Ethanol More Expensive Than Regular Gasoline

Newspaper details how ethanol has become a victim of its own success, with that victimization now passed on to motorists in the form of higher prices.

January 04, 2011

CHICAGO - A feature in last week's Chicago Tribune highlighted how ethanol has become a victim of its own success €" "Or rather, motorists who buy ethanol may be the victims."

For the first time since America's latest ethanol push kicked into high gear a half decade ago, ethanol costs more than gasoline, with E85 selling for more than regular gasoline at some Chicago-area gas stations.

The disparity is not expected to last, as the newspaper writes that "E85 is a bad deal for motorists when it costs as much as gasoline €¦ A gallon of ethanol normally will propel a vehicle fewer miles than a gallon of gasoline."

Indeed, road tests verify that E-85 yields lower fuel mileage than regular gasoline. A 2006 Consumer Reports article found mileage for E85 to be up to 29 percent lower in various types of driving, while Car and Driver found the difference reached as high as 32 percent.

AAA also acknowledges the disparity by posting the price of both E85 ($2.63 per gallon yesterday) and E85 adjusted for lower MPG ($3.46 per gallon).

The reason for E85's price increase is attributed to corn prices, which have risen more than 50 percent in the past few months. And with roughly a bushel of corn required to produce 2.8 gallons of ethanol, the price of fuel keeps climbing.

But rising prices don't necessarily translate to decreased demand. Ethanol production is encouraged by tax credits €" 45 cents per gallon at the federal level €" and protected by tariffs on foreign ethanol, which carries a 54-cents-per-gallon charge.

Additionally, the federal government mandates a minimum ethanol production of 12.5 billion gallons of ethanol for this year, increasing to 15 billion gallons by 2015.

The U.S. Environmental Protection Agency has recently approved an increase of ethanol that can be blended into gasoline for certain vehicles. In October 2010, it authorized the use of E15 in vehicles manufactured in model year 2007 and later. NACS said that retailers should exercise extreme caution when considering whether to sell E15.