That falling ball in Times Square didn't just signal the end of 2011, it was also the death knell for thirty years of ethanol subsidies. That in turn could signal an abrupt rise in prices at the pump.
By failing to vote in an extension, Congress allowed the $0.45 per gallon production subsidy to expire with the start of 2012. With an annual payout of $6 billion, the subsidy was a popular target for politicians looking to show their dedication to reducing the deficit.
However, just because the subsidy is going away doesn't mean that ethanol is going away. Most gasoline sold in the United States contains at least 10 percent ethanol, and that's not changing. In fact, targets for both corn-based and next-generation biofuels have been increased. Still, removing the 45-cent subsidy could mean a 4.5-cent increase in cost for gasoline suppliers, and perhaps an even sharper rise for what consumers pay at the pump. Logically, price increases are expected to be even higher for fuels that contain larger percentages of ethanol, like E85.
In addition to allowing subsidies on U.S.-made ethanol to lapse, Congress has dropped barriers to imported ethanol. Previously, ethanol from Brazil faced a tariff of $0.54 per gallon. Eliminating this charge could mean that some corn-based ethanol used in U.S. gas ends up being replaced by sugarcane-based ethanol from Brazil. What this will ultimately mean to consumers is not yet clear.