Spatiotemporal analysis of ethanol market penetration

a r t i c l e i n f o Consumption of ethanol in the United States has increased rapidly over the last few years, fueled by both higher crude oil prices and generous public support measures for renewable fuels. The contribution of etha-nol to the transport energy mix varies markedly by state. Heterogeneity in ethanol adoption and market development is investigated using a hierarchical, spatiotemporal model. A Bayesian Markov chain Monte Carlo method is employed for estimation of the proposed flexible model structure. Besides spatial dependence among neighboring states, differential inclusion rates of ethanol are found to be largely determined by national-and state-level biofuel incentive policies, relative gasoline prices, feedstock availability, household median income, MTBE bans, and density of fuel retail infrastructure. Our findings imply that increasing renewable fuel support as well as investing in extending the transportation and fuel retail infrastructure can result in higher ethanol consumption. Corn-based ethanol has become an increasingly important component of the U.S. transportation fuel supply in the form of E10 and, to a lesser extent, E85. E10 (E85) is a fuel mixture of 10% (85%) ethanol and 90% (15%) gasoline by volume that can be used in the internal combustion engines of automobiles and light-duty vehicles without need for any modification. Flex fuel vehicles are needed to utilize E85. U.S. ethanol production increased from 3.9 billion gallons in 2005 to 13.2 billion gallons in 2010 (RFA, 2011). Over 90% of the nation's finished motor gasoline contains ethanol (RFA, 2011). But the level of ethanol blending varies widely across regional markets. Fig. 1 presents the shares of ethanol blended into gasoline in the 48 contiguous states in 2010. It shows that ethanol blending shares ranged from 5.3% to 14% across the states in that year. While gasoline sold in the Midwestern states contains over 9% ethanol on average, the size of the ethanol market in some other regions is more modest. In October 2011, the U.S. Environmental Protection Agency (EPA) approved E15 gasoline blends for model years 2001 and newer cars and light trucks. Furthermore, the U.S. Department of Agriculture announced that it will assist in the installation of 10,000 blender pumps across the country in the next five years. Therefore, understanding the factors that have encouraged or constrained the market penetration of ethanol is critical for assessing the potential demand growth coming from higher allowable blending rates and expanded retail infrastructure. …