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Sunday, November 25, 2012

Ethanol Saved Consumers $134,400,000,000 in 2011?

Cross-posted from Consumer Energy Report

Back in 2009 two researchers released a study that suggested corn ethanol was saving American’s money at the gas pump. I wrote to one of the authors asking for clarification. His reply:
In the paper, we conclude that evaluated at the average ethanol production level of 01/1995-03/2008, the wholesale gasoline prices is $0.14/gallon lower. The change of retail gasoline prices varies across refinery markets from $0.29-$0.40/gallon.
He also added that the results were unique to prevailing conditions in 2009. According to Wheels, the report has been updated and now claims corn ethanol saved Americans a buck a gallon. However, thanks to ads trying to make hay from this study by the nation’s largest corn ethanol lobbying firm, aka, The Renewable Fuels Association, the study caught the attention of two other researchers:
Mr. Knittel of M.I.T. said in an interview that ethanol most likely reduced gasoline prices, at most, by 10 cents a gallon, after adjustments were made to account for the biofuel’s lower energy potential relative to pure gasoline. He described claims made by the trade group, which have appeared at bus shelters and billboards, particularly around Washington, as “false advertising.”
 Economic studies of this nature can be hard to refute because the only people qualified to critique them are other agricultural economists or statisticians. Common sense can only get you so far. However, Mr. Knittel and Mr. Smith are qualified to critique the study:
To illustrate their critique, the professors employed the same statistical models used in the Iowa State report to draw intentionally absurd conclusions, among them that ethanol production depresses the price of natural gas and increases unemployment in the United States and Europe. “We also used their model to show that ethanol production is causing my daughter to grow older, and if it was taken away she’d get younger,” Mr. Smith said in a telephone interview. “We know that’s not true, or at least we hope it isn’t true.”
Now that’s what I call good use of sarcasm. Shockingly, a spokesman for the RFA defended the scholarship their ad was based on, and never mind that he is no more qualified to defend it than you or I.
The study results are based on regional restraints on supply caused by refinery capacity, so the results will change if you enter a period of lower domestic fuel demand, increasing export of refined petroleum products, and record high prices for corn. Don’t expect to see results of the next study on any bus station billboards if it finds that ethanol is costing Americans $billions.
1200 x 112,000,000 = 134,400,000,000

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