J. Elliott, I. Foster, M. Loudermilk, and Todd Munson, "Impact of Eliminating Biofuels Production on US Gasoline Prices: An Equilibrium Analysis," Preprint ANL/MCS-P1983-1111, November 2011. [pdf]
A combination of mandates, credits, and subsidies are employed in the US to encourage biofuel production. Recent demands for reduced federal spending have increased scrutiny on these incentives just as many are set to expire if not soon renewed by Congress. In this context, it becomes important to understand what impacts ethanol production has had on food and fuel markets, and what changes can be expected if ethanol production is eliminated. We report here on a modeling study of this question. Using a computable general equilibrium model that captures the market effects of the various interactions between fuel production, imports, exports, and consumption in equilibrium, we study 2 policy scenarios to illucidate the effects of ethanol production: 1) the future hypothetical in which ethanol production is eliminated at the end of 2011 and 2) the historical counterfactual in which ethanol production is eliminated in 1999, before it becomes a substantial proportion of US fuel markets.