Understanding E10 markets in the U.S.: Evidence from spatial data

Abstract

E10 is still the largest market for blending of ethanol in transportation fuels in the U.S. This paper analyzes the relationship between the input costs of transportation fuel blends (crude oil, wholesale gasoline) and the transportation fuel prices (E10) that U.S. consumers pay at the pump both in the short run and in the long run. The article employs a generalized spatial random-effects autoregressive-distributed lag model for E10 price using U.S. regional data. We estimate the short run elasticity of E10 price with respect to crude oil price as 0.28, and the long run elasticity as 0.42. In both the short run and the long run, the elasticities of E10 with respect to wholesale gasoline price are higher than the elasticities with respect to crude oil price; at 0.59 and 0.83. We find that the federal policy of E15 approval increased E10 prices. We do not find significant impacts of income or population on E10 prices.