MIT study indicates ethanol may not lower the price at the pump

In the Energy Journal, an MIT economist has published a report saying that ethanol may not lower the price at the pump. The ‘crack ratio,’ the relative value of gasoline compared to oil, has declined recently, and many have attributed the decline to ethanol. However, the analysts argue that changing oil prices is what really caused the decline, and when those prices are accounted for, the apparent effect of ethanol goes away. “In the very short run, if ethanol vanished tomorrow, we would be scrambling to find fuel to cover that for a week, or less than a month,” argued Christopher Knittel. “But certainly within a month, increases in imports would relax or reduce that price impact.” He continued, “the point of our paper is not to say that ethanol doesn’t have a place in the marketplace, but it’s more that the facts should drive this discussion.”

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