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U.S. Ethanol Policy: Time to Reconsider?

Abstract:
This paper examines both the intended and unintended consequences of current U.S. ethanol policy. Originally, the 2007 legislation was intended to benefit consumers with lower gasoline prices, to reduce carbon emissions, and to promote oil security by displacing imported oil with domestically produced ethanol. While well-intentioned, the realized benefits have been minimal to consumers, the environment, and oil security. Alternatively, the unintended consequences on corn and other food commodity prices are having severe repercussions particularly in developing countries where consumers have more limited substitution possibilities. The extreme drought of 2012 illustrated the folly of mandating fixed quantities of ethanol use in gasoline, while allowing the residual to be left for food uses. It is time to reconsider and rescind the ethanol mandates.

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Energy Specializations: Energy Access – Sustainable Development and Distributed Energy; Energy Security and Geopolitics – Energy Security; Energy Investment and Finance – Project Finance; Renewables – Biofuels ; Renewables – Policy and Regulation

JEL Codes:
Q01 - Sustainable Development
Q48 - Energy: Government Policy
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Q16 - Agricultural R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
Q52 - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

Keywords: Ethanol Mandates, Gasoline Prices, Carbon Emissions, Oil Security, Food Prices

DOI: 10.5547/01956574.34.4.1

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Published in Volume 34, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.