Iowa State University’s Center for Agricultural and Rural Development (CARD) has just updated its 2009 and 2011 studies of ethanol’s impact on gasoline prices. CARD claims that from January 2000 to December 2011, “the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions,” and that in 2011 ethanol lowered gasoline prices by a whopping $1.09 per gallon.
I’m no econometrician, but this study does not pass the laugh test. We’re supposed to believe that ethanol has conferred a giant boon on consumers even though gasoline prices have increased as ethanol production has increased, and even though gas prices hit their all-time high when ethanol production hit its all-time high. If that is success, what would failure look like?
CARD’s argument boils down to this. The gasoline sold at the pump today is E-10 — motor fuel blended with 10% ethanol. Ethanol thus makes up 10% of the motor fuel supply for passenger cars. If there were no ethanol, the motor fuel supply would be 10% smaller, and gas prices would be $1.09 per gallon higher (p. 6).
Well, sure, if we assume a drop in supply and no change in demand, prices will rise. But this scenario tells us nothing about what really matters — whether ethanol’s policy privileges, especially the Renewable Fuel Standard (RFS), a.k.a., the ethanol mandate, benefits or harms consumers.*