Ethanol Production and Gasoline Prices: A Spurious Correlation
Name
Knittel_Ethanol production.pdf
Size
762.18 KB
Format
Adobe PDF
Checksum (MD5)
0b27a9364e4775d29e5de684f19e901e
Author(s)
Smith, Aaron
Knittel, Christopher Roland
Date Issued
January 2015
Journal
The Energy Journal
Publisher
International Association for Energy Economics (IAEE)
Citation
Knittel, Christopher R., and Aaron Smith. “Ethanol Production and Gasoline Prices: A Spurious Correlation.” The Energy Journal 36, no. 1 (January 1, 2014).
Version
Author's final manuscript
Abstract
Ethanol made from corn comprises 10% of U.S. gasoline, up from 3% in 2003. This dramatic increase was spurred by recent policy initiatives such as the Renewable Fuel Standard and state-level blend mandates and supported by direct subsidies such as the Volumetric Ethanol Excise Tax Credit. Some proponents of ethanol have argued that ethanol production greatly lowers gasoline prices, with one industry group claiming it reduced gasoline prices by 89 cents in 2010 and $1.09 in 2011. The 2010 figure has been cited in numerous speeches by Secretary of Agriculture Thomas Vilsack. We show that these estimates were generated by implausible economic assumptions and spurious statistical correlations. To support this last point, we use the same statistical models and find that ethanol production "decreases" natural gas prices, but "increases" unemployment in both the U.S. and Europe. We even show that ethanol production "increases" the ages of our children. Overall, we see no compelling reason to believe that the effect of ethanol use on gasoline prices has been more than $0.10 per gallon.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.5547/01956574.36.1.4
