Does ethanol blending really reduce American gas prices by 45 cents a gallon?

The Ethanol Promotion and Information Council (EPIC) is never going to say anything bad about ethanol. It's an organization made up of ethanol producers and industry leaders and their whole job is to, well, promote ethanol. But the group's latest pro-ethanol release is a bit astounding: "According to experts, if every gallon of ethanol were removed from today's gasoline supply, per gallon gas costs would rise an estimated 45 cents, making the national average for fuel nearly $4.00 dollars per gallon."

The release continues: "
Ethanol is blended in 46 percent of the nation's gasoline, reducing U.S. dependence on foreign oil, and lowering costs, by providing a renewable source of energy. By the end of 2007, nearly 140 plants will be producing approximately seven billion gallons of ethanol."

The release doesn't get into specifics, but it seems like there's a bit missing here. Take, for example, the matter of the 51-cent-per-gallon Federal tax credit, which costs every American and benefits the ethanol industry. A study released last October by researchers at Iowa State University (available here in PDF), estimated that "the removal of trade distortions and 51ยข per gallon tax credit to refiners blending ethanol induces a 16.5 percent increase in the world ethanol price." Let's say that rate of increase would be transferred directly to the price of ethanol at the pump and we see a jump of 16.7 percent to a $3.50 gallon of gas. I'm not sure that would happen, but if it did, the result would be $4.08 for a gallon of gas.

You can read EPIC's original release at the Read link.

[Source: Ethanol Promotion and Information Council]

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