Farm Industry News Blog

How ethanol has reduced gas prices

Over the last decade, the use of ethanol has helped to provide enough fuel supply to reduce gasoline prices by $.29 per gallon nationwide (and by much more in the Midwest). An updated study by University of Wisconsin and Iowa State University indicates that ethanol helped reduce gasoline prices by $1.09 per gallon last year.


Ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, according to updated research ( conducted by University of Wisconsin and Iowa State University economics professors Dermot Hayes and Xiaodong Du.

In a teleconference today, Hayes added that gasoline prices have been reduced by an average of $.29 per gallon nationwide over the last decade because of the growing use of ethanol. Those price reductions have been even greater (by as much as $.40 per gallon) in the Midwest where much of the ethanol is produced, Hayes said.

Growth in ethanol production has added significantly to the volume of fuel available in the U.S., Hayes noted. This additional fuel supply has alleviated gasoline shortages that had been caused by limited refinery capacity. In the past, gas prices spiked whenever the refinery industry approached capacity, Hayes said.

Ethanol has helped the U.S. transition from being a net importer of gasoline to a net exporter. As a result, U.S. gasoline prices are measurably lower than would otherwise have been the case, Hayes pointed out.

The Renewable Fuel Association (RFA), which funded the updated research, cited data from the Census Bureau and Energy Information Administration, which suggested that 116.7 million U.S. households consumed 131.2 billion gallons of gasoline in 2011 (an average of 1,124 gallons per household). That means ethanol reduced the average American household’s spending on gasoline by more than $1,200 in 2011, the RFA reported.

Bob Dinneen, RFA’s president and CEO, said in the teleconference that this study’s results can show members of Congress and the American public how ethanol has benefited their pocketbooks. “As Congress looks at how to continue to grow this industry, this [study] provides context to include in policy.”





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