Marginal Reductions in Vehicle Emissions Under a Dual-Blend Ethanol Mandate: Evidence from a Natural Experiment

Abstract

Among the many reasons policy makers across the world have sought to supplement fuel supplies with ethanol-blended fuels are the cited environmental benefits that come with replacing a fossil-fuel with a cleaner burning alternative. Dual-blend ethanol mandates, in which multiple ethanol blends are simultaneously available, are one way policy markers can move forward with more aggressive mandates more quickly. The recent ethanol mandate in the state of New South Wales, Australia offers a unique natural experiment to quantify the potential environmental benefits and costs of a dual blend ethanol policy. This paper estimates the impact on carbon dioxide (CO2) emissions from road-activity that are attributable to the implementation of the New South Wales ethanol requirements. We find that there was a decrease in emissions due to the policy, but that the decrease is relatively minor given the size of the market and that it comes at a high cost. The cost was over $1,200 per ton of carbon to reduce gasoline emissions by just 1.2%.