Ethanol: Helping Limit Fuel Prices

While critics accuse ethanol of driving up food prices, what many do not realize is that without ethanol, energy prices would be even higher.Increased fuel costs would no doubt increase food prices. Following are just a few of the studies that show ethanol is a key factor in keeping fuel prices from rising..

Using Technology to Feed, Fuel the World

Meeting the food and energy needs of a growing world population requires cutting-edge technology and innovation. Today, corn producers are being called upon to provide not only feed for livestock and food for humans, but also the raw material for producing renewable fuels like ethanol.
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Ethanol Helps Lower Fuel Prices

Americans are feeling the pinch of high gasoline prices, but the fuel could cost as much as 5 cents to 10 cents more a gallon if it was not routinely blended with ethanol.
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Impact of Ethanol on Retail Gasoline Prices in Missouri — LECG LLC, John M. Urbanchuk

In 2007, Missouri drivers saved 7.7 cents per gallon at the retail pump by filling up with a 10 percent ethanol blend, totaling a savings of $158.2 million, or $40 for each of Missouri’s 3.9 million licensed drivers. That savings is expected to reach 9.8 cents per gallon or $72.80 per driver in 2008.
Over the next decade, Missouri drivers will save 7.2 cents per gallon thanks to ethanol, amounting to annual savings of $214 million or $54 per driver.
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The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry — Center for Agricultural and Rural Development, Iowa State University, Xiaodong Du and Dermot J. Hayes

Growth in ethanol production has allowed for retail gas prices to be $0.29 to $0.40 per gallon lower than it would have been without ethanol.
The results of gas pricing savings varied in five U.S. regions according to the region's access to ethanol, ranging from 39.5 cents in the Midwest to 17.1 cents in the Rocky Mountain region, mainly because of the comparatively low gas consumption.
The production of ethanol has reduced the profit margin of the oil industry.
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The Impact of Ethanol Production on Food, Feed and Fuel — Ethanol Across America

By adding to the nation's fuel supply, increased ethanol minimizes the impact of gas price increases.
The amount of raw grain materials in many food products is not enough to significantly impact the cost paid by the consumer.
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The Effects of Ethanol on Texas Food and Feed — Texas A&M University

Relaxing the renewable fuels standard does not result in significantly lower corn prices. This is due to the ethanol infrastructure already in place and the generally positive economics for the industry.
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What is Driving Food Price Inflation? — Federal Reserve Bank of Kansas City

Supplies of agricultural commodities are expected to tighten further as worldwide populations grow and incomes rise, boosting demand.
Marketing costs have risen sharply over the last 50 years, consuming a greater share of the retail food dollar.
Over the past three decades rising labor and energy costs have boosted that [marketing] share steadily, from 67 percent in the 1970s to 80 percent today.
Labor costs have emerged as the biggest component of the retail food dollar. In the year ahead, labor costs are expected to fuel food increases.
Energy prices are also a large component of the retail food dollar, boosting prices by raising the cost of processing, manufacturing and transporting food.
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What They Are Saying About Ethanol and Fuel Prices

"The high price of gasoline is going to spur more investment in ethanol as an alternative to gasoline, and the truth of the matter is that it’s in our national interest that our farmers grow energy as opposed to us purchasing energy from parts of the world that are unstable or don’t like us.” – President George Bush

Francisco Blanch, a commodities expert for Merrill Lynch, said biofuels like ethanol lower gas prices by at least 15 percent on a nationwide basis.

According to Farm Bureau Federation senior economist Terry Francl, gas would cost 5 to 10 cents more per gallon if it was not blended with the corn-based fuel. Francl also said that consumers and taxpayers are saving $7 billion to $14 billion in gas costs as a result of increased ethanol use. Higher oil costs have increased gasoline prices 70 cents per gallon over the past year. And oil companies have been quick to shift the blame to farmers and ethanol.

"The production of ethanol also helps to diversify our energy infrastructure with local production of renewable fuels. Bear Stearns analyst Nicole Decker estimates that the 400,000 barrels of ethanol produced daily in 2007 could displace the gasoline output from 2-3 average oil refineries" – Associated Press, January 2008

"The E-10 mandate in Missouri will save money for Missouri consumers and drivers. The price for an E-10 blend is projected to be 7.2 cents per gallon below that of conventional gasoline over the next ten years resulting in annual savings of nearly $214 million, or $54 per driver per year, at the consumer level with no loss in revenue for the state from gasoline taxes." – John Urbanchuk, Impact of Ethanol on Retail Gasoline Prices in Missouri

"This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case." – Xiaodong Du and Dermot J. Hayes, The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

"Ethanol production has a considerably negative impact on the gasoline price. This indicates that over the sample period, ethanol has a significant substitution effect on gasoline." – Xiaodong Du and Dermot J. Hayes, The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

"The availability of ethanol essentially increased the 'capacity' of the U.S. refinery industry and in so doing prevented some of the dramatic price increases often associated with an industry operating at close to capacity." – Xiaodong Du and Dermot J. Hayes, The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

"The nominal increase projected for food prices over the next ten years should be more than offset by the effect that ethanol will have on the price at the pump." – Ethanol Across America, The Impact of Ethanol Production on Food, Feed and Fuel