What’s the Outlook for U.S. Ethanol Subsidies?

With the Republican Party now holding a majority in the House, deficit hawks may get the upper hand, allowing existing ethanol subsidies to expire as the focus shifts to whether or not to extend the Bush tax cuts. A scenario in which minority Democrats and corn belt Republicans exert pressure to extend lower ethanol subsidies is possible. In the current climate, one in which job creation is a priority, it is highly unlikely that the ethanol import tariff would be dropped, with the prospect of a flood of cheap ethanol imports from Brazil too great. Nevertheless, a discussion on import tariffs would likely include a discussion on subsidies. The mandated annual increase in the volume of biofuels to be used for transportation will drive demand for ethanol with or without ethanol subsidies.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients: Ethanol Subsidies: Adding Fuel to the Fire?

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