Illinois researchers propose $13B in savings with variable ethanol incentive program
In Illinois, economists at the University of Illinois have developed a legislative proposal to replace the way corn ethanol is subsidized with a variable incentive program that could save U.S. taxpayers more than $13 billion. When simulated from 2007, the proposal would have cost $2.5 billion instead of $15 billion.
Economists say the proposal would be simpler than the current program. The price of ethanol would be subtracted from the price of gasoline and that gives a measure for the incentives to blend ethanol.
When that number is positive, that means ethanol is cheaper than gasoline and so blenders will want to include it in the gasoline at the retail supply. When that number is negative, that means that the price of ethanol is higher than the price of gasoline and blenders wouldn’t want to use ethanol in terms of the basic market economics. The rule is keyed to zero so that whenever the margin is negative, meaning that they would otherwise not want to blend ethanol, that’s when the blenders’ credit kicks in. The credit is a maximum of the current 45 cents per gallon. So the U of I proposal is to cover negative margins up to 45 cents per gallon and nothing above zero.
Category: Policy
