A new study has examined the tax incentives and subsidies that will be required to meet U.S. biofuels mandates. The results show that subsidies of nearly US$ 2.50 per gallon to biodiesel and US$ 1.86 per gallon to cellulosic ethanol will be required to stimulate production that meets the mandates.

The U.S. Energy Independence and Security Act of 2007 mandates the use of 36 billon gallons of biofuels by 2022.

The study by the Center for Agricultural and Rural Development (CARD), of Iowa State University, uses a stochastic and dynamic equilibrium modeling technique that takes into account variables such as key feedstocks, crude oil prices and commodity yields, combined with assumptions about the returns that investors in biofuels will expect.

In addition to the high levels of government financial support needed to stimulate mandated production levels, the long-run impact on commodity prices is also significant. "High commodity prices are due to intense competition for planted acres among the commodites," says the report.

Notably, even the cellulosic mandates, designed to avoid the feed-versus-fuel trade-off, are predicted to exacerbate the situation of higher feedstuff costs.

"With a fixed amount of land, it is impossible to increase the amount of each crop devoted to energy and maintain the same level of consumption of each commodity for food uses such as feeding livestock," notes the report.

The study, Crop-Based Biofuel Production under Acreage Constraints and Uncertainty, is available at:
http://www.card.iastate.edu/publications/DBS/PDFFiles/08wp460.pdf