Economist questions continued need for ethanol subsidy

A professor of economics at Iowa State University is questioning the need to continue federal subsidies for ethanol and biodiesel.

Bruce Babcock, who is the director for the Center for Agricultural and Rural Development (CARD), says it’s hard to defend the blenders’ tax credits for renewable fuels when the industry already has mandates in place.

“The reason why is that the Renewable Fuels Standard provides an increasing market—a guaranteed market—for the ethanol industry,” Babcock says, “and that, together with the import tariff, we’re pretty well sure that corn ethanol will have a market for up to 15 billion gallons.”

Babcock says ethanol has a public relations problem, with people asking why it needs both subsidies and protection from imports. So with the RFS mandates in place, Babcock says, “you just kind of ask the question—why do you need the tax credit?”

Babcock argues that the market for RINs—renewable identification numbers—is an effective and efficient way to enforce the biofuels mandates. But he says as long as the tax credits are in place, the industry has no need to use the RINs market.

Babcock’s conclusions are contained in a CARD report entitled “Mandates, Tax Credits and Tariffs: Does the U.S. Biofuels Industry Need Them All?”.

Just last week, the Renewable Fuels Association (RFA) released a report on the economic importance of the ethanol blenders’ tax incentive. It says if Congress fails to extend the credit before it expires at the end of this year, it could cause nearly 40 percent of the industry to shut down.

source: truthabouttrade.org