulation, they are caught in the crossfire of so many special-interest organizations that no one in the White House wants to even touch the matter with a ten-foot pole, as I witnessed firsthand during my time there.
The Environmental Protection Agency also proposed a higher overall volume RFS earlier this year.
Furthermore, the difficulties of the RIN market are not caused by the market itself; rather, they are caused by the underlying RFS program, and a higher-volume RFS will exacerbate the problems already existing in the market.
It’s an insurmountable challenge.
Biofuels would only be competitive with fossil fuels by 2022 (when the statutory RFS standards expire) if gasoline were $5 per gallon (or $191 per barrel of crude oil), according to the study.
Even at that point, it constituted the Department of Energy’s worst-case scenario prediction for the year 2022, according to the agency.
Rather ironically, the RFS actually helps to increase the supply of gasoline, which in turn helps to keep fossil-fuel prices low over the long term.
When it comes to achieving a totally carbon-free future, the single most significant impediment is the fact that vehicles, aircraft, and ships are all dependent on oil as an energy source, but practically everything else that consumes energy only requires connection to the power grid.
If, on top of that, all of the cars were electric, the economy as a whole would be emitting near to zero carbon emissions.
The RFS provides us with cheaper fuel in the near term, but in exchange, we receive more costly food as a result of the RFS.
In comparison, the total area of agriculture used to produce grains and vegetables for human consumption is only roughly twice as large as that of the overall area of cropland.
The conversion of arable land for ethanol production reduces the supply of both crops and farmland that is accessible for food production, having a particularly noticeable impact on the availability of animal feed and, therefore, on the supply of meat.
As a result, the price of all foods, not just those that are directly tied to corn, rises, and because the United States is the world’s greatest exporter of food, food prices rise around the world as a result of this.
After the RFS was implemented, the price of wheat and rice in supermarkets increased by almost 50%, and the price has never recovered.
And the consequences for poor nations that rely on food imports are exacerbated in the case of impoverished Americans.
However, in the decade since the program’s full implementation, numerous studies have demonstrated that the greenhouse-gas emissions associated with ethanol production — the full “carbon-cycle” effect — negate that 20 percent reduction and may even make corn ethanol worse for the environment than fossil fuels in terms of greenhouse emissions.
A significant quantity of fossil fuel is required to create, cultivate, harvest, transport, and especially process a gallon of ethanol, which accounts for a significant portion of the difference in carbon emissions between ethanol and ordinary gasoline, according to the International Energy Agency.
- Studies have shown that maize cultivation using nitrogen-based fertilizers produces significant quantities of nitrogen oxide into the atmosphere, which not only depletes the ozone layer but also has a greater warming effect than carbon dioxide, according to the researchers.
- Despite its numerous flaws, corn ethanol is not the worst biofuel available.
- As a result of the EU’s biofuel programs, countries from Indonesia to Brazil have been clearing tropical rain forests at an alarming rate in order to take advantage of the EU’s generous subsidies for palm seed and, more recently, soybeans.
- The EU finally voted in 2018 to end subsidies for palm oil, but the RFS, the EU’s equivalent of the Renewable Fuel Standard, remains in place and continues to encourage the production of biodiesel from plants that grow best in tropical climates.
- Rain forests are the most valuable carbon-capture mechanism on the world, accounting for approximately one-third of total global carbon capture.
- And diesel isn’t just for heavy-duty vehicles: Diesel fuel is used to transport nearly all of the world’s freight, both on the sea and on land.
- According to the most conservative predictions, at least 20% of all extant land species will have been driven to extinction by 2050, almost completely as a result of the loss of natural habitat due to agricultural development.
- Renewable biofuels are not doomed in the traditional sense.
However, today’s corn-ethanol program is a clear failure, and it is reprehensible that leaders from both political parties are colluding to keep it alive despite the fact that they are fully aware of its flaws and shortcomings.
