37
gasoline. Our estimations (5.6) showed, however, that the demand was explained
better by the price difference per gallon than by that per mile. This was presumably
because the heating value ratio of E10 to gasoline was calculated as 1 × 90 % + 0.6
× 10 % = 96%, and thus consumers did not care about such a small efficiency
difference.
P
P
gas
g as
fueltax
*
=
+
(5.8)
where “P gas ” is the gasoline price before tax. This is apparently dependent on crude
oil price “P p ” as shown in the following equation:
P
T
P p
gas = -
+
+
6581 3 317 1 745
.
.
(5.9)
Similarly, retail price of E10 is
P
P
E
E
10
10
*
=
+
-
fueltax taxcredit
(5.10)
“taxcredit” indicates the tax credit for a gallon of E10 that is deducted from federal
fuel tax. This was 5.1 cent/E10gallon until 2008. The price of E10 before tax and
deducted “P E10 ” is represented as (5.11)
P
P
% P
%
E10
2 7 10
90
=
´
+
´
/ .
gas
(5.11)
About 2.7 gallons of bioethanol is produced from a bushel of corn. The term
P/2.7 in Eq. (5.11) means the raw material cost to produce a gallon of bioethanol.
Since E10 consists of 10% of ethanol and 90% of gasoline, P E10 is calculated by
weighted average. Although other costs such as transportation cost and margin of
bioethanol producer are not considered here, we view that what is important in our
model is not the level of the price difference but the change in the price difference.
As the change in bioethanol price is almost explained by its raw material price, this
allows us to omit these other costs.
Back to Eq. (5.6), bioethanol consumption per capita is explained well by the
price difference and the trend term. Adding Eqs. (5.7), (5.8) and (5.9) we can clearly
see that a rise in crude oil price brings a rise in gasoline retail price, then expansion
of the price difference, and, finally, a higher E10 consumption. A rise in corn price
diminishes bioethanol consumption in reverse. When the price difference is fixed,
bioethanol consumption tends to increase as time passes.
The last part of the model is the demand for export. According to FAOstat (n.d.),
the trend of the corn export of the USA has stopped at 45–50 million tons in recent
20 years although there are millions of tons of fluctuation. In addition, the corn
production in the USA has reached 300 million tons. Therefore, we round its fluctuation to fix the export at 48 million tons:
Ex = 48000
(5.12)
5 Welfare Effects of the US Corn-Bioethanol Policy
gasoline. Our estimations (5.6) showed, however, that the demand was explained
better by the price difference per gallon than by that per mile. This was presumably
because the heating value ratio of E10 to gasoline was calculated as 1 × 90 % + 0.6
× 10 % = 96%, and thus consumers did not care about such a small efficiency
difference.
P
P
gas
g as
fueltax
*
=
+
(5.8)
where “P gas ” is the gasoline price before tax. This is apparently dependent on crude
oil price “P p ” as shown in the following equation:
P
T
P p
gas = -
+
+
6581 3 317 1 745
.
.
(5.9)
Similarly, retail price of E10 is
P
P
E
E
10
10
*
=
+
-
fueltax taxcredit
(5.10)
“taxcredit” indicates the tax credit for a gallon of E10 that is deducted from federal
fuel tax. This was 5.1 cent/E10gallon until 2008. The price of E10 before tax and
deducted “P E10 ” is represented as (5.11)
P
P
% P
%
E10
2 7 10
90
=
´
+
´
/ .
gas
(5.11)
About 2.7 gallons of bioethanol is produced from a bushel of corn. The term
P/2.7 in Eq. (5.11) means the raw material cost to produce a gallon of bioethanol.
Since E10 consists of 10% of ethanol and 90% of gasoline, P E10 is calculated by
weighted average. Although other costs such as transportation cost and margin of
bioethanol producer are not considered here, we view that what is important in our
model is not the level of the price difference but the change in the price difference.
As the change in bioethanol price is almost explained by its raw material price, this
allows us to omit these other costs.
Back to Eq. (5.6), bioethanol consumption per capita is explained well by the
price difference and the trend term. Adding Eqs. (5.7), (5.8) and (5.9) we can clearly
see that a rise in crude oil price brings a rise in gasoline retail price, then expansion
of the price difference, and, finally, a higher E10 consumption. A rise in corn price
diminishes bioethanol consumption in reverse. When the price difference is fixed,
bioethanol consumption tends to increase as time passes.
The last part of the model is the demand for export. According to FAOstat (n.d.),
the trend of the corn export of the USA has stopped at 45–50 million tons in recent
20 years although there are millions of tons of fluctuation. In addition, the corn
production in the USA has reached 300 million tons. Therefore, we round its fluctuation to fix the export at 48 million tons:
Ex = 48000
(5.12)
5 Welfare Effects of the US Corn-Bioethanol Policy