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Blend-wall economics: Relaxing US ethanol regulations can lead to increased use of fossil fuels

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  • Zhang, Zibin
  • Qiu, Cheng
  • Wetzstein, Michael

Abstract

The US Environmental Protection Agency is currently considering a waiver allowing an increase in the fuel-ethanol blend limit (the "blend wall") from 10% (E10) up to 15% (E15). Justifications for this waiver are reduced vehicle fuel prices and less consumption of petroleum gasoline leading to energy security. A theoretical examination of this waiver reveals an anomaly where a relaxation of this blend wall elicits a demand response. Under a wide range of elasticities, this demand response can actually increase the consumption of petroleum gasoline and thus lead to greater energy insecurity. The economics supporting this result and associated policy implications are developed and discussed.

Suggested Citation

  • Zhang, Zibin & Qiu, Cheng & Wetzstein, Michael, 2010. "Blend-wall economics: Relaxing US ethanol regulations can lead to increased use of fossil fuels," Energy Policy, Elsevier, vol. 38(7), pages 3426-3430, July.
  • Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3426-3430
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    References listed on IDEAS

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    1. Schmitz Andrew & Moss Charles B. & Schmitz Troy G., 2007. "Ethanol: No Free Lunch," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-28, December.
    2. Wallace E. Tyner & Farzad Taheripour, 2008. "Policy Options for Integrated Energy and Agricultural Markets," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 387-396.
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    4. Vedenov, Dmitry & Wetzstein, Michael, 2008. "Toward an optimal U.S. ethanol fuel subsidy," Energy Economics, Elsevier, vol. 30(5), pages 2073-2090, September.
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    Cited by:

    1. repec:eee:enepol:v:113:y:2018:i:c:p:368-375 is not listed on IDEAS
    2. Aguilar, Francisco X. & Cai, Zhen & Mohebalian, Phillip & Thompson, Wyatt, 2015. "Exploring the drivers' side of the “blend wall”: U.S. consumer preferences for ethanol blend fuels," Energy Economics, Elsevier, vol. 49(C), pages 217-226.
    3. Wu, Huiting & Colson, Gregory & Escalante, Cesar & Wetzstein, Michael, 2012. "An optimal U.S. biodiesel fuel subsidy," Energy Policy, Elsevier, vol. 48(C), pages 601-610.
    4. Tang, Xing & Zeng, Xianhai & Li, Zheng & Hu, Lei & Sun, Yong & Liu, Shijie & Lei, Tingzhou & Lin, Lu, 2014. "Production of γ-valerolactone from lignocellulosic biomass for sustainable fuels and chemicals supply," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 608-620.
    5. Qiu, Cheng & Colson, Gregory & Wetzstein, Michael, 2014. "An ethanol blend wall shift is prone to increase petroleum gasoline demand," Energy Economics, Elsevier, vol. 44(C), pages 160-165.
    6. Tenkorang, Frank & Dority, Bree L. & Bridges, Deborah & Lam, Eddery, 2015. "Relationship between ethanol and gasoline: AIDS approach," Energy Economics, Elsevier, vol. 50(C), pages 63-69.
    7. repec:eee:energy:v:141:y:2017:i:c:p:2045-2053 is not listed on IDEAS
    8. Pacini, Henrique & Assunção, Lucas & van Dam, Jinke & Toneto, Rudinei, 2013. "The price for biofuels sustainability," Energy Policy, Elsevier, vol. 59(C), pages 898-903.
    9. Qiu, Cheng & Colson, Gregory & Escalante, Cesar & Wetzstein, Michael, 2012. "Considering macroeconomic indicators in the food before fuel nexus," Energy Economics, Elsevier, vol. 34(6), pages 2021-2028.
    10. Anne-Christine Barthel, 2013. "Extending The Scope Of Monotone Comparative Statics Results," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201305, University of Kansas, Department of Economics, revised May 2013.
    11. Trumbo, Jennifer L. & Tonn, Bruce E., 2016. "Biofuels: A sustainable choice for the United States' energy future?," Technological Forecasting and Social Change, Elsevier, vol. 104(C), pages 147-161.

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    Keywords

    Blend wall Energy security Ethanol;

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