Renewable fuel made gas prices $1 cheaper last year — study

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, May 16, 2012

Ethanol helped reduce wholesale gas prices by an average of $1.09 per gallon last year, according to a university study being touted today by the ethanol industry.

Without ethanol blended into gasoline, prices at the pump would have averaged $4.61 a gallon in 2011 instead of $3.52, the industry said of the study. That difference saved the average American household $1,200 at the pump last year, the Renewable Fuels Association said in a statement.

“While it’s hard to imagine that gas prices could be even higher than they are now, this study clearly underscores that the current pain at the pump would be far worse without ethanol,” said Bob Dinneen, RFA’s president and chief executive.

Ethanol had the largest effect on wholesale gas prices in the Midwest, where corn reigns, according to the study by researchers at the University of Wisconsin and Iowa State University. There, it dropped the price per gallon by $1.69.

Ethanol had the least effect on gas prices in the Gulf Coast region, the national hub for crude oil refining and the center of the pipeline distribution system, the authors wrote. Ethanol there accounted for a 73-cent reduction in price.

The study is an update to a 2009 report published in the journal Energy Policy by professors Dermot Hayes and Xiaodong Du. The report released today found that, on average, from 2000 to 2011, ethanol has reduced wholesale gasoline prices by 29 cents a gallon.

According to the authors, the effect was higher last year because of elevated oil and gas prices and larger amounts of ethanol being produced and included in the domestic fuel supply.

“Growth in U.S. ethanol production has added significantly to the volume of fuel available in the U.S.,” Hayes, an economist at Iowa State University, said in a statement. “It is as if the U.S. oil refining industry had found a way to extract 10 percent more gasoline from a barrel of oil.”

Ethanol is currently restricted to 10 percent of the gasoline supply, but the industry is pushing to open the market up to E15, or gasoline blended with 15 percent ethanol.

E15 is well on its way to gas stations but still faces several hurdles on the state level and the litigation front. U.S. EPA has approved E15 for use in car models from 2001 and newer and allows producers to make the fuel, but according to RFA, no individual retailer has yet received EPA’s approval to offer the fuel for sale.

The oil industry and automakers have opposed the introduction of E15 into the market. The American Petroleum Institute said it will release tomorrow the full results of a study that found E15 damages the engines of popular car models (Greenwire, April 4).