Variable Subsidy for Ethanol Better for Producers and Government

Hoosier Ag Today
08/24/2010
Purdue Ag Communications

A variable subsidy for ethanol producers could cost the government less and provide more security for producers than current fixed rates, according to a Purdue University study. A variable subsidy rate would insulate producers from risk because as oil and ethanol prices drop, the subsidy for producers would increase, said Wally Tyner, a Purdue agricultural economist and an author of the study. The government would save money because it would not have to pay any subsidy when oil prices are high.

"There will be times when oil prices are high and the subsidy will be low or nothing at all," Tyner said.

The current government subsidy for ethanol producers - a fixed rate of 45 cents per gallon of ethanol - will expire at the end of the year. Congress will have to decide whether to create a new fixed rate, implement a variable rate or go with no subsidy at all.

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