State biofuel subsidies costly but effective, MSU research shows

EurekaAlert.com
Public release date: 26-Apr-2010
Michigan State University

EAST LANSING, Mich. —States aiming to lead the emerging biofuel industry may need to ante up substantial subsidies and tax incentives to ethanol producers just to get in the game, Michigan State University researchers say.

"State subsidies have played an important role in ethanol plant location decisions," explained Mark Skidmore, MSU professor of agricultural, food and resource economics. "The size of the incentives is important, too –– the larger the subsidy or tax credit, the more likely it is that an ethanol plant will locate in that state."

Skidmore and Chad Cotti, assistant professor of economics at the University of Wisconsin-Oshkosh, examine the influence of federal and state incentives for corn-grain ethanol production in the April 2010 issue of the Southern Economic Journal.

Experts agree that federal subsidies –– currently 51 cents per gallon for ethanol/gasoline blends ––have helped expand national ethanol production capacity. Skidmore and Cotti's paper is one of the first to analyze the effect of state incentives on the corn-grain ethanol industry. No commercial cellulosic ethanol plant, using wood and field waste instead of corn, has yet opened in the United States.

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