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Biofuels - Impact of Selected Farm Bill Provisions
By the Food and Agricultural Policy Research Institute (FAPRI)of the University of Missouri.
Summary
Biofuel policies and petroleum market developments can have large impacts on biofuel and agricultural markets. This report examines consequences of selected biofuel policies in the Food, Conservation and Energy Act (FCEA, the 2008 farm bill), as well as other policies that support the US biofuel sector.
The point of departure for the analysis is the stochastic baseline for US agricultural markets prepared by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri (MU) in early 2008.
The farm bill extends the $0.54 per gallon ethanol tariff through 2010, but reduces the ethanol blender’s credit from the current $0.51 per gallon to $0.45 per gallon in 2009 and 2010.
- The extension of the ethanol tariff raises US ethanol prices (table 1). The reduction in the tax credit, in contrast, reduces producer prices for ethanol and raises consumer prices. The net effect of these changes is a small increase in ethanol producer prices and production.
- With only small effects on ethanol production, these two farm bill provisions result in marginal increases in prices for corn and other agricultural commodities. For example, the provisions raise average 2009/10 corn prices by $0.06 per bushel.
The analysis indicates that the impacts of biofuel policies are very dependent on the policy and market context.
- The Energy Independence and Security Act of 2007 (EISA) establishes mandated levels of use for various classes of biofuels. These mandates can be very important when they are binding, typically when petroleum prices are low or crop supplies are limited. The mandates may have little market impact when high petroleum prices contribute to high biofuel prices and production levels.
- Under a variety of market circumstances, the ethanol tariff is likely to have a large impact on ethanol imports, but only a modest effect on domestic ethanol producer prices and production and on agricultural markets. When EISA mandates for use of “advanced biofuels” are binding, even the level of ethanol imports may not be greatly affected by changes in the ethanol tariff.
- Tax credits for production of ethanol and biodiesel, likewise, may have large or small impacts on biofuel and agricultural markets, depending on the circumstance. When use mandates are not binding, the tax credits encourage biofuel use and production, resulting in higher prices for corn, soybean oil and other agricultural commodities. However, when EISA mandates are binding, the credits have only modest impacts on biofuel and agricultural market outcomes, although they do affect consumer and taxpayer costs.
Because the point of departure for this analysis is a baseline prepared in early 2008, it does not incorporate recent developments in energy and agricultural markets or other provisions of the 2008 farm bill. Sorting the stochastic results by petroleum prices suggests just how sensitive results of the various scenarios are to market circumstances.
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Table 1. Summary of results, 2011-2017 average changes from reference scenarios (except as noted)
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| See page | Biofuel production | Producer prices | Net farm income | Food expend. | ||||
|---|---|---|---|---|---|---|---|---|
| Ethanol | Biodiesel | Ethanol | Corn | Soybeans | ||||
| Reference: Pre farm bill provisions | Percent | Percent | Percent | Percent | Percent | Bil. dollars | Bil. dollars | |
| Farm bill provisions (2009/10 effects) | 9 | 4.2 | -0.2 | 3.3 | 1.7 | 0.5 | 0.32 | 0.11 |
| Reference: Current policies extended | ||||||||
| Reduce tax credit to $0.45 | 13 | -0.6 | 0.0 | -0.4 | -0.2 | -0.1 | -0.10 | -0.07 |
| Let ethanol tariff expire | 17 | -8.3 | 0.5 | -5.2 | -2.5 | -1.0 | -1.11 | -0.87 |
| Let ethanol tax credit expire | 21 | -2.6 | 0.2 | -1.7 | -0.7 | -0.5 | -0.48 | -0.32 |
| Let biodiesel tax credit expire | 25 | 0.0 | -9.4 | 0.0 | -0.1 | -1.0 | -0.35 | -0.03 |
| Let all credits and tariffs expire | 29 | -11.9 | -8.6 | -7.4 | -3.6 | -2.6 | -2.07 | -1.35 |
| Remove EISA biofuel use mandates | 33 | -20.5 | -46.0 | -12.8 | -6.2 | -6.7 | -3.83 | -2.00 |
| Remove EISA mandates and let all credits and tariffs expire | 37 | -43.0 | -63.4 | -29.2 | -14.1 | -11.6 | -7.50 | -4.70 |
| Reference: No EISA mandates, tariffs and credits all expire | ||||||||
| Extend ethanol tariff | 41 | 2.3 | -0.4 | 1.1 | 0.5 | 0.2 | 0.12 | 0.17 |
| Extend ethanol tax credit | 45 | 35.8 | -7.0 | 21.4 | 8.1 | 3.2 | 2.86 | 2.26 |
| Extend biodiesel credit | 49 | -0.1 | 58.3 | 0.1 | 0.3 | 2.1 | 0.54 | 0.19 |
| Extend all credits and tariffs | 53 | 39.4 | 47.5 | 23.2 | 9.2 | 5.5 | 3.67 | 2.70 |
| Impose EISA mandates | 57 | 54.5 | 149.8 | 30.8 | 12.2 | 10.1 | 5.43 | 3.35 |
| Impose EISA mandates and extend all credits and tariffs | 61 | 75.4 | 173.4 | 41.3 | 16.4 | 13.1 | 7.50 | 4.70 |
| Reference: Same (no EISA mandates, tariffs and credits all expire) but with high petroleum prices | ||||||||
| Extend all credits and tariffs | 65 | 32.1 | 9.9 | |||||
| Impose EISA mandates | 65 | 10.9 | 3.8 | |||||
| Impose EISA mandates and extend all credits and tariffs | 65 | 33.9 | 10.4 | |||||
Further Reading
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- | You can view the full report by clicking here. |
June 2008
