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The Impact of Ethanol Production on the U.S. Gasoline Market

The Impact of Ethanol Production on the U.S. Gasoline Market

Full Title:  The Impact of Ethanol Production on the U.S. Gasoline Market
Author(s):  Hassan Marzoughi and P. Lynn Kennedy
Publisher(s):  MIT
Publication Date: February 1, 2012
Full Text: Download Resource
Description (excerpt):

Biofuels have become a leading alternative to fossil fuels because in many countries they can be produced domestically, are a partial solution to global climate change, and have the potential to spur rural development. Ethanol production will affect the current gasoline demand and supply relationship but to what magnitude remains to be answered. This is an important question which has had relatively little empirical research done so as to understand the relationship between ethanol production and gasoline supply and demand. However, it is of vital importance to be able to estimate the price changes that result from increased ethanol production.

While the immediate goal of our paper is to address the impact of the introduction of greater quantities of ethanol in the motor gasoline market, we will also estimate U.S. gasoline demand and supply price elasticity. Specifically, we want to explore how ethanol production has affected gasoline price and supply in the United States. Almost 99% of the ethanol produced in the United States is added to gasoline in mixtures of up to 10% ethanol and 90% gasoline (EIA, 2011a). Any car that uses gasoline in the United States can use gasoline with 10% ethanol.

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