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An Ethanol Blend Wall Shift is Prone to Increase Petroleum Gasoline Demand

  • Qiu, Cheng
  • Colson, Gregory
  • Zhang, Zibin
  • Wetzstein, Michael E.

The US Environmental Protection Agency announced a waiver allowing an increase in the Fuel-Ethanol blend limit (the “blend wall” ) from 10% (E10) to 15% (E15) on October,2010.Justifications for the waiver are reduced vehicle fuel prices and less consumption of petroleum gasoline, leading to energy security. In this paper, employing Monte Carlo simulations and Savitzky-Golay smoothing filter, an empirical study examines this waiver revealing 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.

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File URL: http://purl.umn.edu/98795
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Paper provided by Southern Agricultural Economics Association in its series 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas with number 98795.

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Date of creation: Feb 2011
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Handle: RePEc:ags:saea11:98795
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