The Lead Phasedown: An Alternative Demand for Ethanol as an Octane Enhancer

Exact date of working paper unknown.Ethanol from corn is an important U.S. renewable energy source. In 1986, about 3.3 billion liters of ethanol were used, primarily as a gasoline extender. With lead phasedown, ethanol (octane rating of 113-116) is being considered as an alternative octane source. First, octane requirements following enactment of lead phasedown regulations are determined. Competing octane sources are then analyzed under various oil price, corn price and policy (subsidies, import tariffs) scenarios. At corn price levels of $59.05 - $68.90 MT and oil prices of $16-$26 per barrel, a subsidy of $0.07-$0.105 per liter would be necessary for ethanol to compete with other octane enhancers. Potential demand for ethanol could approach 10.7 billion liters per year. A tariff of $0.035-$0.071 per liter on imported ethanol (net of subsidy) would be necessary to protect this potential market for U.S. corn based ethanol