Back to OurEnergyLibrary search




Ethanol Production and Gasoline Prices: A Spurious Correlation

Ethanol Production and Gasoline Prices: A Spurious Correlation

Full Title:  Ethanol Production and Gasoline Prices: A Spurious Correlation
Author(s):  Christopher R. Knittel and Aaron Smith
Publisher(s):  University of California
Publication Date: July 1, 2012
Full Text: Download Resource
Description (excerpt):

Ethanol made from corn comprises 10% of US gasoline, up from 3% in 2003. This dramatic increase was spurred by recent policy initiatives such as the Renewable Fuel Standard and state-level blend mandates, and supported by direct subsidies such as the Volumetric Ethanol Excise Tax Credit. Some proponents of ethanol have argued that ethanol production greatly lowers gasoline prices, with one industry group claiming it reduced gasoline prices by 89 cents in 2010 and $1.09 in 2011. The estimates have been cited in numerous speeches by Secretary of Agriculture Thomas Vilsack. These estimates are based on a series of papers by Xiaodong Du and Dermot Hayes. We show that these results are driven by implausible economic assumptions and spurious statistical correlations. To support this last point, we use the same statistical mod- els and find that ethanol production “decreases” natural gas prices, but “increases” unemployment in both the US and Europe. We even show that ethanol production “increases” the ages of our children.

All statements and/or propositions in discussion prompts are meant exclusively to stimulate discussion and do not represent the views of OurEnergyPolicy.org, its Partners, Topic Directors or Experts, nor of any individual or organization. Comments by and opinions of Expert participants are their own.

Sign up for our Press Release Distribution List

    Your Name (required)

    Your Email (required)

    Please sign me up to receive press releases from OurEnergyPolicy.org.