Ethanol Lowers Gas Prices 29-40 Cents Per Gallon

Researchers at Iowa State University’s Center for Agricultural and Rural Development (CARD) have released “The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry”. The study is a working paper that shows the correlation between ethanol production and gasoline prices at the pump.

Using pooled regional time-series data and panel data estimation the study quantifies the impact of monthly ethanol production on monthly retail regular gasoline prices. According to the analysis by the researchers at CARD, the growth in ethanol production has caused retail gasoline prices to be US $0.29 to US $0.40 per gallon lower than would otherwise have been the case.

The analysis also shows that the negative impact of ethanol on gasoline prices varies across regions of U.S. Prices in the Midwest are impacted the most at US $0.39/gallon, while the Rocky Mountain region sees the smallest impact, at US $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry.

According to the researchers, the results suggest that the reduction in gasoline prices came at the expense of  oil refining firms’ profits. They also found that their results were statistically significant across a range of model specifications and across all regions of the U.S.

To view the full report, click here.

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