Food vs. Fuel: The Effect of Biofuel Policies

TLDR: Hochman et al. as discussed by the authors investigated the impact of government policies like the Renewable Fuel Standard (RFS), volumetric ethanol excise tax credit (VEETC) for blenders of ethanol, and tariffs that restrict the imports of sugarcane ethanol.

Abstract: The rise in food commodity prices since 2004, which reached record highs in 2008, has coincided with the tripling of corn ethanol production from 15 billion liters (BL) to 50 BL over the 2004–2010 period. This has spurred the food vs. fuel debate and raised questions about the extent to which biofuels have contributed to the increase in food crop prices. Estimates of the impact of observed levels of biofuel production differ widely across studies and lie between 20% and 60% (Hochman et al. 2011). Biofuel production in the United States (US) has surged as a result of government policies like the Renewable Fuel Standard (RFS), volumetric ethanol excise tax credit (VEETC) for blenders of ethanol, and tariffs that restrict the imports of sugarcane ethanol. The RFS authorized by the Energy Independence and Security Act (EISA) of 2007 has set ambitious targets of increasing biofuel production sixfold to 136 BL by 2022, with over 60% of it to be met by advanced biofuels produced using non-corn starch based feedstocks. A $0.12/liter VEETC is provided to blenders of ethanol to reduce their costs of meeting the RFS while a tariff of $0.14/liter and an ad valorem tariff of 2.5% were enacted to prevent transfer of the tax credit to ethanol producers in Brazil. The current VEETC and import tariff expired in 2011. With increasing federal debt and concerns about the impact of these policies on food and feed prices, political support for the