BioFuels Journal

Iowa State Researchers: Gas Prices Would Increase If Ethanol Disappeared

by Myke Feinman, BioFuels Journal Editor

Gas prices would be about 10 to 15% higher per gallon higher without ethanol production, according to a report on the impact of ethanol on gas prices by two researchers at the Center for Agricultural and Rural Development, Iowa State University, Ames.

"Our analysis suggests that the growth in ethanol production has caused retail gasoline prices to be between 29 cents and 40 cents per gallon lower than they would otherwise have been," the report’s summary states.

"The analysis also shows that ethanol's impact on gasoline prices varies considerably across regions," the report adds.

Economics and Finance Professor Dermot Hayes, one of the authors of the report, said that regions like the Midwest, with a high volume of ethanol production, enjoy lower prices for gasoline than areas where there is less ethanol production.

The Midwest has the largest reduction in gasoline prices—49cents per gallon less—while the Rocky Mountain region has the smallest—17 cents per gallon.

Hayes said that the explanation behind the results is associated with the sharp increases in gasoline prices that he had been observed whenever an oil refinery was off line.

By adding to U.S. refinery capacity, Hayes noted, the ethanol plants have reduced the number of price spikes seen in gasoline markets and reduced the price of gasoline relative to other motor fuels.

"If we were to shut down ethanol, it's definite that gasoline prices would spike," Hayes said.

He cautioned that the paper, posted on-line in late April, is a "working paper" and hopes to have it published.

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