Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals
"The federal government supports the use of biofuels—transportation fuels produced
mainly from renewable plant matter, such as corn—in the pursuit of national energy, environ-
mental, and agricultural policy goals. Tax credits encourage the production and sale of bio-
fuels in the United States, effectively lowering the private costs of producing biofuels, such
as ethanol or biodiesel, relative to the costs of producing their substitutes—gasoline and
diesel fuel. In addition, federal mandates require the use of specified minimum amounts and
types of biofuel each year through 2022. Together, the credits and mandates increase domestic
supplies of energy and reduce U.S. emissions of greenhouse gases, albeit at a cost to taxpayers.

This Congressional Budget Office (CBO) study, which was prepared at the request of the
Chairman of the Subcommittee on Energy, Natural Resources, and Infrastructure of the Sen-
ate Committee on Finance, assesses the incentives provided by the biofuel tax credits for
producing different types of biofuels and analyzes whether they favor one type of biofuel
over others. In addition, the study estimates the cost to U.S. taxpayers of reducing the use
of petroleum fuels and emissions of greenhouse gases through those tax credits; it also
analyzes the interaction of the credits and the biofuel mandates. In keeping with CBO’s
mandate to provide objective, impartial analysis, the study contains no recommendations..."