The Impact of Ethanol Policy on Social Welfare and GHG Emissions

We develop a stylized model of fuel markets in an open economy to analyze the impact of ethanol policy on social welfare and greenhouse gas (GHG) emissions. The policies considered here include the $0.51 per gallon blender’s subsidy for ethanol and the import tariff of $0.54 per gallon on sugarcane ethanol. Our analysis shows that the combined subsidy and tariff policy decreases welfare by about $3.6 billion relative to a non intervention policy. Furthermore, there are no GHG mitigation benefits since GHG emissions show a slight increase (0.08%) when both policies are in place.