Grainnet

Consumer Federation of America: Ethanol Production Decrease Would Push Gas Prices Up

Washington, DC—The Consumer Federation of America submitted August 7 comments to the Environmental Protection Agency (EPA) that showed slashing ethanol production, as requested by the state of Texas in its request for a Waiver of the Clean Air Act Renewable Fuel Standard (RFS), would increase gasoline prices substantially.

The comments were filed in response to a study prepared for the state of Texas by Phillip K. Verleger and Darrel B. Chodorow who erroneously claim increasing demand for gasoline and crude oil would lower prices.

“The suggestion that increasing demand will lower oil and gasoline prices is not only contrary to Economics 101 and what independent analyses by Wall Street firms, government agencies, and academic institutions have concluded,” said Dr. Mark Cooper, CFA’s Director of Research, “but the study’s authors do not provide one shred of evidence to support their strange argument.”

“The independent studies show that ethanol production is keeping gasoline prices form going much higher than they already are by providing an important global source of incremental non-OPEC fuel, reducing the pressure on U.S. refinery capacity that has been severely strained in recent years, and providing a low cost source of supply that is being blended with gasoline,” Cooper added.

“The existing econometric models indicate that a reduction of ethanol production of the magnitude projected by the Texas waiver request would allow the oil industry to reverse the decline in refinery margins of recent months and increase the price of gasoline by almost $0.50 per gallon.”

“We looked at the movement of refinery output, imports, exports and inventories, as well as recent price changes and could find no evidence that the market is or would behave in the bizarre, counterintuitive way that the Texas theory predicts,” Cooper concluded.

“It is critical that the EPA base its decision on the waiver request on a proper understanding of how current energy markets work in the real world.”

For more information, call 301-384-2204.