By Arnold Kling
Brazil, together with some Caribbean nations, is exporting some 200 million gallons of ethanol to the United States annually. But the United States doesn’t make it easy. Brazil pays a 2.5% duty and doesn’t receive the 51 cent per gallon excise tax rebate that U.S. producers receive…
According to some estimates, efficient Brazilian producers now make ethanol at a cost of roughly 72 cents per gallon. Our examination of the sugar cane harvesting and mills convinced us that Brazil could lower production costs substantially below that level.
…U.S. corn growers claim that they could possibly produce 15 billion gallons in a decade. Brazil seems ready and able to export another 15 billion gallons at $1 per gallon. At the same time, we should pursue technologies to produce ethanol from biomass at ever-lower costs. Some proponents claim that cellulosic ethanol could ultimately replace all gasoline use in the United States.
Somehow, a 2.5% duty seems like a pretty minor trade barrier. I’m more worried about the 51-cent subsidy. In a completely free market, would ethanol ultimately replace all gasoline use…or vice-versa?