Friday, April 25, 2008

Farm Bill and Ethanol Subsidies

Just a quick note to update on the Farm Bill. The Des Moines Register is reporting that there has been substantial progress in the Federal Farm Bill because of compromises coming from both sides of the issues. The latest word is that the ethanol subsidies in the form of the blenders tax credit will be reduced from 51cents per gallon to 45 cent. The money saved will be diverted into a fund to encourage cellulosic ethanol production.
Although I don't think that it would be healthy to the United States to damage the extensive investment in the ethanol industry by totally throwing out the blenders credit, this is a very good step if it becomes law in the farm bill. The blenders tax credit mainly benefits the blenders who are rarely ethanol producers. It works well because it encourages blenders to use ethanol over gasoline, but reducing it by 6 cents per gallon probably won't diminish ethanol blending. Also, the government is taking the right steps in adjusting towards the future of ethanol, which is cellulosic.
Finally, I think it will be interesting to watch the outcome if this reduction in the blenders credit becomes law. The Bush administration has hinted at their willingness in recent months to lower the import tariff on ethanol designed to prevent overseas ethanol producers such as Brazil from enjoying the taxpayer funded subsidies such as the blenders credit. However, if the blenders credit is reduced, these tariffs could be reduced from the 53 cents per gallon currently seen to say, 48 cents per gallon. This would make Brazillian ethanol more attractive towards importing without seriously harming the domestic production and would possible take the pressure off the corn crop in the short term.

For more details or updates, check out the Des Moines Register at:

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