The Problem With The Ethanol Industry
Bloomberg Finance LP is a registered trademark of Bloomberg Finance LP. Despite the fact that I was formerly on a “Ethanol Enemies List,” I would want to see a thriving ethanol business in the United States. I believe it is critical for the United States to generate as much fuel as possible domestically, and it is equally critical to keep American farmers in business. I simply do not agree with the manner in which we established and grew this sector in the United States. A lot of the disinformation that is propagated by the ethanol business also doesn’t sit well with me (or any industry for that matter).
- To put it simply, they are attempting to persuade the federal government to force people to use their product.
- It contributes to the perpetuation of a cycle of dependency that has existed since the beginning of the business.
- The Energy Policy Act of 2005 established the Renewable Fuel Standard (RFS), which is a federal requirement for renewable fuels.
- Blenders of gasoline can either mix ethanol to achieve their quotas or purchase ethanol blending credits, known as RINs, to meet their quotas (renewable identification numbers).
- Ethanol Policy Set For Significant Change.) It is the entire notion of being compelled to mix ethanol, as well as the prospect of being fined if they do not, that refiners object to.
- That expense to refiners is effectively a wealth transfer from the refinery to the ethanol manufacturing business.
- That is, for the most part, correct.
As a result, refiners would continue to utilize it even if they were not required to do so, but at a far lower volume than they do currently.
Legislative subsidies, import barriers aimed to keep Brazilian ethanol out of the country, and a federal requirement supported the ethanol sector throughout its early years.
However, the mandate itself, which is the most crucial thing for the ethanol business, has stayed in place.
The great bulk of this – around 16 billion gallons – is derived from corn-based ethanol production.
The stock values of major ethanol producers have been battered in my previous post during the past two years, as I explained in further detail.
The ethanol business will remain at the mercy of the political climate for the foreseeable future.
The following is an excerpt from Senator Grassley’s statement: “As a free-market conservative, I think that competition fosters innovation and dialogue while ultimately delivering the highest-quality products to customers.” The fact that ethanol is a component of an all-of-the-above energy plan is only one of the many reasons why I believe in it so passionately.” The practice of pressuring customers to use your product is diametrically opposed to the free-market conservatism that Senator Grassley professes to promote.
However, this does not have to be the case.
There is an other route. That solution will be discussed in greater detail in the following column. I had meant for this column to detail both the problem and its solution, but the issue is complicated enough that it would take the column well above the maximum word count I had set for it.
Does ethanol receive federal government subsidies? – Growth Energy
Subsidies to the ethanol sector are not provided by the federal government. Tax breaks for maize ethanol, in contrast to those for the oil industry, were phased down some years ago. Fuel is not available for purchase on a free market. Members of the Organization of the Petroleum Exporting Countries (OPEC), such as Venezuela and Iran, have controlled the price of oil for decades, and the same business that drills for oil controls access to customers. A key goal of the Renewable Fuel Standard (RFS), which is the United States regulation that functioned as an on-ramp for the incorporation of ethanol into our fuel supply, is to level the playing field so that we can offer customers additional renewable alternatives at the pump.
Ethanol is currently responsible for the creation of 44% of all new economic activity and the collection of approximately nine billion dollars in federal, state, and municipal taxes.
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@EPA Moving forward, it is critical for the Environmental Protection Agency to get the RFS back on track. They can begin by: Making the necessary adjustments to the planned reductions in 2020 RVOs and low volumes for 2021. Completing the planned volumes for 2022 as soon as possible. growthenergy.org/2022/01/28/gro… [email protected]
The True Cost of Corn Ethanol
Recent papers and publications have attempted to quantify whether or not the different subsidies for first-generation biofuels, such as maize ethanol and soybean-derived biodiesel, are cost-effective in terms of their economic benefits. And, while they are intriguing, the majority of them fail to see the wider picture. Following the release of a University of Missouri research this month, the National Resource Defense Council (NRDC) asserted that the “current corn ethanol tax credit is effectively costing taxpaying citizens $4.18 per gallon and driving up grain prices.” This was met with skepticism by pro-ethanol business organizations such as Growth Energy and the Renewable Fuels Association, which were outraged by the assertions.
