Ethanol isn't the answer, the WSJ reports today. In fact, it is inflating gasoline prices now that 10 percent is added throughout most of the country. Since its adoption as an additive, its price has increased by 65 percent to about $4.50 a gallon.
"We'd probably have retail gasoline prices between $2.30 and $2.40 a gallon if not for ethanol," estimates economist James Glassman of J.P. Morgan.
Why is ethanol suddenly more expensive? Two major reasons: 1- The ethanol market is facing artificial constraints. If ethanol must be mixed at a fixed proportion to gasoline, its price will closely reflect gasoline's price. The normal rules of supply and demand don't follow. 2- Ethanol costs more to produce because it requires gasoline for transportation. Yep, we're burning fuel just to produce and add a more expensive commodity to the fuel supply. Poor economics make a poor product.