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ISU study shows ethanol saved Midwest consumers $1.69 per gallon in 2011

Over the past 11 years, increased ethanol production has saved U.S. consumers 29 cents a gallon on average, and 45 cents a gallon on average in the Midwest, according to a report released Tuesday by Iowa State University’s Center for Agriculture and Rural Development (CARD).

CARD researchers Xiaodong Du, assistant professor of agricultural and applied economics at University of Wisconsin-Madison, and Dermot Hayes, professor of economics at Iowa State, found that the savings have increased substantially in recent years. In 2011 alone, ethanol saved Midwest consumers $1.69 per gallon and $1.09 across all regions.

“With higher crude oil price and expanding ethanol production, the marginal impact of ethanol growth on gasoline prices becomes increasingly pronounced,” Hayes said in a press release. “It is as if the U.S. oil refining industry had found a way to extract 10 percent more gasoline from a barrel of oil. This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity.”   

The average consumer used 1,124 gallons of fuel in the last year, according to the U.S. government, meaning ethanol could have saved Midwest consumers roughly $1,200 last year.

Although ethanol is cheaper than gasoline and production has increased, the food vs. fuel debate still continues.

“Obviously, by diverting corn to produce ethanol (through the production mandate and subsidies), prices are lower than may have otherwise been,” said Doug Carper of DEC Capital Inc. in an interview with the Lincoln (Neb.) Journal Star. “The offset to that is that animal feed has been much higher priced. You can’t take calories/energy from one place and put them somewhere else without consequences.”  

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