Bio-Fuel Market: Hypothetical Scenarios
Keywords:Biofuels, ethanol, production subsidies, oxygenates, marginal costs
AbstractThis paper employs the Ivaldi-Vibes algorithm to model the U.S. gasoline market under the hypothetical scenario in which the ethanol production subsidies were phased out from 1995- 2005. Under this hypothetical situation, the individuals were not only willing to switch their consumption decision, but they were also willing to consider alternative modes of transportation including public transportation, biking or walking. As a result, the outside alternative market share increased about 4% and 6% and the conventional gasoline market shares increased while the ethanol blends experienced decreases across all petroleum districts. This methodology also permitted simulating the impact of this elimination on the gasoline prices. The conventional gasoline prices increased in a range between 0.12 and 1.34 percent. Finally, since different types of oxygenates are blended with the regular gasoline to compliance the EPA regulations, the reduction in the reformulated gasoline market shares implied a trade off in the demand for these oxygenates whose variation rates averaged 55.14% for the ethanol-MTBE ratio.
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