- Let’s get down to business.
- In order to encourage petroleum refineries to mix corn ethanol, the United States government will offer a $0.45/gal “blender’s tax credit,” which is equal to a $5.4 billion dollar subsidy.
- ethanol producers from international competition (seeBrazilian Ethanol Takes a Hit) to protect them from foreign competition.
- 12 billion gallons of maize ethanol have the equivalent btu content of 9 billion gallons of gasoline, accounting for approximately 6.5 percent of the total 140 billion gallons of fuel available in the United States.
- In other words, if the United States is using around 30 percent of its corn output to generate ethanol, the principles of supply and demand predict that the price of corn would reduce if that percentage of the corn crop was shifted to human consumption rather than ethanol and DDGS production.
- fuel” question is unimportant.
- Furthermore, the problem of Indirect Land Use Change (ILUC) must be addressed (seeInconvenient Truth: Biofuels Have a Carbon Footprint).
The global population is growing by 80 million people each year, and while more cropland is planted for bioenergy, deforestation is occurring in regions such as Brazil and Indonesia, where carbon-rich peat forests are being chopped down to produce foods that would otherwise be cultivated in the Western world.
The more that pro-ethanol lobby groups such as the Renewable Fuels Association (RFA) and Growth Energy contest the existence of indirect land use changes and lobby their friends in Congress to strip the Environmental Protection Agency (EPA) of its authority to use ILUC in life-cycle carbon analyses, the more they undermine their credibility regarding their environmental stewardship and the economic benefits of first-generation biofuels such as corn ethanol, according to the Environmental Defense Fund.
To that end, direct subsidies such as the blenders credit, renewable fuels standards, and the import tax on Brazilian ethanol are included in the calculation of corn ethanol costs, as are indirect subsidies in the form of increased food prices as well as a potential reduction in the carbon footprint of the crop.
- With no consensus on the technique to establish how much corn ethanol contributes to price rises, and differences over how to quantify indirect land usage, the best estimate is “tens of billions of dollars” per year in maize ethanol-related price increases.
- What are the economic advantages of corn ethanol?
- The cost and advantages of first-generation biofuels such as maize ethanol must be evaluated in the context of how much money the United States has saved in previous years by substituting homegrown ethanol for imported petroleum fuels.
- Due to tight global supplies and supply networks, the price increase over minor volume increases has been increased, as manufacturers have reached the limits of what they can create and deliver.
- Significantly, this increase in biofuel production was the primary reason for the decline in the United States’ imports of foreign oil during the same time, which occurred at a period of rapid economic development and declining domestic oil output.
- Economically speaking, the United States would have required an additional 1.3 percent of its overall oil consumption – primarily from foreign sources – or 0.34 percent of the world’s total oil supply if ethanol production had not been possible.
- And this is without mentioning the employment that biofuels have created, the tax income that has been generated, or the contribution that biofuels have made to the national GDP.
- Oil price shocks in the near future will be largely reduced by increased ethanol supply – and we have reason to be grateful to the corn ethanol business for this.
By not investing the hundreds of billions of dollars required to scale up second- and third-generation biofuels that have the potential to replace 100 percent of our petroleum consumption with non-food based feedstocks, rather than the investments made in first-generation biofuels that have led us to be subservient to an Agricultural Industrial Complex that dictates our national biofuels policy, we have made ourselves subservient to an Agricultural Industrial Complex that dictates our national biofuels policy (seeBiofuels 2010: Spotting the Next Wave).
