Will the ethanol mandate drive up the cost of transportation fuel?

Feb 2009

The Energy Policy Research Foundation, Inc. (EPRINC) evaluates in this report the consequences to the U.S. transportation fuel sector of increasing the volume of ethanol in the U.S. gasoline pool above current volumes -- now approaching 10 percent of the fuel supply. As federal mandates take the US gasoline pool above 10 percent ethanol blend, and ultimately to higher levels through E-85, the value of additional ethanol supplies is likely to decline dramatically. This cost can only be recovered through higher prices for E-10 and distillate, and depending on a wide range of factors, the mandated volumes could easily drive gasoline and distillate prices up by 10-25 cents/gallon over the next 2-3 years as compared to a scenario without mandates.
Accomodating increasing volumes of ethanol into the gasoline pool will likely require substantial increases in the price of E-10 and diesel fuels as refiners and marketers face the higher costs of meeting the mandate. The higher costs will come from lower utilization rates at US refineries and higher distribution costs for ethanol. There are several scenarios where refiners (and other obligated parties) will have to recover as much as $1.00 or more for every gallon of ethanol blended into the transportation fuel.

By: Energy Policy Research Foundation, Inc. (EPRINC)

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