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The Congressional Budget Office recently completed a study of biofuel tax credits that aimed to determine if existing tax credits favor one type of biofuel over another and estimate the costs of those credits on U.S taxpayers. The study, titled “Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals,” was prepared by the CBO at the request of the Chairman of the Senate Subcommittee on Energy, Natural Resources and Infrastructure.

Although the $1 per gallon biodiesel tax credit expired in December 2009, the CBO included it in the analysis. According to the report, this was done to provide policymakers with information on the value of the credit, should they choose to reinstate it in the future. In addition to the biodiesel tax credit, the report includes data related to tax credits for corn and cellulosic ethanol.

The CBO’s main findings included the following:

-The incentives provided by the tax credits differ between the three fuels. When adjusted to reflect the different energy contents of the biofuels, as well as the petroleum fuel used to produce them, the CBO found that corn ethanol producers receive 73 cents for each quantity of ethanol that contains the energy equivalent of one gallon of gasoline. On the same basis, the incentives for cellulosic ethanol and biodiesel were a respective $1.62 and $1.08 per volume of energy equivalent fuel.

-The cost to taxpayers to use corn ethanol to reduce gasoline consumption by one gallon is $1.78. The same cost for cellulosic ethanol is $3 and the cost for biodiesel was found to be $2.55. According to the CBO, these cost estimates depend on the size of the tax credit for each fuel, changes in federal revenue streams that result from the difference in excise taxes collected on the sales of gasoline and biofuels, and the amount of each biofuel that would have been produced if the credits had not been available.

Source: Biodiesel Magazine