Report: Ethanol policies support domestic fuel, American farms

By Ryan C. Christiansen | May 04, 2009
Report posted June 3, 2009, at 2:10 p.m. CST

Researchers at the University of Missouri's Food and Agricultural Policy Research Institute warn that if the U.S. allows the 54-cents-per-gallon tariff on imported ethanol to expire as scheduled at the end of 2010, imported Brazilian ethanol will displace domestic ethanol production and, due to decreased demand for corn, American farmers will suffer lost revenue. This is just one scenario outlined in a report from FAPRI titled "Impacts of Selected U.S. Ethanol Policy Options". The report was published in response to a request from several members of Congress.

Ethanol policy in the U.S. revolves around usage mandates established as part of the renewable fuel standard (RFS) defined by the Energy Independence and Security Act of 2007, as well as the volumetric ethanol excise tax credit which gives blenders an incentive to mix ethanol with petroleum gasoline, and also the import tariff. The FAPRI report examined what would happen if changes were made to these ethanol policies.

The report found that if the 45-cents-per-gallon ethanol blender's tax credit is allowed to expire as scheduled at the end of 2010, the domestic ethanol industry—which already suffers from losses and low profits—will become even less profitable. Domestic ethanol fuel production will suffer and, due to decreased demand for corn, American farmers will suffer lost revenue.

If the RFS is modified to eliminate support for corn-based ethanol fuel, petroleum blenders will use corn-based ethanol fuel only when it is priced competitively with gasoline. Domestic ethanol fuel production will suffer and, due to decreased demand for corn, American farmers will suffer lost revenue.

If all three ethanol supports are eliminated—including the import tariff, the blender's credit, and support for mandated corn ethanol fuel use—the domestic ethanol fuel industry will collapse, resulting in the loss of billions of gallons of domestically produced transportation fuel. Once again, due to decreased demand for corn, American farmers will suffer lost revenue.

Alternatively, if all ethanol fuel supports remain in place and ethanol is allowed to be blended with petroleum gasoline at a rate of 15 percent rather than the current 10 percent beginning in September 2009, the domestic ethanol fuel industry will be supported. The U.S. will be able to continue domestic transportation fuel production and American farmers will not suffer lost revenue.