If you are playing the game Jeopardy! and the answer is “ethanol,” you might be tempted to respond, “What bio-fuel carries the most controversy?” Regardless of the turn that ethanol supporters make, there is always some roadblock to surmount. As Congress is faced with energy policy, food prices, and many other issues that ethanol touches, what are the economic impacts if any change is made from the status quo? Some are significant.

Several Members of Congress recently asked the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri for help in evaluating nearly a dozen alternatives that have been proposed as a result of oil, ethanol, and corn prices in 2007 and 2008. Along with the high corn prices, there was a considerable pain for the livestock producer, and some ethanol critics began asking why the subsidies and protective tariffs continued while prices were high. The FAPRI report examined a wide range of alternatives suggested by the Members of Congress, as well as from livestock groups. Among the proposals were:
1) Allowing the 45¢ blenders tax credit to expire next year.
2) Vary the credit like a countercyclical payment when corn prices go up and down.
3) Allow the 54¢ tariff on imported ethanol to expire next year.
4) Vary the tariff like a countercyclical payment when corn prices go up and down.
5) Allow the 10% ethanol blend to rise to 15%.
6) Provide a countercyclical payment to ethanol plants when corn prices rise and fall.
7) Slow down the Renewable Fuels Standard’s requirement for ethanol production.
8) Divert distillers’ grains to the energy industry as a feedstock at power plants.
9) Modify the Renewable Fuels Standard to reduce ethanol requirements when corn prices are high.
10) Eliminate the Renewable Fuels Standard for corn ethanol and keep it for cellulosic ethanol.
11) Totally eliminate the Renewable Fuels Standard, ethanol tariffs, and blenders’ credits.

The FAPRI economists developed 500 different scenarios, based on levels of corn production, market prices, oil prices, acreage, and others to determine how farmers would respond, the impact on other commodities, the impact on livestock feed, farm income, and CCC outlays for farm program benefits, as well as the cost to consumers.

Each of the scenarios had their own results, but assembling a trend, the FAPRI economists drew some basic conclusions:
1) If Congress allows either the blenders’ credit or ethanol tariff to expire next year, there will be less ethanol produced and corn prices will decline marginally over the period of 2011 to 2018.
2) Any downward change in the Renewable Fuels Standard curtails ethanol production and reduces corn prices. An elimination of the federal policy would depress corn prices nearly 5%.
3) The removal of one ethanol support policy has marginal impact, but the elimination of all three policies would curtail ethanol production by 5.5 billion gallons and would cause corn prices to fall by more than 13%.
4) When corn prices are high, any moderation or modification of the biofuels policies will reduce ethanol production and slightly reduces corn prices.
5) If the ethanol blend is raised from 10% to 15%, there is only a modest increase in ethanol use and a 1% increase in corn prices.
6) Whatever changes are made to ethanol policies, other market fundamentals such as weather and oil prices will raise or lower their importance.

Summary:
Congressional policies affecting ethanol can be changed at anytime, and any change would probably be reduction in a policy that supports ethanol production and price and is beneficial to the price of corn. Such changes may be the result of higher ethanol prices or a negative impact on livestock feed availability and price. Policy changes that cause a reduction in ethanol production or corn prices may be a temptation to Congressmen should ethanol prices rise to the point that either consumers complain or anti-ethanol forces raise questions about ethanol supports in times of high prices.