While the U.S. Congress declined to extend the tax credit and tariff at the end of
2011, the RFS and blending mandate remain, keeping a floor beneath ethanol demand.
Corn ethanol expansion could slow in coming years. But most agree that while
government policies were key to the rapid expansion of corn ethanol in the United States,
high oil prices now make ethanol a competitive substitute for gasoline. The RFS may
well stimulate continued corn ethanol expansion, as would moves toward a 15% blending
wall.
In the last six years, the growth of corn ethanol has been dramatic, partly in
response to the 2007 RFS. This rapid expansion coincided with the global food price
crisis, which drove agricultural commodity prices to record highs in 2007-8. The price
spikes sparked food riots and political instability in much of the developing world. Prices
spiked again in 2010-11. While most agricultural commodity prices have come down
from those peaks, corn prices remain stubbornly high (see Figure 2).