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Congress votes to end subsidies for ethanol. What effect will this have on gas prices?

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Robert  Rapier
Chief Technology Officer, Merica International
Posted on June 20, 2011

First off, this vote does not end ethanol subsidies. This was a largely symbolic vote attached to a bill that is unlikely to pass. So the subsidies remain intact.

However, it is likely that ethanol subsidies will be scaled back or allowed to expire this year. What happens if that takes place? Not much. The Renewable Fuel Standard remains in effect, so gasoline blenders must still blend ethanol. The only difference will be that they aren't being subsidized to do it. (I have always felt it silly to have a subsidy on top of the mandate; it is redundant).

So if blenders merely pass those costs on to consumers, gasoline prices might rise by a nickel a gallon (a gallon of E10 presently has 4.5 cents of embedded ethanol subsidy). This will shift the costs of ethanol from all taxpayers (even those who don't drive) proportionally to those who consume gasoline/ethanol blends (which is almost everyone who drives).

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Bob Gately
Owner, Gately Consulting
Posted on June 18, 2011
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Did the president sign the bill?

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