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Will E15 ethanol blend really save drivers money?

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.

10 thoughts on “Will E15 ethanol blend really save drivers money?

  1. According to a study by CARD, ethanol lowered wholesale gas prices by $1.09/gal in 2011 nationwide. That impact was even stronger in Midwest as you got closer to ethanol production. In a state like Kansas, the impact was as high as $1.69/gal. When the ethanol industry mentioned savings, it is not just what you see at the pump, the savings go well beyond the price per gallon. No American consumer has ever paid full price at the pump for fuel. If all factors were considered, and things like military protection of oil supply lines were factored in, this debate would be even easier. The octane at this station for E15 is 90, the station’s highest octane offering. While it may be true that ethanol is added to lower octane fuel, there will always be an additional 1.5 octane points with E15 over E10. To give you an idea how popular E15 has been already, it averages 25% of all unleaded sales at that station in Lawrence. I would say that is a good start with repeat buyers.

  2. Here in Minnesota, E85 is ususally 60-40 cents cheaper per gallon than regular unleaded. Most flex fuel vehicle owners I know say that’s a good range for their pocketbocks.

    Occationally you can get an even better deal, such as today, from 4-5 p.m., when Bobby & Steve’s Auto World in downtown Minneapolis reduces it’s E85 price by an additional 85 cents per gallon.

    The following Friday (Aug. 10, 4-5 p.m.) the same deal will be offered at a Holiday station in Stillwater, MN. That station has the distinction to be the first retail station in the metro area to offer E30 as well as E85. They also sell B20 biodiesel.

  3. Thanks for the comments, guys.

    With the drought pushing up ethanol prices, it just seems like it’s a tough year to make the argument that E15 is going to save drivers money at the pump. Based on BTU-only, E15 needs to be a nickel to a dime cheaper than E10 in order for it to make economic sense — not that there aren’t other reasons why people would buy E15.

    I’ve heard about the CARD study, but haven’t taken a closer look. At a glance, the number seems pretty remarkable. U.S. drivers consumed 134 billion gallons of gas last year. Does that mean ethanol saved consumers more than $134,000,000,000 last year?

  4. See the article below about the CARD “study” which was paid for by the ethanol lobby. An MIT professor took them to task recently for their bogus model.
    Quote from article: “To illustrate their critique, the professors employed the same statistical models used in the Iowa State (CARD) report to draw intentionally absurd conclusions, among them that ethanol production depresses the price of natural gas and increases unemployment in the United States and Europe.
    “We also used their model to show that ethanol production is causing my daughter to grow older, and if it was taken away she’d get younger,” Mr. Smith said in a telephone interview. “We know that’s not true, or at least we hope it isn’t true.”

  5. About 10 years ago, we had an exhibit at the Eco Experience area of the Minnesota State Fair entitled “What Is The Cost Of Doing Nothing?” It pointed out the many political, economic, environmental and health costs associated with our nation’s seemingly neverending thirst for more and more petroleum. As we examine the alternatives to “pure gasoline,” we should always remember that the status quo comes at a cost as well.

  6. Lady A – The CARD study was not paid for by the ethanol industry, the update to the original study was… To accuse the professors at CARD of somehow manipulating the update to suit the ethanol industry is pretty bold. Furthermore, their study was peer reviewed and ultimately published. Something that the MIT folks have not accomplished, nor have agreed to that scrutiny. Another thing to note on the MIT study, we don’t know where the funding came from for that, but one can sure guess. If you have reviewed many studies, you can quickly look at this MIT study and nearly laugh.

  7. Dan – This week was a good example of not truly knowing what the future holds. Ethanol and corn prices dropped, yet gas prices rose. The ethanol industry was again blamed for the increase despite the obvious. Gas is rising because of the broken pipeline and refinery shutdowns. While the savings at the pump may be minimal, consumers need to give it a try and see what their experience might be. Unless the price of E15 is the same or higher, I don’t think we will know for sure what their price point is before they try it. Each vehicle is different, and some will no doubt be able to take advantage of the additional octane.

  8. Robert(s) — True. The status quo comes with costs, and many factors go into determining gas prices. I also thought there was reason to be skeptical about the repeated claims that choosing E15 over E10 will save drivers money. It may reduce urban air pollution, boost rural economies and reduce dependance on foreign oil regimes, but I didn’t see any strong evidence today that E15 will make a big difference, one way or the other, in consumers’ pocketbooks. That said, the numbers will change as oil and corn prices go up and down and engine technology evolves. Thanks for the conversation.

  9. Can the increased cost of food items due to higher feed costs for livestock and dairy be factored into the final cost to consumers?

  10. Why would “Ron Lamberty, senior vice president of the American Coalition for Ethanol . . .” state ” . . .that while E15′s energy content is less, ethanol’s higher octane rating helps improve fuel economy.” ?