The result of the federal government’s decision to end a 30-year old subsidy program for the ethanol industry could be felt as early as this week with higher prices at the pumps.
The government officially ended its federal subsidy for ethanol on Sunday, which could lead to higher gas prices by the end of the week. Most gasoline is actually comprised of a 10 percent blend of ethanol, with that lack of federal funds likely to nudge gas prices upwards.
Ethanol blenders were eligible for a 45 cents per gallon tax credit under the previous program, but those costs will now have to be absorbed by producers and ultimately the buying public. Given most gasoline in the United States in E-10, that means a 4.5 cents per gallon price increase could be right around the corner.
The decision to drop a 54 cents per gallon tariff on imported ethanol could help keep prices in check, but it remains to be seen exactly how the new policy will play out.
Although the end of the ethanol subsidy could raise gas prices slightly, it should have an overall positive impact on government spending. The U.S. government spent $45 billion on the program since 1980, including $6 billion spent last year.
References
1.’Expiration of Ethanol…’ view
