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As Prices at the Pump Go Up, Up, Up American Ethanol is the Motorist’s Friend

February 21, 2013


If you've been paying more at the pump for gasoline, you aren't alone. And, if it weren't for U.S. ethanol, you'd be paying even more. All across America, as of February 19, gasoline prices had been climbing for 32 days, reaching a four-month high. In fact, since January 17, the national average retail gasoline price had soared by 43 cents - or 13 percent - all the way up to $3.73 a gallon. According to EIA, last week's national average was the highest on record for the month of February. From now through Memorial Day, which kicks off the summer driving season, gasoline prices will likely keep going up, up, up. Over the past five years, gasoline prices have risen an average of $0.51 per gallon between New Year's Day and the Memorial Day weekend. That means we could be looking at prices well above $4 per gallon as summer begins and families hit the road for vacation. Gas prices are skyrocketing despite an increase in domestic oil production. Oil companies tell us more domestic drilling and fracking will help keep oil prices down and gas prices in check - well, guess not.  The fact is, the oil market is global in nature, and decisions made half a world away still impact what we pay for gasoline here in the U.S. Recently, oil prices have been under pressure due in no small part to Middle East tensions over Iran's nuclear program and OPEC's decision not to increase oil output even as all signs point to higher global demand. Many of these statistics about the surge in gas prices come from - hold your breath - the Automobile Association of America (AAA), which just might reconsider some of its recent attacks on American-made ethanol. After all, one of the few factors exerting a downward pressure on gasoline prices is ethanol, which makes up 10 percent of the nation's gasoline pool. Today, ethanol is about $0.75 per gallon cheaper than gasoline at the wholesale level. Yet, the retail savings resulting from increased ethanol use go far beyond simple blending economics. America's growing use of domestically-produced ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, the most recent year for which complete statistics are available, according to a recent study conducted by economics professors at the University of Wisconsin and Iowa State University for the Center for Agricultural Research and Rural Development (CARD)."Growth in US ethanol production has added significantly to the volume of fuel available in the US," says Professor Dermot Hayes, one of the study's authors. "It's as if the U.S. oil refining industry had found a way to extract 10% more gasoline from every barrel of oil." Since the average American household bought 1,124 gallons of gasoline in 2011, ethanol reduced average annual household spending at the pump by more than $1,200. One reason why American ethanol helps to hold down gasoline prices is that it replaces foreign oil which has become even more expensive because of the unrest in the Middle East and speculation in commodities markets. From 2005 through 2012, American dependence on imported petroleum products declined from 60 percent to 41 percent. All of this is something Members of Congress need to consider as they assess legislation promoted by the oil industry to repeal or reform the Renewable Fuels Standard (RFS).  The RFS is working to expand domestic energy supply, encourage investment in new technologies, and reduce gasoline prices at the pump.  Don't mess with the RFS!