When I see E85 gas prices at gas stations, it is way cheaper than regular gas. Why?
Ethanol, an alcohol biofuel produced mostly by fermenting corn, is used in a variety of blends. As E85 (85 percent ethanol, 15 percent gasoline), it is available largely in the Midwest and the estimated 9 million “flex-fuel” vehicles already on the road from Ford, Chrysler and General Motors can use it. As E10, ethanol is commonly blended into regular gasoline. That’s done to reduce both carbon monoxide and greenhouse gas emissions — it burns cleaner than petroleum gasoline.
It’s true that E85 gas prices have generally been cheaper than regular unleaded gasoline. For example, in early March, the national average for E85 was $3.21; the national average for regular gas was $3.72, according to E85 Prices. In the Midwest, E85 generally costs 30 cents less per gallon than gasoline. One reason for this has to do with politics. Corn farmers have long been subsidized to produce ethanol with a 45-cents-per-gallon tax credit. As USA Today reported, when Congress voted against renewing the ethanol subsidy in June 2011, this raised gasoline prices more than 4 cents a gallon because of the fuel’s E10 content.
According to Ron Lamberty, a senior vice president at the American Coalition for Ethanol, supply and demand play a big part in E85’s relatively low price.
“We have more ethanol than we can use because we can’t put more than 10 percent in gasoline yet,” he says, adding that domestic oversupply led to significant amounts of ethanol exports in the latter months of 2011. Approval of E15 will lead to a 50 percent domestic demand increase. Currently there are only 2,500 public E85 fuel stations, compared with more than 120,000 gas stations.
The rapid proliferation of ethanol production facilities also has caused spikes in the demand for, and thus the price of, corn, which can lead to so-called “food versus fuel” issues. Learn more about this subject from the Earth Policy Institute.
— Jim Motavalli, author of High Voltage: The Fast Track to Plug In the Auto Industry
Photo by Getty Images/Bloomberg
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