Economics professors at the Massachusetts Institute of Technology report ethanol mandates do not lower the price of gasoline, despite claims by the ethanol industry.
‘Implausible Economic Assumptions’
A recently published MIT study debunks the oft-repeated claim that ethanol usage reduces the price of gasoline at the pump.
The MIT study, “Ethanol Production and Gasoline Prices: A Spurious Correlation,” analyzes and refutes claims by the ethanol industry that ethanol reduced gasoline prices by nearly a dollar per gallon in 2010 and more than a dollar per gallon in 2011.
“Some proponents of ethanol have argued that ethanol production greatly lowers gasoline prices, with one industry group claiming it reduced gasoline prices by 89 cents in 2010 and $1.09 in 2011,” the MIT study noted. “The estimates have been cited in numerous speeches by Secretary of Agriculture Thomas Vilsack.… We show that these results are driven by implausible economic assumptions and spurious statistical correlations.”
The MIT study points out the largest variable for the price of gasoline is the cost of crude oil. Wholesale gasoline prices go up when the price of a barrel of oil goes up. Ethanol, by contrast, has a minimal impact on the cost of crude oil, the study notes.
The study further explains that ethanol has 33.3 percent less energy than gasoline, so engines need more of it to power a vehicle for the same distance.
Correlation, Not Causation
“Put simply, the empirical results merely reﬂect the fact that ethanol production increased during the sample period whereas the ratio of gasoline [prices] to crude oil prices decreased,” the study explained.
“The claim that ethanol reduces gasoline prices is just silly and is based on the fallacy that correlation equals causation,” said Tom Tanton, president of energy economics consultants T2 & Associates.
Industry Pushes Debunked Claims
The Renewable Fuels Association (RFA) is nevertheless financing a public relations campaign promoting the debunked claim that ethanol h