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Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The

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Author Info
Du, Xiaodong
Hayes, Dermot J.

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Abstract

Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12929.

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Date of creation: 24 Apr 2008
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Handle: RePEc:isu:genres:12929

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Keywords: crack spread; crude oil prices; ethanol; gasoline prices.;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Tokgoz, Simla & Elobeid, Amani, 2007. "Understanding the Underlying Fundamentals of Ethanol Markets: Linkages between Energy and Agriculture," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9795, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Severin Borenstein & Andrea Shepard, 2002. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 116-139, Spring.
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  3. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, vol. 69(2), pages 393-414, October. [Downloadable!] (restricted)
  4. Simla Tokgoz & Amani Elobeid & Jacinto F. Fabiosa & Dermot J. Hayes & Bruce A. Babcock & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart & John C. Beghin, 2007. "Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets," Center for Agricultural and Rural Development (CARD) Publications 07-sr101, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  5. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Szklo, Alexandre & Schaeffer, Roberto & Delgado, Fernanda, 2007. "Can one say ethanol is a real threat to gasoline?," Energy Policy, Elsevier, vol. 35(11), pages 5411-5421, November. [Downloadable!] (restricted)
  7. Asche, Frank & Gjolberg, Ole & Volker, Teresa, 2003. "Price relationships in the petroleum market: an analysis of crude oil and refined product prices," Energy Economics, Elsevier, vol. 25(3), pages 289-301, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hayes, Dermot J. & Babcock, Bruce A. & Fabiosa, Jacinto F. & Tokgoz, Simla & Elobeid, Amani & Yu, Tun-Hsiang & Dong, Fengxia & Hart, Chad E. & Chavez, Edward & Pan, Suwen & Carriquiry, Miguel A. & Dum, 2009. "Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers," Staff General Research Papers 13052, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Mindy L. Baker, 2008. "Welfare Changes from the U.S. Ethanol Tax Credit: The Role of Uncertainty and Interlinked Commodity Markets," Center for Agricultural and Rural Development (CARD) Publications 08-wp483, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  3. Du, Xiaodong (Sheldon) & Hayes, Dermot J. & Baker, Mindy, 2008. "A Welfare Analysis of the U.S. Ethanol Subsidy," Staff General Research Papers 13003, Iowa State University, Department of Economics. [Downloadable!]
  4. Douglas G. Tiffany, 2009. "Economic and environmental impacts of U.S. corn ethanol production and use," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Apr, pages 42-58. [Downloadable!]
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