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

U.S. corn used for ethanol (millions of bushels) Source: Iowa Corn Promotion Board

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 Consumer s of by- products (e.g., livestock producers ) Subsidies to by-product consuming industry Subsidies to intermediate inputs ProductionConsumption Biofuel Manufacturing Plant

International comparison of ethanol incentives (US cents/litre) CountryProduction 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¢ + stateup to 8.4¢ (MO)2.2% ¢NAFTA, CBI 1. Undenatured ethyl alcohol for use as a fuel.

USA: aggregate support and subsidy intensity 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 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.

Source: U.S. Energy Information Administration

100 th meridian Existing biorefinery 10 existing biorefineries Biorefineries under construction, 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 ( used with permission; plant locations from Renewable Fuels Association ( plant locations are approximate. Ogallala formation location from Top three tiers of counties, nitrate runoff Ogallala Aquifer

Opportunity cost

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:Biofuels: At What Cost? — Government Support for Ethanol and Biodiesel in the United States”