The Influence of Climate Change on the Demand for Ethanol

The influence of climate change on US corn ethanol energy demand by commercial, industry andtransportation is examined from 1970 to 2017 using a Translog cost function. The sectorial compensateddemand for energy, price, and pure technical substitution elasticities between the three sectors iscomputed using parameter coefficients from a system of demand shares equations. The commercialsector price is used to normalize the equations and hold the homogeneity and symmetry conditions.Both the U.S. transportation and industry sectors’ consumption of ethanol as energy are affected by theclimatic factors. The transportation sector’s consumption is affected by only the variance of precipitationwhile that of the industry is affected by both the mean and variance of temperature, and variance ofprecipitation. All the three sectors have very little flexibility for economic substitution to reduce ethanoluse due to very weak technical substitution among sectors except industrial energy for transportationwhere expenditure is reduced by about 1.3% for a 10% rise in prices. The commercial and industrialsectors’ ethanol demand can only be increased through greater improvement in technology. Feedstockavailability, due to high consumptive use water has negative effect on demand.