Clearing the Air: A Policy Analysis of the Ethanol Excise Tax Credit

  • Greg Cato
Keywords: ethanol, excise tax, tax credit, energy security, oil independence, environment, energy policy


Established in 1978, the ethanol excise tax credit has been a resounding success in helping establish a vibrant corn ethanol market, with almost 11 billion gallons produced in 2009. However, the original goals of the credit—energy security and oil independence—have not been significantly aided and, by at least some measures, have actually been hindered by the subsidy. Secondary environmental goals, such as avoidance of carbon emissions from motor fuels, show limited success. Ex post cost-benefit analyses of the subsidy have shown that it has negative to zero cost-benefit ratios and that socially optimal levels are well below current tax credit rates. The credit had a high dollar cost of $4.8 billion in 2009, and has also increased corn prices. Finally, development of a host of alternatives, such as cellulosic ethanol, have been retarded by the creation of hegemonic constituencies dependent on the credit.

Author Biography

Greg Cato
Greg Cato is a second-year Master of Public Policy student at the Trachtenberg School, concentrating in environmental policy. Prior to entering the program, he was working at the Minnesota State Legislature as a legislative drafter and has also been a chef and educator. In 1999, he graduated from Carnegie Mellon University with a Bachelor of Science in science, technology, and society. Throughout these experiences, the importance and interplay of the environment and food have been a driving force and this paper is an eddy off of that stream.