Ethanol Fuel in The United States - Tariffs and Tax Credits

Tariffs and Tax Credits

Since the 1980s until 2011, domestic ethanol producers were protected by a 54-cent per gallon import tariff, mainly intended to curb Brazilian sugarcane ethanol imports. Beginning in 2004 blenders of transportation fuel received a tax credit for each gallon of ethanol they mix with gasoline. Historically, the tariff was intended to offset the federal tax credit that applied to ethanol regardless of country of origin. Several countries in the Caribbean Basin imported and reprocessed Brazilian ethanol, usually converting hydrated ethanol into anhydrous ethanol, for re-export to the United States. They avoided the 2.5% duty and the tariff, thanks to the Caribbean Basin Initiative (CBI) and free trade agreements. This process was limited to 7% of U.S. ethanol consumption.

As of 2011, blenders received a US$0.45 per gallon tax credit, regardless of feedstock; small producers received an additional US$0.10 on the first 15 million US gallons; and producers of cellulosic ethanol received credits up to US$1.01. Tax credits to promote the production and consumption of biofuels date to the 1970s. For 2011, credits were based on the Energy Policy Act of 2005, the Food, Conservation, and Energy Act of 2008, and the Energy Improvement and Extension Act of 2008.

A 2010 study by the Congressional Budget Office (CBO) found that in fiscal year 2009, biofuel tax credits reduced federal revenues by around US$6 billion, of which corn and cellulosic ethanol accounted for US$5.16 billion and US$50 million, respectively. A 2010 study by the Environmental Working Group estimated that the cumulative ethanol subsidies between 2005 and 2009 were US$17 billion. The same study estimated the future cost to taxpayers at US$53.59 billion if these tax credits were extended until 2015, yielding 15 billion US gallons (56.8 billion liters).

In 2010, CBO estimated that taxpayer costs to reduce gasoline consumption by one gallon were $1.78 for corn ethanol and $3.00 for cellulosic ethanol. In a similar way, and without considering potential indirect land use effects, the costs to taxpayers of reducing greenhouse gas emissions through tax credits were about $750 per metric ton of CO2-equivalent for ethanol and around $275 per metric ton for cellulosic ethanol.

On June 16, 2011, the U.S. Congress approved an amendment to an economic development bill to repeal both the tax credit and the tariff, but this bill did not move forward. Nevertheless, the U.S. Congress did not extend the tariff and the tax credit, allowing both to end on December 31, 2011. Since 1980 the ethanol industry was awarded an estimated US$45 billion in subsidies.