Study Finds “Modest” Impact to Ending Ethanol Tax Credit

Cindy Zimmerman

A study conducted by Iowa State University’s Center for Agricultural and Rural Development (CARD) has determined that the impact of ending the ethanol blenders tax credit and corresponding tariff would be “modest.”

The report, Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies, finds that “allowing the blender credit and tariff to expire would neither have the dramatic, adverse effect U.S. ethanol producers claim nor create the export bonanza Brazil would hope for.”

According to the study, U.S. ethanol production would increase to some 14.5 billion gallons by 2014 without the tax credit and import tariff while U.S. imports of Brazilian ethanol would rise modestly to about 740 million gallons—less than 5 percent of the total U.S. ethanol market. They also found that “no more than 300 jobs” would be lost in the ethanol industry as a result of ending the VEETC and tariff, and that ethanol prices would decrease 12 cents a gallon next year and fall 34 cents per gallon by 2014.

UNICAPartial funding for the report was provided by a grant from UNICA, the Brazilian Sugarcane Industry Association. In a post on the UNICA blog, Sweeter Alternative, North American Representative Joel Velasco says they backed the study because they “an honest assessment from an impartial expert and thought who better to engage than a world-renowned agricultural economist from the Farm Belt.” The report’s author is CARD director Dr. Bruce A. Babcock, professor of economics at Iowa State University. Velasco writes, “Our only request of Dr. Babcock was that he let the chips fall where they may,” writes Velasco. “We wanted Iowa State University to examine the range of options Congress is actually debating and provide a realistic estimate of what changing policies will mean for U.S. taxpayers, American drivers and ethanol producers in the U.S. and Brazil. We also provided the researchers with requested data on projections of Brazilian sugarcane ethanol production, domestic consumption and potential exports through 2014.”

Read the full study here.

Brazil, Ethanol