Bruce A. Babcock, Jacinto F. Fabiosa
The rapid rise in corn prices that began in the fall of 2006 coincided with exponential growth in U.S. corn ethanol production. At about the same time, new ethanol consumption mandates were added to existing ethanol import tariffs and price subsidies. This troika of subsidies leads critics to view the ethanol industry as being beholden to subsidies, which then leads to the conclusion that ethanol subsidies lead to high corn prices. But droughts, floods, a severe U.S. recession, and two general commodity price surges have also occurred since 2006.
The ethanol tax credit, known commonly by its congressionally-bestowed acronym, "VEETC" (the "Volumetric Ethanol Excise Tax Credit" ) is the tax credit many conservatives and liberals alike love to hate. Both sides, however, would be well-advised to push aside ideologically-based peeves for the time being, and support extension of the credit beyond its scheduled December 31st expiration.