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Ethanol: No Free Lunch

Author

Listed:
  • Schmitz Andrew

    (University of Florida)

  • Moss Charles B.

    (University of Florida)

  • Schmitz Troy G.

    (Arizona State University)

Abstract

The sharp rise in energy prices in the 1980s triggered a strong interest in the production of ethanol as an additional energy component. Economists are divided as to the payoffs from ethanol derived corn in part because of the complex interrelationship between energy produced from ethanol and energy from fossil fuels. Using a welfare economic framework, we calculate that there can be treasury savings from ethanol using tax credits as these subsidies can be smaller than direct payments to corn farmers which are essentially eliminated from the expansion of ethanol. Also, to the extent that ethanol dampens fuel prices there can be a net welfare gain from ethanol production in the presence of ethanol subsidies.

Suggested Citation

  • Schmitz Andrew & Moss Charles B. & Schmitz Troy G., 2007. "Ethanol: No Free Lunch," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-28, December.
    • Handle: RePEc:bpj:bjafio:v:5:y:2007:i:2:n:3
    DOI: 10.2202/1542-0485.1186
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    Citations

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    Cited by:

    1. Bullock, David S., 2012. "Dangers of Using Political Preference Functions in Political Economy Analysis: Examples from U.S. Ethanol Policy," 2012 First Congress, June 4-5, 2012, Trento, Italy 124118, Italian Association of Agricultural and Applied Economics (AIEAA).
    2. de Gorter, Harry & Just, David R. & Tan, Qinwen, 2009. "The Socially Optimal Import Tariff and Tax Credit for Ethanol with Farm Subsidies," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 38(1), pages 1-13, April.
    3. Du, Xiaodong, 2008. "Essays on land cash rents, biofuels, and their interactions," ISU General Staff Papers 200801010800001979, Iowa State University, Department of Economics.
    4. Vorotnikova, Ekaterina & Seale, James L, 2014. "U.S. Ethanol Mandate Is a Hidden Subsidy to Corn Producers," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162551, Southern Agricultural Economics Association.
    5. Mooney, Daniel F. & Barham, Bradford L. & Lian, Chang, 2013. "Sustainable Biofuels, Marginal Agricultural Lands, and Farm Supply Response: Micro-Evidence for Southwest Wisconsin," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150510, Agricultural and Applied Economics Association.
    6. Saitone, Tina L. & Sexton, Richard J. & Sexton, Steven E., 2008. "Market Power in the Corn Sector: How Does It Affect the Impacts of the Ethanol Subsidy?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(2), pages 1-26.
    7. Du, Xiaodong & Hayes, Dermot J., 2009. "The impact of ethanol production on US and regional gasoline markets," Energy Policy, Elsevier, vol. 37(8), pages 3227-3234, August.
    8. Brian C. Murray & Maureen L. Cropper & Francisco C. de la Chesnaye & John M. Reilly, 2014. "How Effective Are US Renewable Energy Subsidies in Cutting Greenhouse Gases?," American Economic Review, American Economic Association, vol. 104(5), pages 569-574, May.
    9. Basak Bayramoglu & Jean-François Jacques, 2016. "The economic and environmental effects of a biofuel mandate policy: the case of France [Les effets économiques et environnementaux d’une politique d’incorporation obligatoire de biocarburants : le ," Post-Print hal-02877013, HAL.
    10. JunJie Wu & Christian Langpap, 2015. "The Price and Welfare Effects of Biofuel Mandates and Subsidies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 35-57, September.
    11. Bullock, David S. & Couleau, Anabelle, 2012. "The U.S. Ethanol and Commodity Policy Labyrinth: Looking into Welfare Space to Analyze Policies that Combine Multiple Instruments," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126901, International Association of Agricultural Economists.
    12. Roberto Esposti, 2009. "Biofuels between International Markets, Policies and the Wto," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 4, December.
    13. Dong Hee Suh & Charles B. Moss, 2017. "Dynamic adjustment of ethanol demand to crude oil prices: implications for mandated ethanol usage," Empirical Economics, Springer, vol. 52(4), pages 1587-1607, June.
    14. Zhang, Zibin & Qiu, Cheng & Wetzstein, Michael, 2010. "Blend-wall economics: Relaxing US ethanol regulations can lead to increased use of fossil fuels," Energy Policy, Elsevier, vol. 38(7), pages 3426-3430, July.
    15. Peters, May & Somwaru, Agapi & Hansen, James M. & Seeley, Ralph & Dirkse, Steve, 2009. "Modeling Biofuels Expansion in a Changing Global Environment," 2009 Conference, August 16-22, 2009, Beijing, China 51732, International Association of Agricultural Economists.
    16. Schmitz, Troy G. & Schmitz, Andrew, 2012. "The Complexities of the Interface between Agricultural Policy and Trade," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 13(1), pages 1-12, February.
    17. Schmitz Andrew & Moss Charles B. & Schmitz Troy G., 2020. "The Economic Effects of COVID-19 on the Producers of Ethanol, Corn, Gasoline, and Oil," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 18(2), pages 1-18, November.
    18. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Short-Run Price and Welfare Impacts of Federal Ethanol Policies," Center for Agricultural and Rural Development (CARD) Publications 08-wp468, Center for Agricultural and Rural Development (CARD) at Iowa State University.

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