A few years ago, I was a bit skeptical when I heard some of the claims being made by supporters of the ethanol industry about how that corn-based fuel was reducing the price of gasoline. But it was only when I took a trip to Washington with my son and I saw some ads that were making even bigger claims that I decided that the truth had to get out.
Right now, Congress is debating the nation’s renewable fuel standard which, among other things, has helped spur a sharp increase in the production of ethanol. To help make their case, the trade group for the U.S. ethanol industry has been citing studies that claim that ethanol production reduced gasoline prices by 89 cents in 2010 and by $1.09 in 2011. Pretty powerful stuff. Except it’s wrong.
A paper I just co-authored for the MIT Center for Energy and Environmental Policy Research finds that the models used to produce those claims are “driven by implausible economic assumptions and spurious statistical correlations.” In fact, we find that the effects of ethanol production on gas prices are near zero and statistically insignificant. Continue reading