It is estimated that ethanol saves the average family $526 and raises their food prices by $15 annually.
A recent study made by Iowa University states that production of ethanol has lowered the gas prices considerably and if people use ethanol additives in their vehicles, it further lowers gasoline prices. The study concluded that gasoline prices have been reduced by 40 cents per gallon. The institution carried out research using pooled regional data to estimate and quantify the effect of monthly ethanol yields on regular gasoline prices.
In the U.S, manufacturers produce ethanol from crops such as corn, wheat, barley, potatoes and sugarcane. Production cost of ethanol from such crops is low as compared to that required to extract fuel from crude oil. Hurricane Rita, which caused havoc in Louisiana and Texas seriously, impaired fuel industries in the region in the year 2006 and led to an increase in gasoline prices. Other factors include more demand-less supply, increased labor charges and expensive technology.
Since prices in recent times, are touching the sky, consumers will have to countenance more pain at gas stations in the upcoming months.
Impact Of Ethanol Production In Different Regions:
Researchers of the Iowa University used the pooled OLS method, a permanent data model, and panel FGLS method to measure the effect of ethanol production in different regions. These models studied the refinery capacity, gasoline imports, hurricanes, stocks, market concentration in processing industry, utilization rate and seasonality.
In the Midwest, this impact was a reduction in gas prices by 30 cents whereas the Rocky Mountains showed as little a difference as 17 cents per gallon. The usage of gasoline is less in the mountainous regions.
Regions in the Gulf coast experienced 24.6 cents of decline in retail gas prices. In the west as well as the east coast, average drop in gasoline prices due to production of ethanol is 34 cents. Thus, studies clearly depict that ethanol production has drastically reduced income margin of fuel industries.
Results show that in the period 1995 -2007, ethanol production had noteworthy negative impact $0.29 – $0.40 on every gallon. Studies suggest that this drop in gas prices was at the expense of fuel refiner’s profit. These outcomes are statistically prominent across the series of model specifications in all regions.
The analysis indicates that gasoline prices were impacted considerably in different regions of the U.S and other nations too.
Overview:
Drop in the retail gas prices due to the production and usage of ethanol as a fuel is surprisingly large. Although, it is not possible to extrapolate the effect of ethanol production on fuel prices all over the world, people still witness major changes in the gas industry in modern times. Thus, there lies a probability for owners of oil refineries also to turn their interest towards ethanol production.
Thus, had there been no ethanol production, it was very likely that crude oil and refining companies may have become larger than they are now. Therefore, the impact of production of ethanol is highly significant in lowering the gas prices.
