Cutting Ethanol Production Would Increase Gas Prices

Cindy Zimmerman

In advance of EPA’s decision to be announced today on the requested partial waiver of the Renewable Fuels Standard, the Consumer Federation of America (CFA) is warning that cutting ethanol production will increase gasoline prices “substantially.”

The comments were filed in response to a study prepared for the state of Texas by Phillip K. Verleger and Darrel B. Chodorow who erroneously claim increasing demand for gasoline and crude oil would lower prices.

Consumer Federation of America“The suggestion that increasing demand will lower oil and gasoline prices is not only contrary to Economics 101 and what independent analyses by Wall Street firms, government agencies, and academic institutions have concluded,” said Dr. Mark Cooper, CFA’s Director of Research, “but the study’s authors do not provide one shred of evidence to support their strange argument.”

Cooper says independent studies indicate that a reduction in ethanol production would increase the price of gasoline by almost 50 cents a gallon.

“We looked at the movement of refinery output, imports, exports and inventories, as well as recent price changes and could find no evidence that the market is or would behave in the bizarre, counterintuitive way that the Texas theory predicts,” Cooper concluded. “It is critical that the EPA base its decision on the waiver request on a proper understanding of how current energy markets work in the real world.”

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