Alcohol Fuel Tax Policy: Sugar, Corn and the Environment

Abstract

The United States has several tax and investment incentives for ethanol production. These include the federal alcohol mixture credit, federal excise tax exemption and tariff protection on imported ethanol fuel The purpose of this chapter is to analyze the impacts of the federal, ethyl tertiary butyl ether (ETBE) tax credit upon the production of sugarcane and sugar beets in the United States. This new federal regulation provides tax incentives for producing ethanol from sugar crops when it is combined with isobutylene to produce ETBE. It is shown that the ETBE tax credit will have no effect upon the production of sugar crops in the United States for the following reasons: (1) the ETBE tax credit is merely a minor extension of a long list of other tax incentives and subsidies put in place to promote ethanol production from sugar crops; (2) the ETBE tax credit, as well as all the other related tax incentives and subsidies, has not had direct stimulus upon the production of ethanol from domestically produced sugarcane or sugar beets; (3) the current U.S. sugar program inhibits the production of ethanol from sugarcane and sugar beets because it provides both a price support and a price lid at levels too attractive to divert sugar crops from the production of high value sugar to the production of relatively low value ethanol; and (4) the ETBE tax credit is not expected to increase the prices of corn, corn sweeteners and/or sugar. Moreover, there will be no increase in sugarcane or sugar beets acreage as a direct result of the impacts of the ETBE tax credit on the production of corn-based ethanol.