Many people are willing to pay a premium for ethanol, but
not enough to justify the government mandate for the corn-based fuel, a Michigan State University
economist argues.
Soren Anderson studied the demand for ethanol, or E85, in
the United States.
He found that when ethanol prices rose 10 cents per gallon, demand for ethanol
fell only 12% to 16% on average.
“I was a bit surprised,” said Anderson, assistant
professor of economics. “I was looking for this sharp decline in ethanol sales
the moment the price got higher than the price of gas.”
His research, scheduled to appear in the Journal of Environmental Economics and
Management, is one of the first economics studies to examine how consumers
value ethanol.
Federal law requires increasing volumes of renewable
fuels to be blended with the nation’s fuel supply. This year, the requirement
includes the use of more than 13 billion gallons of corn-based ethanol
nationwide.
Ethanol is more expensive to make than gasoline and must
be sold at a loss or subsidized unless consumers are willing to make up the
difference, Anderson
said.
His study suggests that some people are, in fact, willing
to pay more to help protect the environment. Ethanol is a clean-burning fuel
that reduces harmful auto emissions and decreases the amount of crude oil
needed to satisfy the nation’s thirst for transportation fuel, according to the
American Coalition for Ethanol.
But from an economic perspective, mandating ethanol
doesn’t appear to be the best option, Anderson
said. Not only is it expensive, but the amount of emissions it reduces might
not be that large, he said.
“If our goal is to reduce greenhouse gas emissions, this
is quite a costly way to go about doing it,” Anderson said. “There are lots of other
things we could do before switching over to ethanol.”
Two easy examples, he said, are giving consumers options
or incentives for driving less or buying more efficient cars.
“You really want to give people
the right incentives,” Anderson
said. “If we taxed fuels at a higher rate based on the amount of pollution they
caused, people would tend to choose cleaner fuels–but also use less fuel
overall.”
