Gas prices are dominating the headlines and we have yet to embark on the summer driving season, the traditional kick-off to high gas prices. With Congress holding hearings this week on gas prices, the president holding a press conference today, voters taking to the polls today, and the energy world gathering in Houston this week, RFA's Vice President of Research and Analysis Geoff Cooper has analyzed the data to provide background information on the downward pressure exerted by domestic ethanol production on gasoline prices.  A complete download of this RFA Issue Brief in pdf form is available here.

Retail gasoline prices are again on the rise, recently reaching their highest level since May 2011. The national average retail price for regular grade gasoline hit $3.79/gallon last week, $0.27/gallon higher than at the same time last year and $1.04/gallon higher than the same week in 2010. 1

Prices along the coasts are even higher, with California drivers paying an average of $4.36/gallon and New Yorkers spending $3.96/gallon for regular gasoline. As gas prices typically ramp up in April and May, many analysts are concerned that today’s high gas prices will spiral even higher in the coming months. Experts predict drivers in some parts of the country may be paying as much as $5/gallon by Memorial Day. 2

The recent run-up in fuel prices is occurring even as gasoline demand has fallen to its lowest point in more than a decade. Tensions in Iran and Syria have prompted speculative investors to raise their stakes in the oil market, which has translated to higher crude oil prices. Nearby crude oil futures hit $109.77/barrel on February 24, the highest price since early May 2011. These higher crude oil prices, along with refinery closures in the eastern United States, have sparked higher gasoline prices from coast to coast. Noted officials and economists, including Federal Reserve Chairman Ben Bernanke, have recently warned that the surge in oil and gasoline prices significantly threatens the nation’s budding economic recovery. 3

THE ROLE OF ETHANOL

While recent gasoline prices have been the highest ever for this time of year, they would unquestionably be even higher without the enormous contribution of ethanol. American-produced ethanol now constitutes 10% of our nation’s gasoline supply, and it is the only energy source available today that can meaningfully keep gasoline prices in check. In a 2011 paper published by the Center for Agriculture and Rural Development (CARD), economists from Iowa State University and the University of Wisconsin found that the use of more than 13 billion gallons of ethanol reduced gasoline prices by an average of $0.89/gallon in 2010. 4

That means the average American household spent $800 less on gasoline than would have otherwise been the case without ethanol. The researchers also found that for the first decade of the 21st century, growth in ethanol production and use helped keep gasoline prices cheaper by an average of $0.25/gallon. As such, American drivers saved an average of $35 billion annually on gasoline purchases from 2000 to 2010.