New research from economist Dr. Philip Verleger, Jr. examines market disruptions from more than 50 years of data and concludes that the availability of ethanol helps the United States avoid significant impact to its gas prices during supply disruptions.
Verleger’s study demonstrates that the U.S. Renewable Fuel Standard saves money at the gas pump and reduces the blow to drivers’ wallets caused by global oil production hits — hits most recently seen in the form of Saudi oil fields set ablaze. The U.S. supply of ethanol is growing, but the study claims that if it were removed, gas prices could be more than $1 per gallon higher than they are today.
“Retail prices would today be above $4 per gallon, not $2.90, were renewable supplies removed from the supply mix,” Verleger said. “The lower gasoline prices, in turn, allowed consumers to spend more on the things they wanted rather than motor fuels… The economic benefit of lower gasoline prices that is directly attributable to the availability of renewable fuels adds one to two percentage points to the U.S. GDP every year.”
His report determined that even a modest amount of renewable fuels on hand could dampen the price jumps caused by market disruptions. The RFS lowered gas prices by an average of 22 cents per gallon between 2015 and 2018, potentially saving American households as much as $250 annually.
The report also reinforced the knowledge that competition plays a large part in keeping prices down, especially as refineries consolidate.
“Consumers would likely pay even higher prices if the mergers that created the large oligopolistic independent refiners had not been accompanied by a second trend: the creation of an aggressive, competitive petroleum marketing sector,” Verleger said.