IDEAS home Printed from https://ideas.repec.org/p/ags/saea16/229960.html
   My bibliography  Save this paper

Demand for Ethanol in the Face of Blend Wall: Is it a Complement or a Substitute for Conventional Transportation Fuel in the United States?

Author

Listed:
  • Wang, Zidong
  • Fan, Xin Xin
  • Liu, Pan
  • Dharmasena, Senarath

Abstract

United States spends more than one quarter of its energy on transportation. Historically, crude oil has been the primary source for generating this energy. Though ethanol has been proposed to substitute conventional transportation fuel since the 1970s, the expansion of ethanol industry slowed down after 2010 when the ethanol blended reached around 10% of the total gasoline, the so-called “blend-wall effect”. This study focused on estimating the demand for ethanol in the United States and analyzed the effect of blend-wall on this demand and its relationship to conventional fuels. The almost ideal demand model (AIDS) is adopted to analyze the US expenditure on transportation fuels including petroleum, natural gas and biomass energy. Both monthly and annual data are collected and the presence of unit roots at different frequencies (monthly, quarterly, annually) is identified and used to help improve the structural model. Preliminary results showed that, though ethanol was proposed as a substitute for gasoline, the substitution effect faded away as the ethanol share in the blend increased, and turning ethanol to be a complement under the state-of-the-art technology.

Suggested Citation

  • Wang, Zidong & Fan, Xin Xin & Liu, Pan & Dharmasena, Senarath, 2016. "Demand for Ethanol in the Face of Blend Wall: Is it a Complement or a Substitute for Conventional Transportation Fuel in the United States?," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229960, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea16:229960
    DOI: 10.22004/ag.econ.229960
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/229960/files/Zidong_Fan_Liu_Dharmasena%20Ethanol%20SAEA%202016%20Paper.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.229960?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bruce A. Babcock, 2012. "The impact of US biofuel policies on agricultural price levels and volatility," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 4(4), pages 407-426, November.
    2. Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
    3. McPhail, Lihong Lu & Babcock, Bruce A., 2012. "Impact of US biofuel policy on US corn and gasoline price variability," Energy, Elsevier, vol. 37(1), pages 505-513.
    4. Qiu, Cheng & Colson, Gregory & Wetzstein, Michael, 2014. "An ethanol blend wall shift is prone to increase petroleum gasoline demand," Energy Economics, Elsevier, vol. 44(C), pages 160-165.
    5. Luchansky, Matthew S. & Monks, James, 2009. "Supply and demand elasticities in the U.S. ethanol fuel market," Energy Economics, Elsevier, vol. 31(3), pages 403-410, May.
    6. Salvo, Alberto & Huse, Cristian, 2013. "Build it, but will they come? Evidence from consumer choice between gasoline and sugarcane ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 251-279.
    7. Bruce A. Babcock & Sebastien Pouliot, 2013. "Price It and They Will Buy: How E85 Can Break the Blend Wall," Center for Agricultural and Rural Development (CARD) Publications 13-pb11, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    8. Hira, Anil & de Oliveira, Luiz Guilherme, 2009. "No substitute for oil? How Brazil developed its ethanol industry," Energy Policy, Elsevier, vol. 37(6), pages 2450-2456, June.
    9. Thompson, Wyatt & Meyer, Seth & Westhoff, Pat, 2009. "How does petroleum price and corn yield volatility affect ethanol markets with and without an ethanol use mandate?," Energy Policy, Elsevier, vol. 37(2), pages 745-749, February.
    10. Teresa Serra & David Zilberman & José M. Gil & Barry K. Goodwin, 2011. "Nonlinearities in the U.S. corn‐ethanol‐oil‐gasoline price system," Agricultural Economics, International Association of Agricultural Economists, vol. 42(1), pages 35-45, January.
    11. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    2. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
    3. Pouliot, Sébastien, 2013. "Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150964, Agricultural and Applied Economics Association.
    4. Andersson, Linda & Ek, Kristina & Kastensson, Åsa & Wårell, Linda, 2020. "Transition towards sustainable transportation – What determines fuel choice?," Transport Policy, Elsevier, vol. 90(C), pages 31-38.
    5. Ladislav Kristoufek & Karel Janda & David Zilberman, 2012. "Mutual Responsiveness of Biofuels, Fuels and Food Prices," CAMA Working Papers 2012-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Chanthawong, Anuman & Dhakal, Shobhakar & Jongwanich, Juthathip, 2016. "Supply and demand of biofuels in the fuel market of Thailand: Two stage least square and three least square approaches," Energy, Elsevier, vol. 114(C), pages 431-443.
    7. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Non-linear price transmission between biofuels, fuels and food commodities," Working Papers IES 2013/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2013.
    8. JunJie Wu & Christian Langpap, 2015. "The Price and Welfare Effects of Biofuel Mandates and Subsidies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 35-57, September.
    9. Sebastien Pouliot & Bruce A. Babcock, 2014. "Impact of Ethanol Mandates on Fuel Prices when Ethanol and Gasoline are Imperfect Substitutes," Center for Agricultural and Rural Development (CARD) Publications 14-wp551, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    10. Wise, Timothy A., 2012. "The Cost to Mexico of U.S. Corn Ethanol Expansion," Working Papers 179098, Tufts University, Global Development and Environment Institute.
    11. Paulo Henrique Hoeckel & Augusto Mussi Alvim & José Pedro Pontes & João Dias, 2023. "The Ethanol Market and Its Relation to the Price of Agricultural Commodities," Energies, MDPI, vol. 16(6), pages 1-18, March.
    12. Hanon, Tristan, 2014. "The New Normal: A Policy Analysis of the US Renewable Fuel Standard," SS-AAEA Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 2014, pages 1-22.
    13. Golecha, Rajdeep & Gan, Jianbang, 2016. "Effects of corn stover year-to-year supply variability and market structure on biomass utilization and cost," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 34-44.
    14. Michelsen, Carl Christian & Madlener, Reinhard, 2016. "Switching from fossil fuel to renewables in residential heating systems: An empirical study of homeowners' decisions in Germany," Energy Policy, Elsevier, vol. 89(C), pages 95-105.
    15. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    16. Bernardina Algieri, 2014. "A roller coaster ride: an empirical investigation of the main drivers of the international wheat price," Agricultural Economics, International Association of Agricultural Economists, vol. 45(4), pages 459-475, July.
    17. Scheitrum, Daniel, 2017. "Renewable Natural Gas as a Solution to Climate Goals: Response to California's Low Carbon Fuel Standard," MPRA Paper 77193, University Library of Munich, Germany.
    18. Christina Korting & Harry de Gorter & David R Just, 2019. "Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 492-506.
    19. Al-Maadid, Alanoud & Caporale, Guglielmo Maria & Spagnolo, Fabio & Spagnolo, Nicola, 2017. "Spillovers between food and energy prices and structural breaks," International Economics, Elsevier, vol. 150(C), pages 1-18.
    20. Britz, Wolfgang & Li, Jingwen & Shang, Linmei, 2021. "Combining large-scale sensitivity analysis in Computable General Equilibrium models with Machine Learning: An Example Application to policy supporting the bio-economy," Conference papers 333285, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

    More about this item

    Keywords

    Demand and Price Analysis; Resource /Energy Economics and Policy;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:saea16:229960. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/saeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.