Did ending ethanol subsidy raise gasoline prices?

On January 1, the 45-cent per gallon federal tax credit for ethanol expired. Since then, gasoline prices have gone up in some places by more than 20 cents per gallon, leading to some speculation that there’s a connection.

Case in point, this brief item from a St. Louis TV station specifically mentions the lapsed ethanol subsidy, along with a more vague reference higher wholesale prices.

But as a USA Today piece from a few days ago pointed out, because most gasoline is (at most) 10 percent ethanol, the expiring subsidy should, in theory, only account for an increase of 4.5 cents per gallon at most.

John Funk of the Cleveland Plain Dealer says the bulk of the increase is most likely because of anticipated sanctions against Iran. And analysts say if Iran follows through on its threat to close the Strait of Hormuz, oil prices could shoot up by 50 percent almost immediately.

So did ending the ethanol subsidy cause gasoline prices to go up? Perhaps a bit. But gasoline prices are determined by a complex web of economic factors, and it looks like they’re probably going to keep going higher.

Photo by Nathan Schock via Creative Commons

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