Impacts of bioethanol on gasoline prices in the Philippines: an econometric analysis

The rising prices of crude oil in the world market and the continuing global trend to mainstream renewable energy use have prompted the Philippines to consider alternative fuels. Since 2006 when a new law was implemented requiring a 10 % blend to unleaded gasoline, the use of ethanol has increased significantly. Sugarcane (Saccharum spp.), cassava (Manihot esculenta ) and sweet potato (Ipomoea batatas) have been the major feedstock in ethanol production. This analysis focused on the impacts of E10 (10 % ethanol content) on the retail price of gasoline and how this might affect gasoline prices. Recognizing the direct dependence of the price of E10 on gasoline prices, the analysis focused on analyzing the price of ethanol. The hypothesis is that since ethanol is what makes E10 cheaper than gas given the lower cost of its production i.e., domestically grown raw materials, then cheaper ethanol should depress the price of E10 and therefore gas, ceteris paribus. The price of E10 is endogenous since it is a function of the price of gasoline, being a major input to its production, 90 % in fact. Using fixed-effects, 2007–2009 provincial panel data, from second stage least squares econometric estimation, the impact of ethanol use on retail regular gasoline prices is quantified. The partial effect analysis indicates that a 1-peso (rate: 1USD - PhP 41.96) increase in the price of feedstock prices as inputs to the production of E10 increases the price of gasoline by 37 centavos per liter. The analysis shows the positive relationship between the prices of E10 and gasoline.