Bruce Babcock and CARD at ISU recently released a report examining the consequences on the U.S. ethanol industry, corn producers, taxpayers, fuel blenders, and fuel consumers if current incentives are not extended, or the mandate is not continued.  The study analyzed the effects for various scenarios in 2011 and 2014.

It is important to note that the study was funded by the Brazilian sugarcane association (UNICA), which has been lobbying Congress to eliminate the tariff on imported ethanol. 

Corn Growers working to support existing ethanol policy have the following concerns:

• Assumptions made in the course of the study point to underlying problems with the conclusions reached. Two examples:
  
• Stagnant corn yields and constant acreage are included in the 2014 scenario.  If either corn yields or acreage were to increase, corn prices could be suppressed much further than the above results, triggering government payments.  In the paper, “No accounting is made for government program payments that could be triggered by low corn prices.”
  
• Also, it assumes constant gas price of $2.30 over the analysis timeframe.  However, the U.S. Energy Information Administration’s long term outlook has a gas price increase of 19% over the same time period. 
  
  
• The EPA, for the second straight year, has proposed to dramatically scale back the RFS2 mandated levels for cellulosic biofuels.  If required volumes of corn-based ethanol are not available, the EPA has the authority to waive or reduce these nested standards as well.  The analysis does not mention nor account for this potential externality.
  
• U.S. taxpayer benefits are “accounted for by changes in the aggregate cost of the tax credit and the revenue from the import tariff.”  This accounting is incomplete, as it does not contain the tax, gas price, national security, and other economic benefits from the ethanol industry.
  
• Further, removing tax credits amounts to  a tax increase on a domestic industry, not a tax cut.
  
• One of the goals of national biofuels policy should be a support for domestic  energy and fuel sources over foreign sources. Expanding imports of foreign ethanol from Brazil moves us away from this goal.

To find more discussion on this subject, click on Corn Commentary