By Jeff Cooper on The E-XCHANGE
For millions of Americans, Memorial Day weekend marks the unofficial start to summer. Despite gas prices that are nearly 40% higher than a year ago, families across the nation will celebrate the upcoming holiday weekend by taking a road trip.
According to the AAA auto club, an estimated 31 million Americans will take to the highways this weekend. According to AAA’s survey of traveler intentions, the average distance traveled by Americans during the Memorial Day holiday weekend is expected to be 792 miles.
So, what does Memorial Day have to do with ethanol? As families hit the road this weekend, the increasing availability of ethanol will ensure they spend considerably less on gasoline than would otherwise be the case. In fact, this short analysis concludes the average American family traveling this Memorial Day will save more than $31 simply due to the fact that ethanol is holding gasoline prices down. Aggregate gasoline savings due to ethanol this weekend will be $440 million, based on AAA estimates of average trip length.
Gasoline demand and prices typically peak in May and June, as millions of American families embark on summer vacations. While retail gasoline prices are indeed higher this Memorial Day than last year, pump prices would be even higher without ethanol. A recent Center for Agricultural and Rural Development (CARD) study by economists at Iowa State University and the University of Wisconsin found that increased ethanol use kept wholesale gasoline prices $0.89/gallon lower than they would have been otherwise in 2010. The study further concluded that from 2000-2010, “…the growth in ethanol production reduced wholesale gasoline prices by $0.25 per gallon on average.” Accordingly, increased blending of ethanol resulted in American drivers saving an average of some $34 billion annually during the last decade.
For the upcoming Memorial Day weekend, we assume (based on the results of the CARD study) that each gallon of gasoline purchased would have been $0.89/gallon more expensive without ethanol. Based on AAA figures, we assume the average Memorial Day trip will be 792 miles in length*. At an average fuel economy rate of 22.5 miles per gallon, the average traveling party will purchase 35.2 gallons of gasoline for their trip. Thus, average gasoline savings due to ethanol per traveling party would be $31.33.
To arrive at the aggregated savings, we assume the average traveling party is 2.2 people. Thus, there are some 14 million traveling parties, each saving $31.33 on gasoline purchases due to ethanol. Accordingly, total savings is approximately $440 million. The table below provides details on these calculations and assumption sources.