A New Reason Why Gasoline Prices Are Higher

Electric vehicle owners have something else to feel a bit smug about these days, as the price of gasoline continues to rise for a variety of reasons.

In a market where prices can be affected by weather, financial markets and civil unrest, the latest cause of gasoline price hikes is directly attributable to the actions of our Federal government.

The website stltoday.com reports that, under the guise of being a cost-saving measure to help balance the budget, on January 1, 2012, the Federal government ceased its subsidy of ethanol – a subsidy that has existed in some form since the 1970s.  Taxpayers are expected to save $6 billion this year because of this measure.

Originally touted as a cleaner burning fuel, ethanol has been blended with gasoline in this country for many years, and right now, most pumps in the country dispense a blend that is 10% ethanol and 90% gasoline.  Since the tax credit amounted to 45 cents per gallon of ethanol, the average cost increase would be about 4.5 cents per gallon of gasoline purchased.

The Renewable Fuels Standard of 2007 mandates that the fuel industry blend 13.2 billion gallons of ethanol this year, guaranteeing ethanol distillers a market for their product, no matter how costly it gets.  While some experts think that the distillers will absorb the bulk of the increased cost, most consumers feel that this is unlikely.  And while large producers like Archer Daniels Midland may be able to swallow the increase, it could well put some small producers out of business.

The Federal tariff on imported ethanol also ended on January 1, 2012.  While the US doesn’t currently import ethanol, if producers like Brazil (who make ethanol from sugar cane rather than corn) can make the substance less expensively and not face Federal tariffs, what will prevent gasoline companies from getting their ethanol overseas?  Doing this could stabilize the price of gas at the pumps somewhat, but it would also adversely affect the economy and unemployment rates in the US.

Electric vehicle owners, who do not have to worry about such things – smile!  You now have one more good reason for your choice!

To read more, please visit http://www.stltoday.com/business/columns/david-nicklaus/ethanol-producers-now-face-future-without-a-subsidy/article_9c650a48-5a1f-5ed2-b344-cc7ada7013af.html.