Effects of an Oxygen Requirement for Fuel in Midwest Ethanol Markets and Local Economies

Abstract

This article examines the effects of an oxygen content requirement for fuel in several midwestern states. Ethanol could dominate the midwestern oxygenate market with federal incentives for ethanol blending or a generalized ban on MTBE; otherwise, price incentives would shift between ethanol and MTBE. Several states would share in the ethanol output expansion, but the largest increases would likely occur in Iowa and Minnesota. A benefitcost analysis of the oxygen requirement suggests that gains for consumers, producers, and local economies would more than offset lost federal tax revenues.