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BioFuels Policy and Impact on U.S. Agriculture

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 E nergy I ndependence & S ecurity A ct ( EISA ) December 2007

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BioFuels Policy and Impact on U.S. Agriculture

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  1. BioFuels Policy and Impact on U.S. Agriculture Juan Sesmero jsesmero@purdue.edu & Chris Hurt hurtc@purdue.edu Ag Economists

  2. 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

  3. Where Does the $.45 Go? Where Does the $.45 Come From? Taxpayers = $6 billion per Year in 2011 Land Returns Gasoline Consumer Corn/Soy Price-Grower Blender-Oil Company Ethanol Plant

  4. FAPRI Analysis When Tax Credit & Tariff Goes Away? (first three years with assumptions) Lowers Returns by: Corn -$25/acre Soybeans -$ 8/acre. Lowers Farm Prices by: Corn -16 cents/bu. Beans -17 cents/bu. Ethanol Plant: Lowers Ethanol Price 20 cents per gallon Retail Gasoline Rises: +1 to 2 cents per gallon?? Land Returns Blender Oil Company Gasoline Consumer Corn/Soy Price-Grower Ethanol Plant Source: FAPRI-MU report #07-11, June 2011

  5. Elimination of Tariff • 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 • With Tariff eliminated there is no net costs to enter the country • This slightly benefits imports of biofuels • 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 • Non-cellulosic advanced category is growing rapidly and can be met by sugar cane ethanol • Brazil is investing in sugar cane production to capture all of the 4 billion gallons of in this category by 2022.

  6. Implications Mandate-RFS-Guaranteed Market Volume Subsidy-Additional Stimulation to Produce Ethanol—Probably Important to Get Ethanol Plants Built Gone Gone 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

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