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Econometric Analysis of Motorists’ Preference for Ethanol in Motor Fuel

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  • Liao, Kenneth
  • Pouliot, Sebastien

Abstract

This study uses E85 sales data to estimate motorists’ preference for ethanol. We apply a theoretical choice model linking the volume of E85 sold by a station to the underlying distribution of willingness to pay for E85 instead of traditional gasoline (E10) among motorists with flexible-fuel vehicles (FFVs). We estimate the model using instrumental variables techniques to control for the endogeneity of prices. We find that the average flex motorist switches to E85 when it is discounted by $0.57 per gallon in energy-equivalent dollars, but preferences are diverse, and about 11 percent of motorists choose E85 when the two fuels are priced equally in energy-adjusted terms. Our estimates of the demand for E85 provide new evidence of the potential demand for ethanol beyond the E10 blend wall.

Suggested Citation

  • Liao, Kenneth & Pouliot, Sebastien, 2015. "Econometric Analysis of Motorists’ Preference for Ethanol in Motor Fuel," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205473, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205473
    DOI: 10.22004/ag.econ.205473
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    File URL: https://ageconsearch.umn.edu/record/205473/files/E85_MinnesotaR.pdf
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    1. Pouliot, Sébastien & Babcock, Bruce A., 2014. "The demand for E85: Geographical location and retail capacity constraints," Energy Economics, Elsevier, vol. 45(C), pages 134-143.
    2. Corts, Kenneth S., 2010. "Building out alternative fuel retail infrastructure: Government fleet spillovers in E85," Journal of Environmental Economics and Management, Elsevier, vol. 59(3), pages 219-234, May.
    3. Bruce A. Babcock & Sebastien Pouliot, 2013. "Impact of Sales Constraints and Entry on E85 Demand," Center for Agricultural and Rural Development (CARD) Publications 13-pb12, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. Bruce A. Babcock & Sebastien Pouliot, 2013. "Price It and They Will Buy: How E85 Can Break the Blend Wall," Center for Agricultural and Rural Development (CARD) Publications 13-pb11, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. Unknown, 2014. "Department Publications 2013," Publications Lists 206935, University of Minnesota, Department of Applied Economics.
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    Cited by:

    1. Li, Jing & Stock, James H., 2019. "Cost pass-through to higher ethanol blends at the pump: Evidence from Minnesota gas station data," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 1-19.

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    Keywords

    Demand and Price Analysis; Resource /Energy Economics and Policy;

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