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The United States government has been promoting increased use of biofuels, including ethanol from non-food feedstocks, through policies contained in the Energy Independence and Security Act of 2007. The objective is to enhance energy security, reduce greenhouse gas (GHG) emissions, and provide economic benefits. However, the United States has reached the ethanol blend wall, where more ethanol is produced domestically than can be blended into standard gasoline. Nearly all ethanol is blended at 10 volume percent (vol%) in gasoline.

Traffic flows in the U.S. have been affected by the substantial increase and, as of January 2009, decrease in biofuel production and use. This paper considers a framework to study the effect on grain transportation flows of the 2005 Energy Act and subsequent legislation, which mandated higher production levels of biofuels, e.g. ethanol and biodiesels. Future research will incorporate changes due to the recent economic slowdown.

Agricultural markets often feature significant transport costs and spatially distributed production and processing which causes spatial imperfect competition. Spatial economics considers the firms’ decisions regarding location and spatial price strategy separately, usually on the demand side, and under restrictive assumptions. Therefore, alternative approaches are needed to explain, e.g., the location of new ethanol plants in the U.S. at peripheral as well as at central locations and the observation of different spatial price strategies in the market.