Editor’s note: This story was originally published on August 3, 2012. Find our latest ethanol-related coverage here.
As the ethanol industry lobbies to push higher-blend E15 fuel into the marketplace, a common refrain is that it will save consumers money at the gas pump.
“E15 is exactly the relief that consumers and businesses need right now with high gasoline prices putting a damper on people’s pocket books,” South Dakota Corn Growers president Mark Gross said in a statement this spring.
“[I]t shouldn’t take long for Americans to realize that higher ethanol blends can save money at the pump,” Growth Energy CEO Tom Buis wrote in the March issue Ethanol Producer magazine.
Agriculture Secretary Tom Vilsack told the Des Moines Register: “It’s about providing consumers choice and the reality is that choice is also saving them money at the pump.”
It’s true that ethanol costs less than gasoline, and that E15, which contains 15 percent ethanol, should cost less per gallon than regular gas or the 10-percent ethanol blend that’s standard in most of the country.
But a gallon of ethanol contains fewer units of energy than gasoline, which means higher ethanol blends lower a vehicle’s fuel economy.
So, like E85, the fuel will be cheaper. But whether it saves drivers money depends on a lot of variables.
Running the numbers
The U.S. Environmental Protection Agency gave final approval to sell the higher-blend ethanol fuel earlier this summer, but producers still need to clear some state regulatory hurdles and convince gas station owners to sell it.
Zarco 66 in Lawrence, Kansas, last month became the first gas station in the country to start selling the fuel, offering it – with fanfare and free breakfast sandwiches – for $1.15 a gallon on opening day.
A day later, though, a photo from The New York Times shows the fuel priced at $3.28 per gallon, compared to $3.30 per gallon for regular E10. Is that two-cent per gallon discount enough to compensate for the fuel’s lower energy content?
A study published in 2009 by the National Renewable Energy Laboratory tested the fuel economy of various ethanol blends in 16 vehicles with model years between 1999 and 2007. It concluded that the average reduction in miles per gallon using a 20-percent ethanol blend was 7.7 percent compared to pure gasoline.
One of the researchers who worked on that study, Wendy Clark, told Midwest Energy News that E10 contains about 3 percent less energy than gasoline, and E15 contains about 5 percent less energy. That means in order to be sold on an energy-equivalent basis, E15 needs to be priced at about 2 percent less than E10.
Douglas Tiffany, a University of Minnesota assistant extension professor who has studied the economics of alternative fuel vehicles, ran some numbers for Midwest Energy News and concluded that E15 should be 1.67 percent cheaper per gallon than E10 (and 5 percent cheaper than pure gasoline) to be equal on a cost-per-energy-unit basis.
Ron Lamberty, senior vice president of the American Coalition for Ethanol in Sioux Falls, also gave a number that was in the same ballpark, between a 1 percent and 2 percent energy difference between E10 and E15.
A good value?
So is that $3.28 per gallon for E15 a good deal for Kansas drivers?
“At the moment, I would say that the E15 is maybe a little higher priced than it ought to be,” Tiffany said.
A hypothetical car that gets 15 mpg on E10 would pay about 22 cents per mile using $3.30 a gallon regular fuel. Assuming mpg would decrease 1.67 percent with E15, a driver buying E15 for $3.28 a gallon would pay about 23.5 cents per mile.
It’s more complicated than this, of course. Lamberty notes that while E15’s energy content is less, ethanol’s higher octane rating helps improve fuel economy.
However, oil companies tend to blend ethanol with low-octane gasoline, which can cancel out that benefit. Even so, that means oil companies are producing more gallons of fuel from the same barrel of oil, which increases supplies and keeps prices down overall, Lamberty said.
How much the presence of ethanol holds down fuel prices has been a subject of debate among economists lately.
Almost all vehicles are designed to perform best with pure gasoline, because that is the fuel the federal government uses to rate mpg in new vehicles, Lamberty said. The mileage gap is likely to shrink if the government switches to testing mpg with E10, which could prompt automakers to start optimizing engines for ethanol blends, he said.
Gasoline and ethanol prices are also constantly in flux, Tiffany noted. The math on E10 versus E15 is likely to change depending on what happens to this year’s corn crop, for example.
Even today, though, the price per mile difference is small enough that drivers who have other motivations, such as environmental benefits or rural development, shouldn’t be deterred from buying E15, Tiffany said.
On the other hand, the current prices also make it a stretch to say that choosing E15 over E10 will put much, if any, money in consumers pockets.