Ethanol in the U.S.: new challenges
2011-06-17 16:04:36
Thursday, June 16th U.S. Senate has voted for cancelation of federal subsidies for ethanol producers in the country. Currently the dollar amount of such subsidies equals to the annual amount of 6 billion USD. Ethanol industry had been subsidized since 1970’s as farm-state voters and law-makers had strong voting power.
At the present day large share of gas sold in the country contains up to 10% of ethanol. Since Obama was elected as a president, his administration offered an increase of such limit to 15%. Car producers were concerned about such innovation due to the fact that engines of the cars were not designed for such substance.
Initially, gasoline blenders were obtaining 45 cents per gallon of ethanol which they were mixing with motor fuel as a tax credit. After reduction of subsidies for the ethanol (hence no more tax credit), there is a potential for demand drop on the market. Bruce Babcock, economist from Iowa State University doubted such outcome and made a statement that ethanol industry did not require subsidies anymore. Unfortunately, he did not provide any evidence to his statement.