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President Biden has authorized the use of E 85 gas for the summer. According to Business Insider, ethanol wholesales for $2.22 per gallon, and gasoline wholesales for $3.20 per gallon. Gasoline has 33% more energy than ethanol, so the gas equivalent price of ethanol is really $2.95 per gallon (2.22 x 1.33=2.9526). So the difference in price is 25 cents per gallon, but because the increase in percentage of ethanol is only 5% (moving from 90 percent to 85 percent) the actual savings per gallon is about 1.25 cents per gallon (25 x 5% = .0125).
In other words, consumers may pay less per gallon of the blend, but they will pay essentially the same amount per mile traveled. I doubt going to E 85 will affect the wholesale markets for gas and ethanol much, but if it does the effect will be to make gas a little cheaper, and ethanol a little more expensive, reducing the overall cost differential.
So that is the cost savings. There are, of course, other consequences. The price of food will increase by some amount as more corn is turned into more ethanol. The impact in the US is likely minor but overseas, more poor people will starve. Pollution will presumably get worse, since the reason to not have E 85 in the summer was air quality. I am sure there are other drawbacks, including increased demand for fertilizer at a time when the price of NPK is increasing.
All of this is to create the illusion that the price per gallon is lower, when the price per mile is essentially the same. Why does President Biden think people won’t notice their weekly gas spend is about the same?Published in