Economic Impacts of Not Extending Biofuel Subsidies

Abstract

The exponential growth of the biofuels industry has created significant increases in feed prices to the livestock sector. In February and March of 2007, the National Cattlemen's Beef Association and the National Pork Producers called for the nonrenewal of the $0.51-per-gallon excise tax credit for ethanol as well as elimination of the $0.54-per-gallon import tariff on ethanol. This study uses a stochastic model to analyze the impact of not extending the ethanol tax credit, the ethanol import tariff, or the $1.00-per-gallon biodiesel tax credit on the biofuels and agricultural commodity markets. The Renewable Fuel Standard mandate requiring a minimum of ethanol use is maintained. The study finds that future growth in biofuels relies heavily on the extension of the tax credits and import tariff. Commodity prices will fall without the extension of them and make net farm income drop by an average of $3.1 billion per year over the 2011-2016 period. This is because lower feed prices for livestock producers represent low output prices for crop farmers.