Biofuels – At What Cost?

The report analyzes the extensive network of U.S. government subsidies for liquid biofuels, finding that support is pervasive across the entire supply chain. It estimates that annualized subsidies for ethanol range between $6.3 and $8.7 billion, while biodiesel support ranges from $1.7 to $2.3 billion. The author argues that these subsidies are often inefficient, particularly in terms of greenhouse gas mitigation and fossil fuel displacement, and warns that the rapid growth of the industry—driven by these incentives—may be unsustainable.

• Annualized government subsidies for ethanol are estimated to be between $6.3 and $8.7 billion, while biodiesel subsidies range from $1.7 to $2.3 billion.
• The Volumetric Ethanol Excise Tax Credit (VEETC) is the single largest subsidy for ethanol, with estimated revenue losses averaging $3.05 billion per year between 2006 and 2012.
• Biofuel subsidies are highly intensive relative to their market value, with annualized subsidies representing 30% to 50% of the market value of E85 and B100 as of June 2006.
• Subsidizing corn-based ethanol for greenhouse gas (GHG) mitigation is inefficient, costing over $500 per metric ton of CO2-equivalent removed, which is significantly higher than purchasing credits on carbon exchanges.
• The use of the Ogallala Aquifer for irrigated corn production, which supports the ethanol industry, involves the depletion of a 'fossil' water resource where recharge rates are too low to offset consumption.
• Import tariffs on ethanol, combined with the Renewable Fuels Standard (RFS), protect domestic producers from lower-priced imports and artificially elevate domestic prices.
• The Alternative Motor Fuels Act (AMFA) created a loophole in CAFE standards that allowed manufacturers to avoid penalties for inefficient fleets, which the Union of Concerned Scientists estimated increased U.S. oil consumption by about 80,000 barrels a day in 2005.
• Subsidy 'stacking' allows producers to combine multiple federal, state, and local grants and loans; in one Ohio example, over 60% of a plant's capital was provided by government-intermediated credit or grants.
• The ethanol industry has historically been highly concentrated, with Archer Daniels Midland (ADM) owning 55% of total production capacity in 1990.
• The cost of displacing petroleum through corn-based ethanol is high, estimated at roughly $16 per MMBtu of petroleum displaced in the lowest-cost scenario.

APA

Koplow, D. (2006). Biofuels – At What Cost? International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/biofuels_subsidies_us.pdf

Chicago

Koplow, Doug. Biofuels – At What Cost? International Institute for Sustainable Development, 2006. https://www.iisd.org/system/files/publications/biofuels_subsidies_us.pdf.

Wikipedia

{{cite report |last1=Koplow |first1=Doug |title=Biofuels – At What Cost? |publisher=International Institute for Sustainable Development |date=October 2006 |url=https://www.iisd.org/system/files/publications/biofuels_subsidies_us.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{koplow2006biofuels, author = {Koplow, Doug}, title = {{Biofuels – At What Cost?}}, institution = {International Institute for Sustainable Development}, year = {2006}, month = oct, url = {https://www.iisd.org/system/files/publications/biofuels_subsidies_us.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }