Biofuel Incentives and the Energy Title of the 2007 Farm Bill

John A Miranowski

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Given the increased interest in biofuels and other biorenewables, a separate Energy Title is being considered for the 2007 Farm Bill. The added benefits and costs of such government intervention need to be weighed carefully. The United States has conducted an interesting social experiment with ethanol over the last three decades. The federal government and some state governments have provided incentives to increase both corn grain ethanol production and consumption to improve local air quality, reduce greenhouse gas emissions, and provide a substitute fuel from renewable resource that could serve to improve energy security. The experiment was successful, but in large part because the price of crude oil increased. Pushing this experiment further will eventually lead the added costs to outweigh the added benefits. Further expansion is typically justified on grounds of moving to biomass-based ethanol, which is purported to have even greater environmental and development benefits. The simple breakeven analyses presented in this paper seriously question the potential of biomass ethanol as a sustainable biofuel source.

Date: 2007-05-17
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