The increased use of ethanol reduced wholesale gasoline prices by an average of $0.89 per gallon in 2010, according to a new study conducted by economists at Iowa State University and the University of Wisconsin. Commissioned by the Renewable Fuels Association (RFA) and released by the Center for Agricultural and Rural Development (CARD), the new analysis also found that the growth in ethanol production reduced gasoline prices by an average of $0.25, or 16 percent, over the entire 2000-2010 decade.
Further, the study, which is an update of a 2009 energy policy paper authored by professors Dermot Hayes and Xiaodong Du, determined that gas prices could nearly double if ethanol production came to an immediate halt.
“This study confirms that ethanol is playing a tremendously important role in holding down volatile gasoline prices, which are currently inching closer to all-time record highs,” said RFA President Bob Dinneen. “As rising oil prices are contributing to higher retail costs for everything from gas to food to clothing, ethanol is clearly providing some real relief for American families.”
“The United States now obtains at least ten percent of its gasoline from ethanol,” said study co-author Hayes. “The ramp up in this industry has been very fast and as a result there have been significant and measurable impacts on gasoline prices, particularly in regions of the country where ethanol use is greatest. These impacts have grown as the industry has expanded and are largest in 2010.”
Hayes said a secondary impact of the ethanol expansion is that it has substituted for an expansion and modernization of U.S. oil refining capacity that would otherwise have been needed.
“If ethanol production were to come to a sudden halt, due perhaps to a poor corn crop, there would be a dramatic increase in US gasoline prices and the resulting increase in U.S. gasoline imports would also cause world gasoline prices to increase in the short run,” he said.
Source: 25x’25 Weekly Resource