FUEL ETHANOL AS AN OCTANE ENHANCER IN THE U.S. GASOLINE MARKET: POTENTIAL DEMAND AND POLICY CONSIDERATIONS (UNITED STATES)

While the recent decline in oil prices has dampened prospects for corn-based fuel ethanol as a gasoline replacement, environmental regulations that reduce lead content in gasoline provide ethanol a new role as an octane enhancer. Ethanol has an octane rating of 113-116 and may provide a significant portion of refineries' octane needs following lead phasedown regulations.;The principal findings of the study include: lead phasedown regulations provide an opportunity for U.S. corn-based fuel ethanol to play an important role as a gasoline octane enhancer. Ethanol can fill part of gasoline's octane requirements, but it will require a subsidy of ;The purpose of this study is to estimate potential demand for fuel ethanol as an octane enhancer in the U.S. gasoline market and to address the policy issues related to its production and use. A parametric linear programming model is used to achieve the study objective. In this model, the cost of providing gasoline refineries with octane requirements is minimized subject to regional octane needs and supply capacity constraints. The model's parameters are varied according to various scenarios of oil prices, corn prices, and policy measures such as subsidy and import tariff. Several formulations of the model are made to depict different market situations in which fuel ethanol is produced and used. Estimates of the model scenarios are obtained for two time frames: short run (1990) and medium run (1995).