Effects of ethanol subsidy loss differ

The federal government is no longer paying fuel refiners to add ethanol to gasoline but the effects of ending the subsidy remain uncertain.

The 30-year-old federal ethanol subsidy ended at the start of 2012. Motorists and farmers will see the impact of the subsidy’s phase-out when they fill their fuel tank, purchase feed for livestock or sell corn.

Patrick DeHaan, senior petroleum analyst for the fuel price tracking website GasBuddy.com, said loss of the subsidy had some impact on fuel prices.

“It caused gas prices to rise 4 or 5 cents a gallon over the weekend,” DeHaan said. “Most people didn’t even realize why the price had gone up.”

If loss of the subsidy causes refiners to switch to products other than ethanol to help the gasoline they produce meet clean-air regulations, livestock farmers could reap the benefits, said Randall Armstrong, Lauderdale County Coordinator for the Alabama Cooperative Extension System. Most ethanol used in the United States is made from corn. Corn is the primary ingredient of many livestock feed blends.

“Corn prices have gone up as the amount of ethanol being mixed with gasoline has increased,” Armstrong said. “If ethanol use drops, the price of corn should also come down. That would be good for the farmers who produce beef, chickens and pork, but bad for the ones who grow the corn.”

If corn prices begin to tumble, Armstrong expects some local farmers who planned to grow the grain this year will plant cotton or soybeans instead.

DeHaan expects demand for ethanol to remain high. Federal mandates passed in 2005 and 2007 require refiners to add ethanol to most of the gasoline sold in the United States.

DeHaan said the few pennies per gallon loss the ethanol subsidy will add to fuel prices are small compared to the impact unrest in the Middle East could have on the cost of gasoline this year.

“Gasoline is already 20 to 30 cents per gallon higher than it was a year ago,” DeHaan said. “It could get ugly in the spring when demand starts to pick up and gas prices begin to rise. We’re already probably looking at around $4 per gallon in most cities this spring. If Iran carries through on its threats to try and disrupt oil shipments coming out the Middle East, gas prices could get really ugly. We could easily be paying over $4 per gallon if Iran goes through with trying to disrupt oil shipments.”

Gasoline prices rose sharply around the Shoals on Friday, with many retailers raising the price per gallon more than 10 cents.

source: timesdaily