Do Biofuel Blending Mandates Reduce Gasoline Consumption? Implications of State-Level Renewable Fuel Standards for Energy Security
In an effort to keep America's addiction to oil under control, federal and state governments have implemented a variety of policy measures including those that determine the composition of motor gasoline sold at the pump. Biofuel blending mandates known as Renewable Fuel Standards (RFS) are designed to reduce the amount of foreign crude oil needed to be imported as well as to boost the local ethanol and corn industry. Yet beyond looking at changes in gasoline prices associated with increased ethanol production, there have been no empirical studies that examine effects of state-level RFS implementation on gasoline consumption. I estimate a Generalized Least Squares model for the gasoline demand for the 1993 to 2010 period with state and time fixed effects controlling for RFS. States with active RFS are Minnesota, Hawaii, Missouri, Florida, Washington, and Oregon. I find that, despite the onset of federal biofuel mandates across states in 2007 and the lower energy content of blended gasoline, being in a state that has implemented RFS is associated with 1.5% decrease in gasoline consumption (including blended gasoline). This is encouraging evidence for efforts to lessen dependence on gasoline and has positive implications for energy security.
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