The Benefits and Costs of Ethanol: An Evaluation of the Government's Analysis
35 Pages Posted: 8 Nov 2007 Last revised: 14 Oct 2013
Date Written: August 1, 2008
Ethanol production in the United States has been steadily growing and is expected to continue growing. Many politicians see increased ethanol use as a way to promote environmental goals, such as reducing greenhouse gas emissions, and energy security goals. This paper provides a benefit-cost analysis of increasing ethanol use based on an analysis by the Environmental Protection Agency. We find that the cost of increasing ethanol production to almost ten billion gallons a year is likely to exceed the benefits by about three billion dollars annually. We also suggest that earlier attempts aimed at promoting ethanol would have likely failed a benefit-cost test, and that Congress should consider repealing ethanol incentive programs, such as the ethanol tariff and tax credit.
Keywords: benefit-cost analysis, regulation, energy policy, environmental economics, ethanol
JEL Classification: D61, D78, L50, Q48, Q5
Suggested Citation: Suggested Citation