Aggregate Support to Ethanol

To develop a better sense of how all of the individual subsidy programs affect the overall environment for ethanol, we have compiled a number of aggregate measures of support. The aggregate data provide important insights into a variety of policy questions, ranging from the financial cost of the support policies to taxpayers and consumers, to estimates of the costs of achieving particular policy goals. Among arguments put forth in support of biofuel subsidies are that they help the country to diversify from fossil fuels in general, and petroleum in particular; and that they have a better environmental profile than fossil fuels.

Quantification is often difficult either because the subsidy's course of action is indirect (e.g., mandated use of ethanol) or because data on the magnitude of support (especially at the state level, or with tax breaks or credit enhancements) are difficult to locate. As a result, there are inevitable gaps in our subsidy tallies.

Despite not counting everything, however, the subsidy picture is striking. We estimate that total support for ethanol was $5.8 billion to $7.0 billion in 2006 and, assuming no change in the RFS, will rise sharply to $11 billion by 2008 and $14 billion by 2014 (Table 4.1). The VEETC at present is the single largest ethanol subsidy and the difference between the high and low estimate is primarily associated with the incremental benefit blenders receive from the VEETC being excludible from income taxes (Box 4.1). We believe the high estimate is a more accurate representation of government support to ethanol than is the low estimate. Subsidies from the VTEEC were $3-4 billion in 2006, and are projected to total $34 to $48 billion over the 2006-12 period.

Total undiscounted subsidies to ethanol from 2006-2012 are estimated to fall within the range of $68 billion to $82 billion. Implementation of a higher RFS (e.g., 36 bgpy by 2022) would increase total subsidies by tens of billions of dollars per year above these levels.

Table 4.1 Estimated total support for ethanol

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