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

Author

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  • Du, Xiaodong
  • Hayes, Dermot J.

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.

Suggested Citation

  • Du, Xiaodong & Hayes, Dermot J., 2008. "The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry," Hebrew University of Jerusalem Archive 6235, Hebrew University of Jerusalem.
    • Handle: RePEc:ags:hebarc:6235
    DOI: 10.22004/ag.econ.6235
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    2. 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.
    3. Jerome Dumortier & Dermot J. Hayes & Miguel Carriquiry & Fengxia Dong & Xiaodong Du & Amani Elobeid & Jacinto F. Fabiosa & Simla Tokgoz, 2011. "Sensitivity of Carbon Emission Estimates from Indirect Land-Use Change," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(4), pages 673-673.
    4. Hayes, Dermot & Babcock, Bruce & Fabiosa, Jacinto & Tokgoz, Simla & Elobeid, Amani & Yu, Tun-Hsiang & Dong, Fengxia & Hart, Chad & Chavez, Eddie & Pan, Suwen & Carriquiry, Miguel & Dumortier, Jerome, 2009. "Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(2), pages 465-491, August.
    5. Nikos Alexandratos, 2008. "Food Price Surges: Possible Causes, Past Experience, and Longer Term Relevance," Population and Development Review, The Population Council, Inc., vol. 34(4), pages 663-697, December.
    6. Schmitz, Troy G. & Schmitz, Andrew, . "The Complexities of the Interface between Agricultural Policy and Trade," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 13(01), pages 1-12.

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