This report examines government support for ethanol and biodiesel in the United States. Current government subsidy policies at the federal, state and, to the extent possible, local level have been surveyed. This analysis forms part of a multi-country effort by the Global Subsidies Initiative (GSI) to characterize and quantify subsidies to biofuels production, distribution and consumption, as well as the subsidies to producers of key factor inputs. Government subsidies—at both the state and federal levels—have long played an important role in the expansion of the biofuels industry within the United States.
In both the ethanol and biodiesel sectors, the pace of growth has accelerated dramatically in recent years. Currently, new capacity (new builds plus the expansion of existing plants) will increase ethanol output by nearly 50 per cent between 2006 and 2008. New biodiesel plants will boost nameplate capacity by nearly 200 percent. State and federal policies have remained an important part of the story. In the ensuing years, many of the baseline subsidies present in the 1980s have continued to expand. Taxpayer support for biodiesel has grown as well.
This report provides an overview of the support provided to ethanol and biodiesel in the United States. It is instructive to see the vast array of public support at all levels of government being showered on these industries. Aside from growing public costs, there remains a concern that productive capacity—driven by the subsidies—will grow at an unsustainable rate.
Such growth would result in a number of potentially-damaging outcomes. First, too much industry capacity could lead to a shakeout and bankruptcies. This could lead to the loss of substantial public investment and hardship in corn-intensive rural areas. Second, rapid growth in demand for feedstocks such as corn, other starches or soybeans could generate too much diversion of cropland to fuel crops; and from other uses for the fuel crops to fuel (e.g., export to the developing world). Such shifts could have important social and environmental impacts.
Chapter 2 provides an overview of the liquid biofuels industry in the United States. Chapter 3 provides a historical overview of subsidies to this sector. Chapter 4 addresses the current subsidy picture at the federal and state levels. Chapter 5 discusses the main findings and aggregates subsidy values to ethanol and biodiesel. Readers are encouraged to review the Annex, which provides a detailed listing of the state and federal programmes benefiting ethanol and biodiesel. As the report provides an overview of the largest subsidies to liquid biofuels and of the range of supports provided, the Annex contains many programs not mentioned elsewhere in the text.

By: The GSI of the International Institute for Sustainable Development (IISD)

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