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Ethanol reduced gas prices by $1 per gallon in 2011 – research

Ethanol reduced gas prices by $1 per gallon in 2011 – research
Additional fuel supply has alleviated periodic gasoline shortages.

The use of domestically produced ethanol as a fuel additive by Americans has reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, according to research from the University of Wisconsin and Iowa State University.

The researchers say higher oil and gasoline prices, increased ethanol inclusion, and ethanol having larger discounts to gasoline were the primary factors for the price drop last year.

The research, done by professors Dermot Hayes of Iowa State and Xiaodong Du from the University of Wisconsin, found that ethanol brought gasoline prices down by an average of $0.29 per gallon (or 17 percent) from 2000 to 2011.

"Growth in U.S. ethanol production has added significantly to the volume of fuel available in the U.S.," said Mr. Hayes. "It is as if the U.S. oil refining industry had found a way to extract 10 percent more gasoline from a barrel of oil."

He adds that the additional fuel supply has alleviated periodic gasoline shortages and also changed the relative prices of gasoline and diesel. From being a net importer, the U.S. became a net exporter of gasoline.

"As a result of these changes, U.S. gasoline prices are measurably lower than would otherwise have been the case. This gasoline price impact has been documented in a peer reviewed academic journal and the price dampening effect has increased as ethanol production has grown," he said.

The researchers also noted that the average crude oil price increased from about $80 per barrel in 2010 to about $95 per barrel in 2011, and average U.S. wholesale gasoline prices have risen 30 percent from 2010-2011.

According to them, the price differential between ethanol and gasoline prices would provide further economic incentives for ethanol production and consumption.

Government data indicates that U.S. households consumed an average of 1,124 gallons in 2011, which means ethanol reduced a total of $1,200 in gasoline spending for the average household that year.

These price reductions reportedly saved the U.S. economy an average of $40 billion per year since 2000, and saved the average household more than $340 per year in the same period. (N. P. Arboleda)

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