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The demand for ethanol as a gasoline substitute

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  • Anderson, Soren T.

Abstract

This paper estimates household preferences for ethanol (E85) as a gasoline (E10) substitute. I develop a theoretical model linking the shape of the ethanol demand curve to the underlying distribution among households of willingness to pay for ethanol. I estimate the model using instrumental variables techniques and data from many retail fueling stations. I find that a $0.10-per-gallon increase in ethanol's price relative to gasoline leads to a 12–16% decrease in the quantity of ethanol demanded. My findings imply that preferences for ethanol are heterogeneous and that a substantial fraction of households are willing to pay a premium for the fuel. This reduces substantially the simulated efficiency cost of an ethanol content standard, since some households choose ethanol without large subsidies, mitigating deadweight losses.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 63 (2012)
Issue (Month): 2 ()
Pages: 151-168

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Handle: RePEc:eee:jeeman:v:63:y:2012:i:2:p:151-168

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Alternative fuels; Biofuels; Ethanol demand; Gasoline demand;

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References

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Citations

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Cited by:
  1. Crago, Christine Lasco & Khanna, Madhu, 2010. "Carbon Abatement in the Fuel Market with Biofuels: Implications for Second-Best Policies," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 60894, Agricultural and Applied Economics Association.
  2. Westbrook, Jessica & Barter, Garrett E. & Manley, Dawn K. & West, Todd H., 2014. "A parametric analysis of future ethanol use in the light-duty transportation sector: Can the US meet its Renewable Fuel Standard goals without an enforcement mechanism?," Energy Policy, Elsevier, vol. 65(C), pages 419-431.
  3. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2011. "Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies," Working Papers 1116, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  4. Huse, Cristian, 2014. "Fast and Furious (and Dirty): How Asymmetric Regulation May Hinder Environmental Policy," MPRA Paper 48909, University Library of Munich, Germany.
  5. Anderson, Soren T. & Elzinga, Andrew, 2014. "A ban on one is a boon for the other: Strict gasoline content rules and implicit ethanol blending mandates," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 258-273.
  6. Juliano Assuncao & Joao Paulo Pessoa & Leonardo Rezende, 2013. "Flex Cars and Competition in Ethanol and Gasoline Retail Markets," CEP Discussion Papers dp1251, Centre for Economic Performance, LSE.
  7. Liu, Yimin & Helfand, Gloria E., 2012. "A hedonic test of the effects of the Alternative Motor Fuels Act," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(10), pages 1707-1715.
  8. Michelsen , Carl Christian & Madlener, Reinhard, 2013. "Switching from Fossil Fuel to Renewables in Residential Heating Systems: An Empirical Study of Homeowners’ Decisions in Germany," FCN Working Papers 14/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  9. Huse, Cristian & Lucinda, Claudio, 2013. "The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate," MPRA Paper 48905, University Library of Munich, Germany.
  10. Du, Xiaodong & Carriquiry, Miguel A., 2013. "Spatiotemporal analysis of ethanol market penetration," Energy Economics, Elsevier, vol. 38(C), pages 128-135.
  11. Oscherov, Valeria & Moeltner, Klaus & Grant, Jason H., 2012. "Estimating the Factor Demand for Natural Gas as an Alternative Fuel: (A U.S. Case)," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124852, Agricultural and Applied Economics Association.
  12. Pouliot, Sebastien, 2013. "Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150964, Agricultural and Applied Economics Association.
  13. Yi, Fujin & Lin, C.-Y. Cynthia & Thome, Karen, 2013. "An Analysis of the Effects of Government Subsidies and the Renewable Fuels Standard on the Fuel Ethanol Industry: A Structural Econometric Model," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150224, Agricultural and Applied Economics Association.

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