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Abstract
By law, the U.S. Environmental Protection Agency (EPA) sets targets for blending renewable fuels such as ethanol with traditional transportation fuels to implement the mandates set by the Energy Independence and Security Act of 2007. If demand for blended renewable fuels is not high enough, those mandates are difficult to attain, and EPA can reduce the blending targets to below mandated levels, which has been the case recently. Prices at the pump influence whether and how often consumers select ethanol-blended fuels and, therefore, to what extent blending mandates are met. A key determinant of the price of ethanol-based transportation fuels at the retail level is the price of crude oil, and subsequently wholesale gasoline, both of which can quickly change course with sudden market changes, or shocks.