Alternative biofuel policies: an economic comparison

This article provides an economic interpretation of some alternative policies that could replace or augment the expiring ethanol blender's credit. Several alternatives have been proposed, which include eliminating the blender's credit and maintaining the mandate, implementing a producer's income or investment tax credit or creating a variable blender's credit. Eliminating the blender's credit only has market impacts when the mandate is not binding. An ethanol producer's income tax credit has market impacts that are indistinguishable from the current blender's credit. A producer's investment tax credit has the potential to reduce the risk of entry for biofuel products. A variable ethanol blender's tax credit can achieve significant cost savings over a fixed blender's tax credit while achieving the same objectives. These cost savings can then be used to reduce program costs to taxpayers or be used to achieve additional objectives.