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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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    3. 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.
    4. 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.
    5. Filip, Ondrej & Janda, Karel & Kristoufek, Ladislav & Zilberman, David, 2019. "Food versus fuel: An updated and expanded evidence," Energy Economics, Elsevier, vol. 82(C), pages 152-166.
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    7. 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.
    8. 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.
    9. Debnath, Deepayan & Whistance, Jarrett & Thompson, Wyatt, 2017. "The causes of two-way U.S.–Brazil ethanol trade and the consequences for greenhouse gas emission," Energy, Elsevier, vol. 141(C), pages 2045-2053.
    10. An, Henry & Qiu, Feng & Rude, James, 2021. "Volatility spillovers between food and fuel markets: Do administrative regulations affect the transmission?," Economic Modelling, Elsevier, vol. 102(C).
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    Keywords

    Blend wall Energy security Ethanol;

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