Impact of Sales Constraints and Entry on E85 Demand

Bruce A. Babcock, Sebastien Pouliot
August 2013  [13-PB 12]

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Suggested citation:

Babcock, B.A. and S. Pouliot. 2013. "Impact of Sales Constraints and Entry on E85 Demand." Policy brief 13-PB 12. Center for Agricultural and Rural Development, Iowa State University.

Executive Summary

In a recent paper, we estimated the potential demand for ethanol consumed in E85 using an estimated distribution of E85 acceptance by consumers and by calculating the average distance that owners of flex vehicles would have to drive to find an existing gas station that sells the fuel. Two issues that we did not address that will help determine how much E85 will actually be consumed in the future are: (a) the impact on demand from an increase in the number of gas stations that sell E85, and (b) sales capacity constraints at individual stations. It is reasonable to expect that owners of flex vehicles will seek out E85 if the cost per mile traveled with E85 is lower than with regular gasoline. However, there is a practical limit on how much fuel an individual station can sell in a given period. The quantities of ethanol use that we projected when E85 is discounted would exceed the volume that average gasoline stations can actually sell. Not taking these practical limits into account overstates the amount of ethanol that actually would be sold