Subsidies and Biofuels in the United States

Presenter: John Drexhage, Director, Climate Change and Energy Program, IISD

With the assistance of Ronald Steenblik, Director of Research, GSI

Growth has been phenomenal

U.S. ethanol production(millions of gallons)

Source: Iowa Corn Promotion Board <www.iowacorn.org/ethanol/ethanol_6.html#2>

Growth in U.S. biodiesel production

0

100

200

300

400

500

600

700

1999 2000 2001 2002 2003 2004 2005 2006e

Mil

lio

n g

all

on

s p

er

ye

ar

U.S. corn used for ethanol(millions of bushels)

Source: Iowa Corn Promotion Board <www.iowacorn.org/ethanol/ethanol_6.html#4>

What role played by subsidies?

Feedstock crop

Energy

Labor

Capital

Water

Intermediate inputs

Land

Subsidies to value-adding factors

Subsidies to the supply of intermediate inputs

Crop & irrigation subsidies

Energy subsidies

Subsidies to production of biofuels• Production-linked payments and tax credits;•Tax exemptions;•Market price support ( e.g. import tariffs)Value-adding factors

Biofuel

By-products

Subsidies to storage and distribution infrastructure

Vehicles (car, bus,

truck)

Subsidies for purchase of biofuel

Subsidies for purchase of or operation of vehicle

Consumers of by-

products (e.g.,

livestock producers

)

Subsidies to by-product consuming industry

Subsidies to intermediate inputs

Production Consumption

Biofuel Manufacturing

Plant

Biofuel Manufacturing

Plant

International comparison of ethanol incentives (US cents/litre)

Country Production incentive

Reduced excise tax

Import tariff

(MFN)1

Exceptions from tariff

Australia — 28.9¢

Value of rebate on excise tax

28.9¢

Effective rate because excise tax not rebated

None

Brazil — 30¢ (Sao Paulo) — Mercosur

Canada up to 16.4¢ (variable rate, QB)

up to 15.1¢ (BC) 4.3¢ NAFTA, CAFTA, Chile

EU — up to 70.9¢ (Ger)

24.1¢ EFTA, GSP (not incl. Brazil)

Switzerland — 57.8¢ 27.7¢ EU, GSP (incl. Brazil)

USA 13.5¢ + state up to 8.4¢ (MO) 2.2% + 14.3¢ NAFTA, CBI

1. Undenatured ethyl alcohol for use as a fuel.

USA: aggregate support and subsidy intensity

Subsidies to ethanol and biodiesel: total and per gasoline or diesel gallon equivalent Ethanol Biodiesel Units Low High Low High Total support

Estimate for 2006 $ billions 5.1 6.8 0.4 0.5 Annualized estimate, 2006-2012 $ billions 6.3 8.7 1.7 2.3

Subsidy per gallon gasoline (gge) or diesel (gde) equivalent

Estimate for 2006 $/gge or $/gde 1.42 1.87 1.69 2.15 Annualized estimate, 2006-2012 $/gge or $/gde 1.44 1.96 1.24 1.70

Source: Doug Koplow, Biofuels—At What Cost?: Government Support for Ethanol and Biodiesel in the United States, Global Subsidies Initiative of the International Institute for Sustainable Development, Geneva.

Cost to displace GHG emissions, using biofuels subsidies

Ethanol Biodiesel Cellulosic

ethanol (hypothetical

case)1 Units Low High Low High Low High Subsidy per metric ton of CO2-equivalent emission reduced

Displacement ratio -21% 32% NQ NQ 88% 88% Estimate for 2006 $/tonne NA 520 NQ NQ 118 147 Annualized estimate, 2006-2012 $/tonne NA 545 NQ NQ 124 164

mt CO2e on market for same cost NA 33-142 NQ NQ 8-32 9-43 NA = not applicable. NQ = not quantified. Displacement ratios from Farrell et al. (2006b).

Source: Doug Koplow, Biofuels—At What Cost?: Government Support for Ethanol and Biodiesel in the United States, Global Subsidies Initiative of the International Institute for Sustainable Development, Geneva.

E85-capable AFVs made available in 2005, by vehicle type

Light trucks and SUVs, 556,078

Medium-duty vehicles, 8,255

Automobiles and Minivans,

179,615

Source: U.S. Energy Information Administration www.eia.doe.gov/cneaf/alternate/page/datatables/atf14-20_05.html

100th meridian

Existingbiorefinery

10 existingbiorefineries

Biorefineries underconstruction, Oct 06

Top tier of counties,nitrate runoff

Top two tiers of counties, nitrate runoff

Location of biorefinery plants in relation to the Mississippi River Basin

Legend

Sources: Map from Environmental Working Group (www.ewg.org/reports/deadzone/top10.php), used with permission;plant locations from Renewable Fuels Association (www.ethanolrfa.org/objects/documents/834/plantmap_100506.pdf); plant locations are approximate. Ogallala formation location fromhttp://upload.wikimedia.org/wikipedia/commons/f/f7/Ogallala_changes_in_feet_1980-1995_USGS.gif

Top three tiers of counties, nitrate runoff

Ogallala Aquifer

Opportunity cost

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 100 200 300 400 500 600International price of sugar in $ per ton

Inte

rnat

ion

al p

rice

of

gas

olin

e

in $

per

lite

r

Breakeven lines for ethanol from highly efficient producers in landlocked and non-landlocked areas

non-landlocked areas

landlocked areas

Note: Prices are from January 1990 through August 2006 and are normalized to their 2006 value.

Sources: Based on Figures 1.2 and 1.3 in the forthcoming World Bank report (used with permission), “Considering Biofuel Trade Policies”. Premium unleaded gasoline in Northwest Europe from Energy Intelligence 2006; raw sugar cane prices from the International Sugar Agreement.

Thank you!

For more information, the report Biofuels: At What Cost? — Government Support for Ethanol and Biodiesel in the United States” is available at:

http://www.globalsubsidies.org/