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On the economic sustainability of ethanol E85

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  • Tatum, Shaun W.
  • Skinner, Sarah J.
  • Jackson, John D.

Abstract

Several studies have considered the sustainability of corn-based ethanol as produced in the US as a major fuel source from a technical perspective. However, not much attention has been paid to the market-based aspects of corn-based ethanol as a sustainable fuel. We address this question by offering an econometric analysis of the E85 (apparently the most viable of the potential substitutes for gasoline) market using demand and supply analysis. Reduced form price equation estimates indicate that the cross elasticity of E85's price with respect to the price of gasoline does not differ significantly from unity, so that any rise in gasoline prices will be matched (in percentage terms) by a corresponding rise in the price of E85. Thus, given the current market, which includes significant government subsidy, the prospect that E85 will ever be price competitive with gasoline is indeed dim.

Suggested Citation

  • Tatum, Shaun W. & Skinner, Sarah J. & Jackson, John D., 2010. "On the economic sustainability of ethanol E85," Energy Economics, Elsevier, vol. 32(6), pages 1263-1267, November.
    • Handle: RePEc:eee:eneeco:v:32:y:2010:i:6:p:1263-1267
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    References listed on IDEAS

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    1. Amani Elobeid & Simla Tokgoz, 2006. "Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets," Center for Agricultural and Rural Development (CARD) Publications 06-wp427, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. George Ford & John Jackson, 1998. "On the interpretation of policy effects from estimates of simultaneous systems of equations," Applied Economics, Taylor & Francis Journals, vol. 30(8), pages 995-999.
    3. Tyner, Wallace E. & Quear, Justin, 2006. "Comparison of a Fixed and Variable Corn Ethanol Subsidy," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 21(3), pages 1-4.
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