Study Shows Impact of Removing Ethanol Tariff

Brazil is eliminating its tariff on ethanol imports and wants the United States to do the same, but a recent study shows Brazil has far more to gain in that deal.

IHS GlobalThe study, prepared by IHS Global Insight, determined that eliminating import tariffs and increasing the tax on domestic ethanol would have severe economic consequences for both American ethanol producers and corn farmers. Dropping the current import tariff on ethanol would create a negative ripple effect, causing corn prices to drop by 30 cents per bushel and eliminating as many as 160,000 full and part-time jobs.

According to the study, if the tariff were allowed to expire at the end of this year, imports would immediately begin to rise until they reach a high of just over 1.6 billion gallons in 2012/13 and 2013/14, and then gradually decline to around 1.4 billion gallons in 2018/19. Currently, imports range between 200 and 600 million gallons per year. The report estimates that domestic ethanol production would drop by more than 600 million gallons in the first year, dragging corn prices down in the process. More importantly, the study shows that eliminating the import tariff would result in foreign ethanol replacing domestically produced ethanol – but not foreign oil.

A significant drop in ethanol production would have a detrimental impact on states where the ethanol industry has been rebounding, like Nebraska. Todd Sneller, administrator of the Nebraska Ethanol Board, said that increased production and plant reopenings confirm the viability of the ethanol industry and its positive impact on the state. “The ethanol industry has created thousands of good-paying jobs in Nebraska,” Sneller said. “Elimination of the ethanol tariff and biofuel incentives would be a misguided policy considering the significant economic impact generated by this domestic industry. The current policies help create jobs, they keep a domestic industry more competitive and they reduce fuel costs for consumers.”

Another study, done by the University of Missouri’s Community Policy Analysis Center, found that Nebraska was one of six states that would see the largest declines in economic activity due to removal of the ethanol import tariff. The others were Iowa, Illinois, Minnesota, Indiana and South Dakota. The decline in economic activity was calculated at $9.2 billion in the first year, $26.4 billion in the second year, and $36.7 billion in the third year.