Backers of the US ethanol and refining sectors clashed Tuesday over the influence renewable fuels have on prices at the retail gasoline pump.
The Renewable Fuel Association said ethanol production drove gasoline prices down by $1.09/gal in 2011 on a national average, citing a study the trade group paid Iowa State University researchers to update.
But the American Fuel & Petrochemical Manufacturers called the study flawed and irrelevant for ignoring the lower energy content of gasoline blended with ethanol.
The Iowa State report found savings attributable to ethanol of $1.69/gal in the Midwest, $1.11/gal in the Rocky Mountains, 86 cents on the West Coast, 76 cents on the East Coast and 73 cents on the Gulf Coast.
"With higher crude oil prices and expanding ethanol production, the marginal impact of ethanol growth on gasoline prices becomes increasingly pronounced," the study said.
Dermot Hayes, an Iowa State economics and finance professor, said he and another researcher extrapolated the figures from an earlier self-funded study looking at ethanol's effect on gasoline prices between January 2000 and December 2010.
During a conference call that RFA hosted, Hayes said the pro-ethanol group paid $30,000 for two months of the researchers' time to update the numbers through 2011.
Hayes acknowledged that the 2011 savings surprised him and led him to question what factors he could be missing. He concluded that ethanol's rise to gain 10% of the gasoline supply has decreased the likelihood that the US will approach its maximum refining capacity, which in the past has resulted in price spikes.
"In any market, if you increase supply you will get a reduction in prices," he said.
Hayes added that the country's transition from being a net fuel importer to a net exporter could also play a role.
"The surge in ethanol production in recent years has essentially added 10% to the volume of fuel available for gasoline powered cars and in so doing it has allowed the US to switch from being a major importer of finished gasoline to a major exporter of both gasoline and ethanol," the report said. "Countries that switch trade patterns in this way will see dramatic price impacts because internal prices switch from world prices plus transportation costs to world prices minus transportation costs."
Charlie Drevna, president of refiner trade group AFPM, said the study distorted statistics to reach a predetermined conclusion. Citing AAA, he said gasoline blended with 85% ethanol significantly decreases fuel economy, making it more expensive than straight gasoline on a miles-per-gallon basis.
"Increased amounts of ethanol in gasoline will likely lead to consumers paying even more at the pump," he said in a statement. "The AAA report notes that if consumers were to use E85 today, they would be paying nearly 60 cents per gallon more than if they filled up with regular gasoline."
