US Ethanol Industry Helps Households Make Ends Meet

By Bob Dinneen | June 12, 2012

This spring, while gasoline prices approached the $4-per-gallon mark for the second time in four years, one factor kept the pain at the pump from getting even worse.

Because ethanol makes up 10 percent of the nation’s motor fuel supply, it significantly reduces the demand for oil and puts downward pressure on oil prices. Ethanol reduced wholesale gasoline prices by $1.09 per gallon nationally during 2011 and by an average of 29 cents per gallon from 2000 through 2011. By helping to save $39.8 billion annually in excess gasoline costs, the U.S. ethanol industry helped the average American household to pay about $340 less every year to fuel their cars since 2000.

These are among the conclusions of a study released May 15 examining the impact of increased ethanol consumption on wholesale gasoline prices conducted by economists from the University of Wisconsin and Iowa State University for the Center for Agriculture and Rural Development.

While ethanol has held down gasoline prices for more than a decade, it helped motorists save even more money in 2011 for two important reasons:

First, American ethanol production increased from 13.2 billion gallons in 2010 to a record 13.9 billion gallons last year. Second, the average crude oil price increased from $80 per barrel in 2010 to about $95 per barrel in 2011, which increased ethanol’s discount to gasoline. In other words, ethanol’s impact on gasoline prices becomes more pronounced as oil prices rise and ethanol production increases. As these findings confirm, the growth of the American ethanol industry has been a bright spot in an economy marred by high unemployment and sky-high gasoline prices.

With 209 ethanol biorefineries in 29 states, the industry generates $43 billion in economic activity, supports more than 400,000 jobs, and contributes more than $8 billion in federal, state and local taxes, helping to pay for local public schools and police and fire departments.

As ethanol production increases, the industry promotes the nation’s energy security and economic stability. Last year alone, by producing more than 13.9 billion gallons of biofuels, the U.S. ethanol industry reduced the nation’s need for imported oil by 485 million barrels—more than the U.S. imports from Saudi Arabia. By reducing reliance on imported oil, ethanol makes it more difficult for petroleum-exporting countries to increase energy costs in the U.S. by restricting production or raising prices.   

The emergence of the domestic ethanol industry as a force in the nation’s motor fuel market is beneficial for the basics of the American economy—jobs and prices.

The more clean-burning, American-made biofuels the industry produces, the more high-paying jobs there will be for American workers and the lower the prices will be for American motorists at the gasoline pumps.

The American ethanol industry isn’t only expanding, it is evolving. U.S. companies are devising new technologies that will turn waste products, such as garbage, woodchips, corn stover and even cooking oil, into renewable fuel and other biobased products. Some companies already have commercial-scale facilities under development and construction, from Oregon to Iowa and from Alabama to Massachusetts.

Public policies should encourage the growth of an industry that is good for our country. While the oil companies continue to enjoy federal tax breaks and other advantages totaling between $3.6 billion to $4.5 billion a year, the American biofuels industry believes that tax incentives should be targeted to new technologies, not forever subsidizing mature industries. That is why the American biofuels industry willingly agreed to the expiration of the tax credit for ethanol blenders (the Volumetric Ethanol Excise Tax Credit) at the end of last year.

Public policies should promote the development of advanced biofuels by encouraging the expanded installation of blender pumps, a greater proliferation of flex-fuel vehicles, and the growth of innovative startup companies. By requiring that 36 billion gallons of renewable fuel, including 21 billion gallons of advanced biofuels, be blended into transportation fuel by 2022, the renewable fuel standard helps to attract investment to create and commercialize new ethanol production processes.

With imaginative policies and innovative technologies, American biofuels can continue to cut prices at the pumps and create jobs in our communities.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association
(202) 289-3835