How regulation fuels consumption of ethanol

The use of ethanol as a liquid fuel for automobiles began on a large scale in 1978. Since then, it has grown with the help of national subsidies for producers coupled with statewide incentives for producers and consumers. The market for ethanol more than doubled between 2001 and 2005, with even faster growth projected in the near future. Regulation has played more of a role on the recent rapid expansion of the market than natural market forces. This thesis surveys a brief history of ethanol fuel usage and regulatory action in the United States and provides a few econometric models of production and consumption. Public policy creates a high level of demand for ethanol without consumer preferences changing much. This model could be used to assess the likely effects on the ethanol market of an MTBE ban in states that currently allow its use as an oxygenate.