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How does increased corn-ethanol production affect US natural gas prices?

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  • Whistance, Jarrett
  • Thompson, Wyatt

Abstract

In recent years, there has been a push to increase biofuel production in the United States. The biofuel of choice, so far, has been ethanol produced from corn. The effects of increased corn-ethanol production on the consumer prices of food and energy continue to be studied and debated. This study examines, in particular, the effects of increased corn-ethanol production on US natural gas prices. A structural model of the natural gas market is developed and estimated using two stage least squares. A baseline projection for the period 2007-2018 is determined, and two scenarios are simulated. In the first scenario, current biofuel policies including EISA mandates, tariffs, and tax credits are removed. In the second scenario, we hold ethanol production to the level required only for largely obligatory additive use. The results indicate that the increased level of corn-ethanol production occurring as a result of the current US biofuel policies may lead to natural gas prices that are as much as 0.25% higher, on average, than if no biofuel policies were in place. A similar comparison between the baseline and second scenario indicates natural gas prices could be as much as 0.5% higher, on average, for the same period.

Suggested Citation

  • Whistance, Jarrett & Thompson, Wyatt, 2010. "How does increased corn-ethanol production affect US natural gas prices?," Energy Policy, Elsevier, vol. 38(5), pages 2315-2325, May.
    • Handle: RePEc:eee:enepol:v:38:y:2010:i:5:p:2315-2325
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    3. Thompson, Wyatt & Meyer, Seth D. & Westhoff, Patrick C., 2010. "Us Biofuel And Climate Policies Duel Over Cellulosic Biomass," 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart-Hohenheim, Germany 91404, International Agricultural Trade Research Consortium.
    4. Kurkalova, Lyubov A. & Randall, Stephen M., 2015. "Elasticities of demand for energy inputs in crop production: impact of rotation," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205298, Agricultural and Applied Economics Association.
    5. Karel Janda & Eva Michalikova & Luiz Célio Souza Rocha & Paulo Rotella Junior & Barbora Schererova & David Zilberman, 2022. "Review of the Impact of Biofuels on U.S. Retail Gasoline Prices," Energies, MDPI, vol. 16(1), pages 1-21, December.
    6. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
    7. Serra, Teresa, 2012. "Biofuel-related price volatility literature: a review and new approaches," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126057, International Association of Agricultural Economists.

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