Transcript WATER MARKET ACTIVITY IN THE ST. MARY IRRIGATION

Effects on Gasoline Demand in
Canada and the United States of
Increased Ethanol Use
By
Christopher J. Nicol
Kurt K. Klein
with contributions by
Maria Olar
Presentation Outline:
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Why use ethanol?
-
Modelling gasoline demand
-
Some estimated elasticities
-
Gasoline pricing breakdown
-
Pricing effects of using E10
-
Effect on gasoline demand of increasing ethanol content
-
Implementation considerations
Why Use Ethanol?
 Greenhouse gas (GHG) emission reduction:
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Pure, grain-based fuel implies 30-40% reduction; E10 fuel implies 3-4%
reduction (Natural Resources Canada, 2003).
Cellulose-based fuel implies 60-80% reduction.
Reduction level depends on proportion of ethanol in the fuel.
 Criteria air contaminant (CAC) effects:

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Reduction in CO, volatile organic compounds (VOC), particulate matter
(PM) and sulphur oxides (SOx).
Increases in nitrogen oxides (NOx) and some VOC’s.
 Increased vehicle efficiency:


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Higher octane fuel.
Engine-cleaning properties.
Higher efficiency in burning.
Modelling Gasoline Demand
 A model of gasoline demand can be embedded in a complete
demand system.
 We make use of estimated elasticities from a complete demand
model developed for Canada and the United States
 The model (from Nicol, 2001) is a six-good demand system,
controlling for a variety of important demand factors.
 The model has been used to compute gasoline elasticities of
demand for Canada and the United States (Nicol, 2003).
Some Estimated Elasticities
Canadian Estimates:
United States Estimates:
Atlantic
-0.262
North East
-0.275
Québec
-0.131
Mid West
-0.409
Ontario
-0.158
South
-0.361
Prairies
-0.167
West
-0.293
B.C.
-0.224
All
-0.185
All
-0.339
Gasoline Pricing Breakdown, Canada
2000:
City
Crude Content
Halifax
Montreal
Toronto
Edmonton
Vancouver
Source: CPPI Fuel Facts, August 8, 2000
26.7c
27.5c
28.0c
26.9c
27.9c
Retail
72.2c
77.5c
69.3c
64.1c
73.0c
Gasoline Pricing Breakdown, Canada
2004:
City
Crude Content
Halifax
Montreal
Toronto
Edmonton
Vancouver
Source: CPPI Fuel Facts, June 8, 2004
33.8c
34.5c
35.9c
33.5c
34.8c
Retail
97.0c
95.9c
83.6c
85.6c
97.4c
Gasoline Pricing Breakdown, United
States
2000:
City
Bangor,ME
Buffalo,NY
Minneapolis,MN
Seattle,WA
Source: CPPI Fuel Facts, August 8, 2000
Crude Content
26.7c
28.0c
26.9c
27.9c
Retail
61.8c
63.8c
55.8c
65.1c
Gasoline Pricing Breakdown, United
States
2004:
City
Bangor,ME
Buffalo,NY
Minneapolis,MN
Seattle,WA
Source: CPPI Fuel Facts, June 8, 2004
Crude Content
33.8c
35.9c
33.5c
34.8c
Retail
74.5c
76.3c
72.4c
87.2c
Pricing Effects With E10
 Production cost of corn-based ethanol, 35c/l (Baker, 1990).
 Break-even price of ethanol versus gasoline estimated at 28c/l
(Government of Alberta, 2000).
 Minimum additional “raw material” cost of E10-based fuel at least 1c/l.
 At 2000 level gasoline prices, moving to E10 increases fuel prices
across Canada and the U.S. by 1.3-1.6% and 1.0-1.2% respectively,
depending on region.
 At 2004 level gasoline prices, moving to E10 increases fuel prices
across Canada and the U.S. by 1.0-1.2% and 0.8-0.9% respectively,
depending on region.
Effects on Gasoline Demand of
Increased E10 Use
 Gasoline consumption, Canada, 2001, 36,902 million
litres.
 Gasoline consumption, United States, 2001, 464,277
million litres.
 Based on estimated elasticities earlier, could see a
reduction in gasoline demand in Canada of 75.3
million litres.
 Based on estimated elasticities earlier, could see a
reduction in gasoline demand in the U.S. of 1416.1
million litres.
Implementation Considerations

Ethanol production capacities in Canada and the U.S. are below that feasible to
meet complete E10 needs for each country.
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Tax treatment of the ethanol component of fuel differs in provinces across
Canada and states across the U.S.
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Opposition of various sorts is likely in the event of a policy to promote increased
E10 use.
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Although the increase in fuel price is modest, this in itself is likely to generate
considerable opposition to policy-promoted use of E10.
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A comprehensive approach, looking at all aspects of a change, is likely to meet
with more success.
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This work is preliminary, but the analysis suggests greater benefits might be
available with a widespread movement to the use of E10.