Development Of Variable Ethanol Subsidy And Comparison With The Fixed Subsidy
AbstractThe federal government currently subsidizes ethanol with a fixed payment of $.51/gallon of ethanol blended with gasoline. Ethanol profitability is closely linked to the prices of corn and ethanol. The purpose of this paper was to develop a variable subsidy based on corn and ethanol prices and then to compare that variable subsidy with the fixed subsidy. This analysis proceeded in several distinct steps: • First, we estimated ethanol profitability over a wide range of ethanol, corn, and distillers grains prices. • This data was used in a regression analysis to estimate the ethanol profitability from the set of corn and ethanol prices. The regression coefficients became the basis for the variable subsidy. • A version of the subsidy that used gasoline prices instead of ethanol prices was also developed. • Administratively, it would be burdensome to have a subsidy that changed every month, so we implemented both variable subsidies using quarterly data. • We then compared the average annual government cost and monthly private profitability using historical data and assuming the variable subsidy and the $0.51 fixed subsidy was applied. When using historic gasoline and corn prices from the last ten years, the variable rate subsidy cost the government nearly 40% less than the flat rate subsidy. Profit received by producers on average is a little less; however, producer’s risk is lower with the variable subsidy than the flat rate subsidy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Purdue University, College of Agriculture, Department of Agricultural Economics in its series Working Papers with number 06-16.
Length: 21 pages
Date of creation: 2006
Date of revision:
Ethanol; variable subsidy; energy policy; ethanol economics;
Find related papers by JEL classification:
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-01-14 (Agricultural Economics)
- NEP-ALL-2007-01-14 (All new papers)
- NEP-ENE-2007-01-14 (Energy Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gabriel, Stuart & Painter, Gary, 2003. "Pathways to Homeownership: An Analysis of the Residential Location and Homeownership Choices of Black Households in Los Angeles," The Journal of Real Estate Finance and Economics, Springer, vol. 27(1), pages 87-109, July.
- Deng, Yongheng & Ross, Stephen L. & Wachter, Susan M., 2003.
"Racial differences in homeownership: the effect of residential location,"
Regional Science and Urban Economics,
Elsevier, vol. 33(5), pages 517-556, September.
- Yongheng Deng & Stephen L. Ross & Susan M. Wachter, 2002. "Racial Differences in Homeownership: The Effect of Residential Location," Working papers 2002-05, University of Connecticut, Department of Economics.
- Robst, John & Deitz, Richard & McGoldrick, KimMarie, 1999. "Income variability, uncertainty and housing tenure choice1," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 219-229, March.
- Lance Freeman, 2005. "Black Homeownership: The Role of Temporal Changes and Residential Segregation at the End of the 20th Century," Social Science Quarterly, Southwestern Social Science Association, vol. 86(2), pages 403-426.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Debby Weber).
If references are entirely missing, you can add them using this form.