University of Michigan Gateway Ford School

The Demand for E85 Ethanol

Lucas Davis, Department of Economics, University of Michigan
Soren Anderson, Department of Economics, University of Michigan

A CLOSUP Policy Research Grants Award (FY 2007).

Abstract:
Policies to curtail petroleum consumption increasingly focus on expanding markets for ethanol and other biofuels, including in Michigan, where the Governor aims to have 1000 biofuels pumps installed by 2008. Despite this policy interest, relatively little is known about consumer preferences for biofuels. This study uses ten years of data from Minnesota to estimate how consumer demand for E85 - a blend of 85% ethanol and 15% gasoline - depends on fuel prices and other factors. The preliminary results suggest that consumers are highly sensitive to price changes and switch readily to the fuel that is least costly on a mileage-adjusted basis.

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