Beyond the Biofuel-bashing Editorials: Ethanol Really Reduces Prices at the Pump
by Bob Dinneen (Renewable Fuels Association) The following editorial was submitted to the Wall Street Journal, but was rejected by the Editorial Features Staff. Beyond the Biofuel-bashing Editorials: Ethanol Really Reduces Prices at the Pump By Bob Dinneen
When I was growing up, I learned to watch out for guys who pat you on the back with one hand and then sucker-punch you with the other.
On the same day that the Journal called me “our indefatigable friend” and published my letter to the editor responding to an editorial entitled “Ethanol vs. the World” (Aug. 11), they published yet another sarcastic screed, “How Ethanol Causes Joblessness” (Aug.16). The latter editorial ridicules what it claims was the methodology behind a study by academic economists showing that America’s growing use of domestically produced ethanol reduced wholesale gasoline prices from what they would otherwise have been by an average of $1.09 per gallon last year.
Over the past year alone, the Journal has published ten editorials against ethanol.
…But the constant bashing of biofuels distorts the debate about issues that matter to most Americans: Can we hold down prices at the pump?
…Because ethanol makes up 10 percent of the nation’s gasoline pool today, it significantly reduces demand for oil, putting downward pressure on gasoline prices at the pump.
While it is difficult to imagine that gasoline prices could have been higher than they were at their worst points over the past year, the pain at the pump would have been even worse without ethanol. Why?
First, adding 13.9 billion gallons of biofuels to the motor fuel pool – and blending it with gasoline in E10 – has a similar effect to the US oil refining industry finding a way to extract 10 percent more gasoline from a barrel of oil. It’s Economics 101: When you increase the supply of something, there’s a downward pressure on its price.
Second, ethanol has been priced at a larger-than-usual discount to gasoline. From 2010 to 2011, average crude oil prices increased from about $80/barrel to about $95/barrel.
Third, the additional fuel supply has alleviated the periodic gasoline shortages, resulting from limited refinery capacity, that contribute to price spikes.
…In recent years, oil refiners have blended 2.5 billion more gallons than required under the RFS because it made economic sense. READ MORE