Thursday, July 15, 2010

The Problem with Biofuels

Some people who oppose Pigovian taxes, such as a gasoline tax, say we should reduce our gasoline consumption by subsidizing substitutes, such as biofuels.  A new CBO report estimates how expensive that is:
The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol and $3.00 for cellulosic ethanol.
Given the magnitude of that number, isn't it far better to tax gasoline and reduce income taxes than to subsidize biofuel, which in turn requires increasing taxes to pay for it?

Kudos to Senator Bingaman for raising the issue.