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

4. Renewable Fuel Standard Billion Gallons YEARConventional Biofuels: Primarily Corn Advanced BiofuelsCellulosic Advanced: Not Happening YET?? Non-cellulosic Advanced: For Example from Sugar Cane Biomass- based Diesel Total Renewable Fuel Standard 20064.00 20074.70 20089.00 200910.500.60 0.100.5011.10 201012.000.950.100.200.6512.95 201112.601.350.250.300.8013.95 201213.202.000.50 1.0015.20 201313.802.751.000.751.0016.55 201414.403.751.751.00 18.15 201515.005.503.001.501.0020.50 201615.007.254.252.001.0022.25 201715.009.005.502.501.0024.00 201815.0011.007.003.001.0026.00 201915.0013.008.503.501.0028.00 202015.00 10.503.501.0030.00 202115.0018.0013.503.501.0033.00 202215.0021.0016.004.001.0036.00 =A+B+C ABC

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

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

9. Elimination of Tariff 1.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 2.With Tariff eliminated there is no net costs to enter the country 3.This slightly benefits imports of biofuels 4.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 5.Non-cellulosic advanced category is growing rapidly and can be met by sugar cane ethanol 6.Brazil is investing in sugar cane production to capture all of the 4 billion gallons of in this category by 2022.

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