Ethanol production booms in the Midwest in 2007. Regulations require ethanol be included as a fuel additive in many areas as of 2006, though consumer willingness to adopt ethanol blends voluntarily is uncertain and benchmark ethanol and oil prices fluctuate. In this context, we jointly simulate consumer demand for ethanol and ethanol transportation costs. Results demonstrate a non-linear relationship between benchmark prices and transportation costs that depends critically on (1) the prevalence of additive ethanol use in a state and (2) the proximity of local prices to parity in energy equivalent terms.
