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The Impact of Ethanol Production on US and Regional Gasoline Markets: An Update to May 2009

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This report updates the findings in Du and Hayes 2009 by extending the data to December 2010 and concludes that over the sample period from January 2000 to December 2010, the growth in ethanol production reduced wholesale gasoline prices by $0.25 per gallon on average. The Midwest region experienced the biggest impact, with a $0.39/gallon reduction, while the East Coast had the smallest impact at $0.16/gallon. Based on the data of 2010 only, the marginal impacts on gasoline prices are found to be substantially higher given the much higher ethanol production and crude oil prices. The average effect increases to $0.89/gallon and the regional impact ranges from $0.58/gallon in the East Coast to $1.37/gallon in the Midwest. In addition, we report on a related analysis that asks what would happen to US gasoline prices if ethanol production came to an immediate halt. Under a very wide range of parameters, the estimated gasoline price increase would be of historic proportions, ranging from 41% to 92%.

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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 11-wp523.

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Date of creation: Apr 2011
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Handle: RePEc:ias:cpaper:11-wp523

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Keywords: crack ratio; crack spread; import elasticity.;

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Cited by:
  1. Mindy L. Mallory & Dermot J. Hayes & Scott H. Irwin, 2010. "How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets," Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications, Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University 10-wp517, Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University.

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