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 Billion Gallons         YEAR Conventional

Biofuels:

Primarily Corn

Advanced Biofuels Cellulosic Advanced:

Not Happening

YET??

Non-cellulosic Advanced:

For Example from Sugar

Cane

Biomass-based Diesel

Total Renewable Fuel Standard

2006 4.00        4.002007 4.70        4.702008 9.00        9.002009 10.50 0.60  0.10 0.50 11.102010 12.00 0.95 0.10 0.20 0.65 12.952011 12.60 1.35 0.25 0.30 0.80 13.952012 13.20 2.00 0.50 0.50 1.00 15.202013 13.80 2.75 1.00 0.75 1.00 16.552014 14.40 3.75 1.75 1.00 1.00 18.152015 15.00 5.50 3.00 1.50 1.00 20.502016 15.00 7.25 4.25 2.00 1.00 22.252017 15.00 9.00 5.50 2.50 1.00 24.002018 15.00 11.00 7.00 3.00 1.00 26.002019 15.00 13.00 8.50 3.50 1.00 28.002020 15.00 15.00 10.50 3.50 1.00 30.002021 15.00 18.00 13.50 3.50 1.00 33.002022 15.00 21.00 16.00 4.00 1.00 36.00    =A+B+C A B C  

Where Does the $.45 Go?

Gasoline Consumer

Blender-Oil Company

Ethanol Plant

Corn/Soy Price-Grower

Land Returns

Where Does the $.45 Come From?Taxpayers = $6 billion per Year in 2011

FAPRI Analysis When Tax Credit & Tariff Goes Away? (first three years with assumptions)

Gasoline Consumer

Blender Oil Company

Ethanol Plant

Corn/Soy Price-Grower

Land Returns

Lowers Farm Prices by: Corn -16 cents/bu.Beans -17 cents/bu.

Lowers Returns by: Corn -$25/acreSoybeans -$ 8/acre.

Ethanol Plant:Lowers Ethanol Price20 cents per gallon

Retail Gasoline Rises:+1 to 2 cents per gallon??

Source: FAPRI-MU report #07-11, June 2011

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 biofuels4. 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 VolumeSubsidy-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