End of Ethanol Subsidies Could Increase Gas Prices Marginally

Corn ethanol
Congress' decision to end its 30-year-old ethanol subsidy could boost gas prices as early as next week, according to USA Today. That's because virtually all retail gasoline sold in the U.S. contains at least 10% corn ethanol.

The end of the subsidy portends an increase in manufacturing costs. Ethanol blenders get a 45-cents-a-gallon tax credit, according to USA Today. When the credit ends Sunday, those costs will most likely be transferred to the consumer at about 4.5 cents per gallon for regular unleaded gasoline, which typically contains a 10% ethanol blend called E10.

The tax credit is said to cost the federal government $6 billion a year. Congress decided to end the credit over the summer in light of new pressures to reduce the federal deficit. Other factors, such as the increasing independence of the ethanol industry and a steady increase in corn prices (from which most U.S. ethanol is derived), helped persuade politicians to kill the subsidy. Nearly 40% of the United States' corn crop currently goes to ethanol and byproducts, according to the New York Times.

While higher ethanol prices are certain to increase the cost of gasoline production next week, other factors — most importantly, the volatile oil market — could affect the price of gasoline more quickly.

Gas prices averaged $3.28 a gallon on Monday, according to AAA, up from $3.07 a year ago. E85 ethanol averaged $2.95. Since ethanol is less energy-dense than gasoline, however, the price when adjusted to equate to a regular gallon was $3.88 per gallon, according to USA Today.v

End of Ethanol Subsidy Could Raise Gas Prices for 2012 (USA Today)

Comments 

Yes, we'll pay a bit more at the pump, but ending this government pork for Big Oil (the "ethanol blenders") is a good thing.

For those who say, let in the Brazilian ethanol, it's worth noting that U.S. ethanol exports are set to surpass Brazil's exports this year.

U.S. production levels are set to rise dramatically as second generation ethanol production (not from corn kernels) comes online. The food for fuel argument is about to change ...

attgig

why do we need ethonol in our gas anyways?

George

We don't.
The purported reasons were twofold: increase the fuel supply by diluting gasoline with alcohols; and to add an oxygenate to the fuel.

The second reason was based on a flawed study, and is outmoded anyway-there are not more carburetor vehicles.

If we really wanted to 'stretch' the fuel supply, use butanol instead of ethanol.

attgig

so, they should get rid of the subsidy AND get rid of the ethanol in the fuel...

Rockaby

@attgig,

That's the way I see it...go back to ethanol free!

It has been more than two weeks since the expiration of the ethanol subsidy, and ironically ethanol prices have dropped, but gasoline prices w/o ethanol have increased. The actions of Iran have made a much larger impact on overall fuel prices. Ethanol sits on the market today for $.60/gallon less than gasoline. If consumers could use more ethanol, they would save more at the pump. If the ethanol wasn't in the fuel, and we had to slip more past Iran, imagine the impact!

Skeptic Moe

Ethanol in gasoline has caused enormous problems for the owners of small gasoline engines. The carburetors, fiberglass fuel tanks and gas lines on some of these engines are quickly gummed up and even destroyed by this additive.

In addition the storage life of ethanol laced gasoline is approximately 3 weeks compared to 3 years for straight gas. Guess where a lot of this old skanky gas is disposed? Much of it is just tossed onto the ground which creates in itself another environ mental problem.

Adding to the equation is that it takes more energy to produce ethanol than it provides. Finally the gas mileage is anywhere from 10-30% lower than with straight gasoline. The consumer sees no economic benefit from using it in their vehicle.

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