New study shows eliminating corn ethanol subsidy will save $6 billion and have little impact on U.S. ethanol production
Following on the heels of the CBO’s sobering report last week about the massive costs and meager benefits to taxpayers of existing corn ethanol subsidies, a new report today from Bruce Babcock at the Center for Agricultural and Rural Development at Iowa State University reveals that corn ethanol subsidies are actually costing taxpayers more money than they are saving them. This study is looking at the costs and benefits of maintaining the current corn ethanol policies, which include a $0.45 cent per gallon Volumetric Ethanol Excise Tax Credit (VEETC) paid to marketers and blenders of fuel for every gallon of ethanol blended with gasoline, regardless of environmental performance, and a $0.54 cent per gallon import tariff on foreign-produced ethanol.
Although the corn ethanol industry has waged a massive lobbying campaign in an attempt to persuade Congress to extend the VEETC, the report adds to a growing body of evidence that shows how much corn ethanol subsidies cost us, how little we get in return, and how inflated corn ethanol industry claims about job losses are.
If the VEETC were not in place, domestic ethanol output would have decreased by an average of only 700 million gallons per year.
If the goal of the VEETC is to increase ethanol use above and above the limits set by the government, the enormity of the expenses surpasses any potential advantages.
taxpayers almost $6 billion dollars and result in only a 5 percent increase in domestically produced ethanol above and above the levels already mandated under the RFS, according to the Congressional Budget Office.
(This is even more than the $4.18 per gallon that taxpayers had to spend last year, according to our calculations.) The elimination of the VEETC would have no significant consequences for employment in the United States, and any jobs produced by the VEETC would come at an excessively high cost.
- ethanol production in 2011.
- Aside than prolonging the VEETC in its current form, virtually any other use of $6 billion in U.S.
- More information on this may be found on my colleague Nathanael Greene’s blog today.
- This is especially true in light of the fact that the Renewable Fuel Standard (RFS) already requires oil companies to blend increasing amounts of ethanol into transportation fuels in the United States on an annual basis.
In order for the decades-old corn ethanol industry to stand on its own two feet, it is necessary for Congress to transition away from subsidizing a mature, mainstream, and polluting industry and toward supporting the transition we need to newer, cleaner, and more competitive advanced biofuels.
Variable subsidy for ethanol better for producers and government
WEST LAFAYETTE, Ind. – August 24, 2010WEST LAFAYETTE, Ind. – According to a Purdue University research, a variable subsidy for ethanol producers might be less expensive for the government while providing more stability for farmers than the present set rates in place. Wally Tyner, a professor of agricultural economics at Purdue University and one of the study’s authors, explains that a variable subsidy rate would protect farmers from risk because when oil and ethanol prices fall, the subsidy for producers would rise.
- As Tyner explained, “there will be times when oil prices are high and the subsidy will be minimal or non-existent.” After this year, the present government subsidy for ethanol producers, which is a set amount of 45 cents per gallon of ethanol, will expire.
- In his analysis, which was published in the October edition of Energy Policy, Tyner asserted that a variable rate would be the most beneficial option for consumers.
- In the event that the ethanol subsidy is not extended in some form, Tyner predicts that ethanol facilities will be forced to close.
- As soon as they begin to decline, the subsidy would kick in to ensure that those manufacturers maintain their profit margins.
- According to the research, the government would save money by switching to a variable subsidy rate instead of the existing fixed one, except when oil prices are at their greatest.
- At $90 a barrel of oil, there would be no subsidy if the pricing were to be fluctuating.
- The government would pay between $58 million and $360 million throughout the life of the plant under that scenario, depending on the subsidy rate used.
In the absence of this rise, he asserted, the United States has reached the blending wall, a point at which further development in ethanol output must be curtailed since the maximum quantity of ethanol available is being purchased and consumed by consumers.
Data from the U.S.
The research was supported by the National Science Foundation.
Wally Tyner may be reached at 765-494-0199 or [email protected]
By comparing two alternative modeling methodologies, we were able to examine numerous possibilities of a variable biofuel subsidy and compare them to the fixed biofuel subsidy and the Renewable Fuel Standard.
Secondly, we employed a stochastic simulation model of a prototype ethanol plant to conduct our experiments.
In the face of rising oil prices, the amount of ethanol produced is determined by market forces.
