Spatiotemporal analysis of ethanol market penetration

Consumption of ethanol in the United States has increased rapidly over the last few years, fueled by both higher crude oil prices and generous public support measures for renewable fuels. The contribution of ethanol to the transport energy mix varies markedly by state. Heterogeneity in ethanol adoption and market development is investigated using a hierarchical, spatiotemporal model. A Bayesian Markov chain Monte Carlo method is employed for estimation of the proposed flexible model structure. Besides spatial dependence among neighboring states, differential inclusion rates of ethanol are found to be largely determined by national- and state-level biofuel incentive policies, relative gasoline prices, feedstock availability, household median income, MTBE bans, and density of fuel retail infrastructure. Our findings imply that increasing renewable fuel support as well as investing in extending the transportation and fuel retail infrastructure can result in higher ethanol consumption.