What would happen if the government eliminated tax credits, tariffs and mandates supporting corn ethanol use? Ethanol production could decline by as much as 5.5 billion gallons and corn prices could fall by more than 13 percent, according to a study by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.
At the request of several members of Congress, FAPRI conducted a type of “what if” study of the economic impacts of various policy shifts. The report, “Impacts of Selected U.S. Ethanol Policy Options,” can be found at www.fapri.missouri.edu/outreach/publications/2009/FAPRI_MU_Report_04_09.pdf. It includes 11 scenarios, beginning with allowing the ethanol blender’s tax credit to expire at the end of 2010 to eliminating the Renewable Fuel Standard (RFS), as well as tax credits and tariffs supporting the U.S. corn-based ethanol industry.
The report included an assumption that 15% ethanol blends would be permitted this September. While this increase in ethanol blends would increase ethanol use and average corn prices, FAPRI found the effects would be modest--raising corn prices by an average of just 1.1%.