Source: Purdue University
A variable subsidy for ethanol producers could cost the government less and provide more security for producers than current fixed rates, according to a Purdue University study.
A variable subsidy rate would insulate producers from risk because as oil and ethanol prices drop, the subsidy for producers would increase, said Wally Tyner, a Purdue agricultural economist and an author of the study. The government would save money because it would not have to pay any subsidy when oil prices are high.
"There will be times when oil prices are high and the subsidy will be low or nothing at all," Tyner said.