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By Russ Finley on Jul 25, 2012 with 5 responses

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


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

  1. By Charlie Peters on July 25, 2012 at 12:52 pm

    Bill Clinton, Al Gore & Senator Obama supported the California 2006 Prop. 87, a GMO corn ethanol welfare program.

    Bill, Al, have changed opinion on the ethanol mandate, I wonder if California will make this the time for CHANGE?

    I support a waiver of the ethanol mandate, voluntary use of ethanol in my gas.

    Federal ethanol policy increases Government motors oil use and Big oil profit.


    It is reported that today California is using Brazil sugar cane ethanol at $0.16 per gal increase over using GMO corn fuel ethanol. In this game the cars and trucks get to pay and Big oil profits are the result that may be ready for change.


    We do NOT support AB 523 or SB 1396 unless the ethanol mandate is changed to voluntary ethanol in our gas.


    Folks that pay more at the pump for less from Cars, trucks, food, water & air need better, it is time.


    The car tax of AB 118 Nunez is just a simple Big oil welfare program, AAA questioned the policy and some folks still agree.


    AB 523 & SB 1326 are just a short put (waiver) from better results.


    GOOGLE:  Prop 87 (510) 537-1796

  2. By Mueller on July 26, 2012 at 8:57 am

    In a perfect world it would be a wash. Since using ethanol in gasoline reduces mileage by approximately 12%.

    Ethanol only benefits those who raise corn.

  3. By Jeff Reynolds on July 26, 2012 at 4:51 pm

    In addition to the costs of reduced mileage there is also the cost of damage done to engines that were not designed to run on ethanol blended fuels.  Not only older automobile engines but also two cycle engines used in a variety of applications.  To my knowledge the repair and replacement cost of these engines has not been factored into the equation and would probably be substantial.  Nor does it appear that the increased price of corn based food supplies due to crop diversion have been considered. It is a shame that one of the first and largest green initiatives is so misguided and that we all continue to pay the price for its implementation.  Other than the corn industry I have not spoken to one individual that sees any advantage to ethanol blending. 

  4. By Charlie Peters on July 28, 2012 at 5:01 pm

    GMO corn fuel ethanol stinks

  5. By Russ Finley on August 12, 2012 at 12:44 am

    I failed to mention in this article that the study also made no attempt to look at the total cost of ethanol. For example, it does not account for the fact that the price of corn has tripled since implementation of the legislation that mandates ethanol use. For ten years prior to that legislation it averaged about $2 a bushel. Multiply $4 times the number of bushels of corn sold last year to get a feel for how much it is costing corn consumers (assuming the rapid increase in price in parallel with the mandated consumption isn’t a giant coincidence).

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