Get rid of the tariff on ethanol

The U.S. is currently doing a big thing right on its energy policy:  it's letting the price mechanism do its job.  I suspect there is no policy more likely to lead to quick reductions in the quantity of gasoline and oil products demanded, or to speed efforts to increase sources of supplies and substitutes.

Ethanol (either from corn or agricultural waste) may be one of these substitutes.  We currently impose a 2.5% ad valorem tariff and a $0.54/gallon secondary tariff on ethanol imports. 

Eliminating the secondary tariff would reduce the cost of one of those substitutes, and increase the diversity of available energy sources.  President Bush suggested this last Friday: Bush favors cut in ethanol tariff (H. Josef Hebert, AP, May 6, via The Buffalo News).

David Foster, over at the Chicago Boyz blog has been talking about the ethanol tariff for a while: Sweet Energy, Sour Politics (February 19, 2006), Sweet Energy, Sour Politics--Update (February 22, 2006), and most recently, Ethanol Tariff Update (May 8, 2006).    Foster points to this article from the Iowa Farm Bureau, describing it as "well written and well balanced")  : Why we import Brazilian ethanol  (Joel Severinghaus, July 14, 2005)

Foster does point to potential logistic problems that may mean it will take a while to exploit the resulting lower cost of ethanol imports:

Ethanol policy also needs to consider impact on the transportation network. Ethanol cannot be shipped via conventional pipelines (a fact which has received little media attention until very recently) and has to go by rail or barge if long distances are involved. Major railroad bottlenecks seem likely, given that some of the routes needed for domestic ethanol are already heavily used for coal and grain. The Union Pacific has already slowed down shipments of ethanol to the DFW area due to heavy congestion in its rail terminal there.

Imported ethanol might help the overall transportation-capacity situation to some extent, since it can come directly into major east and west coast ports, but isn't going to help with bottlenecks at blending facilities.

Of course domestic ethanol producers don't want to see the tariff go away.  Here is a link to a discussion paper from the Renewable Fuels Association, a producer industry association, opposing repeal of the tariff: The Importance of Preserving The Secondary Tariff on Ethanol
(June, 2005).

Comments

[John Powers]

I'll give you 2:1, I could physically make ethanol go through a pipeline, if I could get any money for it.

JBP