Abstract

Debate has raged about the consequences of US corn-based ethanol. Studies sought to identify how much it affected world commodity markets (Josef Schmidhuber 2006; Dileep Birur, Thomas Hertel, and Wallace Tyner 2008; Seth D. Meyer, Pat Westhoff, and Wyatt W. Thompson 2009). The popular press speculated on the potential for growing US ethanol production to drive up world prices, with unintended consequences for world food supplies and changes in land use outside the United States, possibly leading to increased greenhouse gas emissions (Angelo Gurgel, John M. Reilly, and Sergey Paltsev 2007; Martin Banse, Hans van Meijl, and Geert Woltjer 2008). But these discussions focus narrowly on one set of related markets, namely those for agricultural commodities. Other studies have estimated that greater ethanol availability reduces gasoline prices to the benefit of US motor fuel consumers (Xiaoyang Wang 2008; Xiaodong Du and Dermot J. Hayes 2009). We focus on the direct effects on the US natural gas market of US biofuel policies, specifically tax credits, ethanol tariff, and mandates. Increased ethanol production based on current technologies and policies is likely to lead to greater corn demand and indirectly to more land allocated to growing corn. Both these activities use natural gas either directly for firing an ethanol plant or indirectly through the fertilizers and other chemical inputs used to grow corn. Ethanol Policy Effects on US Natural Gas Prices and Quantities

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