Iowa State takes a different look at the impact of ethanol.
Ethanol: A Welfare-Increasing Market Distortion?
Xiaodong Du, Dermot J. Hayes, Mindy L. BakerOctober 2008 [08-WP 480]
This study estimates the welfare changes for consumers and producers resulting from ethanol production and related support polices in 2007. The results suggest a positive welfare gain from the support policies; this is possible because ethanol subsidies effectively replaced a market distortion that had a larger deadweight loss. Previous farm subsidies created overproduction, which then depressed market prices and increased the cost of maintaining target-price supports. Ethanol polices resulted in additional ethanol production, but because this additional ethanol was sold in price elastic energy markets, the price depressing impact of the government supports was less than before. This resulted in lower government spending and a net welfare gain of $2.65 billion for given market parameters. The results are...(complete news release and link to study here).
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