Ethanol Reduced Gas Prices by More than $1 per Gallon in 2011

This year ethanol prices are going up due to foreign market pressures, loss of subsidies and other factors. But last year according to this study ethanol had a positive effect on US gas prices.

America’s growing use of domestically-produced ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, according to updated research conducted by economics professors at the University of Wisconsin and Iowa State University. The 2011 results, which show a $0.20 per gallon greater price reduction than the $0.89 per gallon impact in 2010, were released today by the Center for Agricultural and Rural Development (CARD).

RFA’s summary of the report:

The new analysis, an update to a 2009 peer-reviewed paper published in Energy Policy by professors Dermot Hayes and Xiaodong Du, also found gasoline prices have been reduced by an average of $0.29 per gallon, or 17%, from 2000-2011 thanks to the growing use of ethanol.

“Growth in US ethanol production has added significantly to the volume of fuel available in the US,” said Professor Hayes. “It is as if the US oil refining industry had found a way to extract 10% more gasoline from a barrel of oil. This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity. It has also changed the relative prices of gasoline and diesel and allowed the US to switch from being a net importer of gasoline to a net exporter. As a result of these changes, US gasoline prices are measurably lower than would otherwise have been the case. This gasoline price impact has been documented in a peer reviewed academic journal and the price dampening effect has increased as ethanol production has grown.”

Three primary factors are responsible for ethanol’s more robust price benefit at the pump in 2011: higher oil and gasoline prices, higher ethanol inclusion, and ethanol being priced at a larger-than-normal discount to gasoline.

source – read more

This would seem to lead to the conclusion that we should support more ethanol development in our country to help offset oil price increases that seem to just keep coming time and again. Do you agree? Well shout out below and let us know what you think.