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Study: Ethanol Reduced Gas Prices by More Than $1 in 2011

09:53AM May 15, 2012

According to a study conducted by economic professors at the University of Wisconsin and Iowa State University, ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011.

The Center for Agricultural and Rural Development (CARD) released the study results, which were up from an average savings of $0.89 per gallon in 2010. "The results indicate that over the period of January 2000 to December 2011, the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions. The Midwest region experienced the biggest negative impact of $0.45/gallon, while the regions of East Coast, West Coast, and Gulf Coast experienced negative impacts of similar magnitudes around $0.20/gallon," states CARD. "Based on the data of 2011 only, the marginal impacts on gasoline prices are found to be substantially higher given the increasing ethanol production and higher crude oil prices. The average effect across all regions increases to $1.09/gallon and the regional impact ranges from $0.73/gallon in the Gulf Coast to $1.69/gallon in the Midwest."

Link to full report.

"Growth in U.S. ethanol production has added significantly to the volume of fuel available in the U.S.," said Professor Dermot Hayes in releasing the results. "It is as if the U.S. oil refining industry had found a way to extract 10% more gasoline from a barrel of oil. This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity. It has also changed the relative prices of gasoline and diesel and allowed the U.S. to switch from being a net importer of gasoline to a net exporter. As a result of these changes, U.S. gasoline prices are measurably lower than would otherwise have been the case. This gasoline price impact has been documented in a peer reviewed academic journal and the price dampening effect has increased as ethanol production has grown. This impact is greatest in the regions of the country where ethanol penetration is greatest."