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Timothy Gardner and Rebekah Kebede of Reuters [via the Calgary Herald ] claim that an increase in America’s output of cheap, subsidized ethanol, along with additional gasoline refining capacity coming online, may lower U.S. gas prices. According to the U.S. Department of Energy, American production will rise by 130k barrels of ethanol per day in 2008 (up to 550,000). Gardner and Kebede note that the government subsidizes blenders to the tune of $0.51/barrel of blended ethanol, and that “the subsidies have made ethanol cheaper than gasoline and a much sought after component for blending into motor fuel.” Another factor that could contribute to falling prices: the slowing of American demand for gasoline. While demand grew by 1.3 percent annually from 1971 to 2007, growth has slowed down 0.7 percent in 2007 and the government forecasts a paltry 0.4 percent for 2008. And what of transportation costs and logistics? (Ethanol can’t be transported via existing pipes; it must be transported by diesel burning tanker trucks.) Or consumer reluctance to use corn juice once they figure out the (often hidden) fact that 85 delivers significantly less bang-for-the-buck? Nothing. 

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