Ethanol's Benefits

Numerous Studies Demonstrate Ethanol's Benefits
Over the past several months a number of studies have been conducted regarding the economic, agricultural and consumer benefits of the ethanol tax incentive, and the negative impact eliminating the incentive would have on these sectors.

Northwestern University
A Northwestern University study for the Midwestern Governors' Conference details the cost- effectiveness of the federal ethanol program for taxpayers. The Economic Impact of the Demand for Ethanol, conducted by Dr. Michael Evans, Professor of Economics at the Kellogg School of Management, Northwestern University, concludes that in 1997 alone the ethanol program will save the federal budget $3.6 billion.

The report demonstrates that the ethanol industry:

Increases net farm income by $4.5 billion;
Boosts total employment by 195,200 jobs, both on and off the farm;
Adds over $450 million to state tax receipts;
Improves the U.S. trade balance by $2 billion.

Governor Branstad said, "This study validates the benefits of the federal ethanol program. These benefits are the creation of jobs and the stimulation of rural economies at a net savings to the federal budget. It is a win-win for the American taxpayer and rural America."

Food and Agriculture Policy Research Institute Study
In a report to Senator Tom Harkin (D-IA), the Food and Agriculture Policy Research Institute detailed the devastating impact of eliminating the ethanol tax incentive on the agricultural sector. According to the analysis, Effects on Agriculture of Elimination of the Excise Tax Exemption for Fuel Ethanol, eliminating the 546 billion bushel market for grain created by ethanol would result in a loss of 144 million bushels of grain each year.

The remaining grain would be shifted to other industries, adding:

139 million additional bushels to the feed market;
50 million bushels to high fructose corn syrup;
39 million bushels to food markets; and
174 million bushels to exports.

The study concludes that the net effect is to lower the prices of all commodities, reducing crop receipts by $1.9 billion. Adjusting for inventory changes and other non-money effects, the study projects that net farm income will decline more than $1.2 billion annually. This analysis is the first time the Institute has examined the ethanol program under the new farm bill, which allows farmers to shift freely between crops.

Texas A&M
A study by the Agriculture and Food Policy Center at Texas A&M University computed the average loss to individual farmers if the ethanol tax incentive is repealed. In the analysis, Effects on Representative Feed Grain Farms From Elimination of the Excise Tax Exemption for Fuel Ethanol, Texas A&M reviewed farms in Iowa, Missouri, Kansas, Nebraska, Texas and South Carolina.

According to the study, eliminating the ethanol program will result in an average yearly decrease in net cash income per farm of $15,660. The largest decrease was found in Texas, where farm income fell $38,938. In addition to lost income, the study found that total debt increased an average of $12,230.

USDA Study
An analysis by U.S. Department of Agriculture concluded that eliminating the ethanol tax incentive would increase the trade deficit, increase MTBE imports, lower farm income and result in lost jobs. According Dr. Catherine Woteki, Acting Under Secretary for Research, Education and Economics, the trade deficit would increase "by $4.5 to $7.8 billion during 1998- 2005."

Woteki predicts MTBE imports will also rise substantially to fill the void created by the elimination of ethanol in the oxygenate market. Woteki also stated that farm income for American corn growers would fall $5.9 to $10.2 billion over the 1998-2005 period, and between 7,000 and 14,000 jobs would be lost annually in the U.S.

Consumer Impact Analysis
A nationwide consumer analysis concluded that consumers will pay an additional $5.4 billion a year in the absence of the ethanol tax incentive. The state-by-state analysis conducted by AUS Consultants analyzed the impact of an elimination of the ethanol tax incentive in terms of jobs, income and gasoline prices. Specifically, the report concluded:

Consumers will pay $3 billion more in higher gasoline costs, including a $500 million tax increase on federal gas taxes;
Household income will fall by $2.9 billion; and
120,600 Americans will lose their jobs.

For copies of any of these studies, please contact
Jerry Loos at the Coalition's administrative offices, 402-471-2867.

This material is based upon work supported by the U.S. Department of Energy under agreement No. DE-FG48-92R701307. Any opinions, findings, conclusions or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Energy.

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