Ethanol expansion has been encouraged by several government policies: a tax
credit, a protective tariff, and a consumption mandate. The tariff protected the domestic
ethanol industry from foreign competition by imposing a $0.54 tax on imported ethanol
from non-NAFTA countries, such as sugarcane ethanol from Brazil. Additionally,
ethanol benefited from a sizable tax credit, which existed in some form for more than 30
years, and afforded blenders of ethanol a $0.45 tax credit. In 2011, this credit was
estimated at $6 billion. On top of this, the industry is supported with the Renewable Fuel
Standard (RFS), which developed originally in 2005 and was expanded six-fold in 2007.
The 2007 RFS mandates the consumption of an increasing amount of biofuel each year,
culminating in 2022 with a 36 billion gallon mandate, at least 15 billion gallons of which
can be produced from cornstarch. The remaining gallons are supposed to be filled with
so-called “advanced” biofuels, including 16 billion gallons of cellulosic biofuels, but as
that industry continues to be slow to develop it seems unlikely the United States will be
able to fill that mandate by 2022. Another important policy related to ethanol in the US is
“the blend wall,” or how much ethanol can legally be blended into a gallon of gasoline.
While at present, the limit is 10% (known as E-10), EPA has approved a petition to
increase this limit to 15% (E-15) and has begun to register producers, making it possible
that E15 could be on the market in some places by the summer of 2012. Because E-15 is
not compatible with certain engines, it remains unclear how much this will boost ethanol
demand. Other more minor forms of support – through loan guarantees, grants and other
more minor tax credits – also continue to subsidize the industry.
Ethanol expansion has been encouraged by several government policies: a taxcredit, a protective tariff, and a consumption mandate. The tariff protected the domesticethanol industry from foreign competition by imposing a $0.54 tax on imported ethanolfrom non-NAFTA countries, such as sugarcane ethanol from Brazil. Additionally,ethanol benefited from a sizable tax credit, which existed in some form for more than 30years, and afforded blenders of ethanol a $0.45 tax credit. In 2011, this credit wasestimated at $6 billion. On top of this, the industry is supported with the Renewable FuelStandard (RFS), which developed originally in 2005 and was expanded six-fold in 2007.The 2007 RFS mandates the consumption of an increasing amount of biofuel each year,culminating in 2022 with a 36 billion gallon mandate, at least 15 billion gallons of whichcan be produced from cornstarch. The remaining gallons are supposed to be filled withso-called “advanced” biofuels, including 16 billion gallons of cellulosic biofuels, but asthat industry continues to be slow to develop it seems unlikely the United States will beable to fill that mandate by 2022. Another important policy related to ethanol in the US is“the blend wall,” or how much ethanol can legally be blended into a gallon of gasoline.While at present, the limit is 10% (known as E-10), EPA has approved a petition toincrease this limit to 15% (E-15) and has begun to register producers, making it possiblethat E15 could be on the market in some places by the summer of 2012. Because E-15 isnot compatible with certain engines, it remains unclear how much this will boost ethanoldemand. Other more minor forms of support – through loan guarantees, grants and othermore minor tax credits – also continue to subsidize the industry.
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