The variable subsidy, like the fixed subsidy, can enhance the net present value (NPV) of an investment sufficiently to stimulate investment, but with reduced risk for the producer, lower possibility of a loss from the investment, and, in many cases, lower estimated cost to the government.
Finally, the ethanol business in the United States is running up against a blending restriction known as the blend wall. If the blending wall remains in place and there is no means to get past it, it will make little difference whether other policy alternatives are employed in the meantime.
History of Ethanol Production and Policy — Energy
The history of ethanol is described in detail by the Energy Information Agency (2005). It was in 1826 that ethanol was first utilized to power an engine, and it was not until 1876 that Nicolaus Otto, the designer of the modern four-cycle internal combustion engine, used ethanol to power an early engine. In the 1850s, ethanol was also utilized as a lighting fuel, but its usage was reduced when it was taxed as liquor to raise funds for the Civil War. The usage of ethanol as a fuel continued after the tax was lifted, and it was used to power Henry Ford’s Model T automobile in 1908.
The ethanol business as we know it today began in the 1970s, when petroleum-based fuel became prohibitively costly and environmental worries about leaded gasoline prompted a need for a higher octane fuel.
When the price of ethanol declined in tandem with the price of crude oil and gasoline in the early 1980s, federal and state subsidies for the fuel helped to keep the fuel in production.
The Minnesota Model was an agreement between local public and private parties that worked together to keep profits in the community by creating jobs (and the economic benefits associated with increased population) and adding value to agricultural products while also strengthening rural communities in the state of Minnesota.
- Because of the phase-out of Methyl Tertiary Butyl Ether (MTBE) as an oxygenate, as well as a desire to reduce reliance on imported oil and promote the use of ecologically friendly fuels, the demand for ethanol has surged considerably in recent years.
- (Renewable Fuels Association, 2005a).
- (Renewable Fuels Association, 2005a).
- Under the new Renewable Fuel Standard (RFS), which now controls national ethanol policy, only 15 billion gallons of output should be derived from maize grain (starch), with the other 22 billion gallons coming from other advanced and cellulosic feedstock sources, according to the USDA.
References K. Bevill’s article “Building the ‘Minnesota Model'” was published in 2008. 114-120 in the April issue of Ethanol Producer Magazine. North Dakota State University’s Cole Gustafson is the author of this article.
USDA Announces $100 Million for American Biofuels Infrastructure
(Washington, DC) — On May 4, 2020, the United States Congress passed the National Defense Authorization Act. Sonny Perdue, Secretary of Agriculture of the United States, said that the United States Department of Agriculture expects to make available up to $100 million in competitive grants for initiatives aimed at increasing the availability and selling of renewable fuels. According to Secretary Perdue, “America’s energy independence is critical to our economic security, and President Trump fully recognizes the importance of our ethanol and biofuels industries, as well as the positive impacts they provide to consumers and farmers by providing an affordable, abundant, and clean-burning fuel,” he said.
The Higher Blends Infrastructure Incentive Program (HBIIP) provides up to $100 million in financing for competitive grants or sales incentives to qualifying businesses for actions aimed at increasing the sale and use of ethanol and biodiesel fuels in transportation and other applications.
The subsidies are being made available by the USDA under the Higher Blends Infrastructure Incentive Program (HBIIP). Increasing the sale and usage of greater mixes of ethanol and biodiesel is the goal of the initiative, which will be accomplished through extending the infrastructure for renewable fuels sourced from agricultural goods produced in the United States. Grants of up to 50% of total eligible project costs, but not exceeding $5 million, are available to vehicle fueling facilities, which include, but are not limited to, local fueling stations/locations, convenience stores, hypermarket fueling stations, fleet facilities, fuel terminal operations, midstream partners, and/or distribution facilities, among others.
Higher biofuel blends are defined as fuels comprising ethanol at a concentration more than 10% by volume and/or fuels including biodiesel blends at a concentration greater than 5% by volume.
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