Biofuel Policies of
the United States
The Role of the Tax Credits for Biodiesel
Marcel Adenäuer (Bonn University)
Seth Meyer (FAO)
Pierre Charlebois (Consultant)
Facts regarding US biofuels
• Ethanol production will require slightly more than
40% of American coarse grain production
• But production of DDG returning in the feed
market will represent around 13% of the coarse
grain production
• The USA is expected to produce almost half of
global ethanol production
• Their influence in the biodiesel market is much
more limited
• But: Biodiesel counts as advanced biofuel
US ethanol Mandates
bnl
160
Biodiesel
Cellulosic
Other advanced
Other conventional
2022
140
120
100
12 bnl 15 bnl
80
60
60 bnl 16 bnl
40
1.2 bnl
20
0
RFS2
Baseline
Other support measures
• Blender tax credit – expired for Ethanol
supposed to expire for Biodiesel in 2014
• State specific Level tax support
• Small ad valorem tariff on ethanol
• Low carbon fuel standard in California
US biofuels in AGLINK/COSIMO
• Global endogenous coverage of biofuels and
the model is policy specific for both biofuels
• The different feedstocks used are also well
represented
• DDGS are represented as returning to maize,
but in the new feed system (2014) they will
compete with all feeding stuff (e.g. soybean
meal)
When the tax credit expires
• For ethanol the knowledge of the expiring in
2013 led to a huge use of the rollover
possibility. Parts of the 2013 RINS were
produced already in 2012.
• Same thing is assumed to happen for biodiesel
this year leading to a peak in biodiesel
production
Stochastic Analysis
• 2 Scenarios
– 500 draws on yields for Wheat, Maize, Rice and
Oilseeds from historic distribution as shocks to the
model
• Scenario TAX1:
– Blender’s tax credit for Biodiesel (27 $) only in 2013
(as in current legislation)
• Scenario TAX2:
– Blender’s tax credit for Biodiesel in 2013 - 2022
US biodiesel producer price distribution
• US biodiesel prices on
average 13 $ higher in
TAX2
• Distribution flatter in
TAX2 –> less volatility
in Tax1
• General: Higher
upwards risk for prices
than downwards
•
•
•
•
•
Tax1 = tax credit only
in 2013
Tax2 = tax credit
2013-2022
mean: normal line
median: dotted line
q1/q3 percentiles:
dashed lines
World biodiesel price distribution
• Given the low
importance of the USA
on the biodiesel world
market, the
distributions of the
world biodiesel price
are less distinct. The
tendency is the same
as in the US, but on a
lower level
•
•
•
•
•
Tax1 = tax credit
only in 2013
Tax2 = tax credit
2013-2022
mean: normal
line
median: dotted
line
q1/q3
percentiles:
dashed lines
US biodiesel consumption distribution
Mandate
• Without the Tax
credit, the biodiesel
mandate is binding for
many more draws
than in TAX2
• Average consumption
0.8 bnl higher
•
•
•
•
•
Tax1 = tax credit
only in 2013
Tax2 = tax credit
2013-2022
mean: normal
line
median: dotted
line
q1/q3
percentiles:
dashed lines
US biodiesel consumption deviations
US biodiesel devoted to the advanced mandate
The other side of the medal: US Ethanol imports from Brazil
• About 1.1 bnl less
imports necessary
•
•
Tax1 = tax credit only in 2013
Tax2 = tax credit 2013-2022
US vegetable oil producer price distribution
• The influence of
higher biodiesel
producer prices on the
major biodiesel feed
stock vegetable oil is
smaller compare to
biodiesel prices.
• Distributions less
asymmetric
•
•
•
•
•
Tax1 = tax credit
only in 2013
Tax2 = tax credit
2013-2022
mean: normal
line
median: dotted
line
q1/q3
percentiles:
dashed lines
US soy bean producer price distribution
•
•
•
•
•
Tax1 = tax credit
only in 2013
Tax2 = tax credit
2013-2022
mean: normal
line
median: dotted
line
q1/q3
percentiles:
dashed lines
• The influence of
higher biodiesel
producer prices on
soy beans is small.
• Almost no
difference in both
distributions
It’s vegetable oil imports that react
Conclusions
• The blender’s credit for biodiesel reduces the
probability that the biodiesel mandate is
binding considerably
• Effects on the vegetable oil market are
comparable low
• Cross effects to US ethanol sector low but
• Devotion of biodiesel to fill the other
advanced gap is higher => more competitive
against Sugar cane based Ethanol from Brazil