How does petroleum price and corn yield volatility affect ethanol markets with and without an ethanol use mandate?
The recent increase in ethanol use in the US strengthens and changes the nature of links between agricultural and energy markets. Here, we explore the interaction of market volatility and the scope for policy to affect this interaction, with a focus on how corn yields and petroleum prices affect ethanol prices. Mandates associated with new US energy legislation may intervene in these links in the medium-term future. We simulate stochastically a structural model that represents these markets, and that includes mandates, in order to assess how shocks to corn or oil markets can affect ethanol price and use. We estimate that the mandate makes ethanol producer prices more sensitive to corn yields and less sensitive to changes in petroleum prices overall. We note a discontinuity in these links that is caused by the mandate. Ethanol use can exceed the mandate if petroleum prices and corn yields are high enough, but the mandate limits downside adjustments in ethanol use to low petroleum prices or corn yields.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Lavigne, Amanda & Powers, Susan E., 2007. "Evaluating fuel ethanol feedstocks from energy policy perspectives: A comparative energy assessment of corn and corn stover," Energy Policy, Elsevier, vol. 35(11), pages 5918-5930, November.
- Bernard, F. & Prieur, A., 2007. "Biofuel market and carbon modeling to analyse French biofuel policy," Energy Policy, Elsevier, vol. 35(12), pages 5991-6002, December.
- Gallagher, Paul W., 2006. "Energy Production with Biomass: What Are the Prospects," Staff General Research Papers Archive 12559, Iowa State University, Department of Economics.
- Hamelinck, Carlo N & Faaij, Andre P.C., 2006. "Outlook for advanced biofuels," Energy Policy, Elsevier, vol. 34(17), pages 3268-3283, November.
- Bomb, Christian & McCormick, Kes & Deurwaarder, Ewout & Kaberger, Tomas, 2007. "Biofuels for transport in Europe: Lessons from Germany and the UK," Energy Policy, Elsevier, vol. 35(4), pages 2256-2267, April.
- Eaves, James & Eaves, Stephen, 2007. "Renewable corn-ethanol and energy security," Energy Policy, Elsevier, vol. 35(11), pages 5958-5963, November.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:37:y:2009:i:2:p:745-749. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.