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Ethanol and Energy Security

Listed author(s):
  • Peter Maniloff

    ()

    (Division of Economics and Business, Colorado School of Mines)

I propose a framework to evaluate the impact of ethanol on energy security from an economic perspective. In this model, economic energy efficiency maximizes a social or governmental objective function with respect to energy price levels and shocks. This tradeoff can entail raising expected energy prices while lowering price volatility. I develop a theoretical model showing ethanol's potential to lower overall fuel price volatility and estimate this relationship with both structural and reduced form approaches. I show that ethanol does not substantially lower U.S. gasoline price volatility or insulate gasoline prices from oil shocks in the absence of a binding quantity mandate. Ethanol can lower gasoline price volatility under a binding mandate, but this comes at substantial expected cost. In sum, ethanol is not an effective way to mitigate world oil price shocks and does not substantially enhance US energy security.

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File URL: http://econbus.mines.edu/working-papers/wp201310.pdf
File Function: First version, 2013
Download Restriction: no

Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2013-10.

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Length: 44 pages
Date of creation: Oct 2013
Handle: RePEc:mns:wpaper:wp201310
Contact details of provider: Postal:
Golden, Colorado 80401

Phone: (303) 273-3480
Fax: (303) 273-3416
Web page: http://econbus.mines.edu/

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  2. Bruce A. Babcock, 2008. "Distributional Implications of U.S. Ethanol Policy ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 533-542.
  3. Madhu Khanna & Xiaoguang Chen & Haixiao Huang & Hayri Onal, 2011. "Supply of Cellulosic Biofuel Feedstocks and Regional Production Pattern," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 473-480.
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  7. Du, Xiaodong & Hayes, Dermot J., 2009. "The impact of ethanol production on US and regional gasoline markets," Energy Policy, Elsevier, vol. 37(8), pages 3227-3234, August.
  8. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
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  12. 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.
  13. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
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  15. Parry, Ian & Darmstadter, Joel, 2003. "The Costs of U.S. Oil Dependency," Discussion Papers dp-03-59, Resources For the Future.
  16. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-744, June.
  17. Thompson, Wyatt & Meyer, Seth & Westhoff, Pat, 2009. "How does petroleum price and corn yield volatility affect ethanol markets with and without an ethanol use mandate?," Energy Policy, Elsevier, vol. 37(2), pages 745-749, February.
  18. Du, Xiaodong & Hayes, Dermot J., 2009. "The impact of ethanol production on US and regional gasoline markets," Energy Policy, Elsevier, vol. 37(8), pages 3227-3234, August.
  19. Jarrett Whistance & Wyatt W. Thompson & Seth D. Meyer, 2010. "Ethanol Policy Effects on U.S. Natural Gas Prices and Quantities," American Economic Review, American Economic Association, vol. 100(2), pages 178-182, May.
  20. Zibin Zhang & Luanne Lohr & Cesar Escalante & Michael Wetzstein, 2009. "Ethanol, Corn, and Soybean Price Relations in a Volatile Vehicle-Fuels Market," Energies, MDPI, Open Access Journal, vol. 2(2), pages 1-20, June.
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