Why is E85 Almost $2 Cheaper Than Other Blends of Gasoline?

The average price for gas sits at $5 nationwide, according to AAA. With drivers searching for the cheapest prices, gasoline with higher blends of ethanol is seeing an uptick in demand.

E85 is priced significantly less than other blends of fuel across the country, even $2 below at some locations.

“We’re talking about a 30% to 40% discount in many cases,” says Geoff Cooper of Renewable Fuels Association (RFA). “The reason for that is because the main ingredient in E85 -  ethanol - is priced far below gasoline right now. You look at the wholesale terminals where the fuel is blended and ethanol today is selling for about $2.80 a gallon. That compares to gasoline that is selling for about $4.20 a gallon. So you have a $1.40 per gallon savings at the terminal where these fuels are being blended.”

It’s real. This was Monday night in Washington, IA pic.twitter.com/AzjkkVuz3d — Brandon Freel (@IowaAggie10) June 11, 2022

In addition, Cooper says, the Renewable Identification Number (RIN), which is a compliance credit within the Renewable Fuels Standard (RFS), is also valued higher.

“So, every gallon of ethanol that gets blended comes with an RFS credit that is today worth about $1.50 a gallon," he says. "Some marketers and blenders are passing along some or much of the value of those RIN credits to consumers in the form of these lower prices. So that's why we're seeing E85. priced well below E10. In some places, we're seeing E85 still priced at $2.75 or $2.90 a gallon, which is really getting people's attention when they drive by and see a price under $3 on a marquee.”

If you want a.story, may need to.look at why e85 in Spring Valley, MN @KwikTrip is only $04 less that regular e10 at $4.75. — Bruce Lantzky (@Lantzkyfarms) June 12, 2022

Those types of prices aren’t everywhere. Bruce Lantzky on Twitter said E85 at a Spring Valley, Minn., KwikTrip was priced at $4.75 a gallon five days ago, which was only 4 cents less than E10. So, why are some gas stations offering E85 at such a discount compared to others?

Cooper says in addition to the RIN piece of the puzzle,  some of it has to do with certain states offering a tax exemption for E85, which can lead to lower prices at the pump. He says market fundamentals are also at play in many cases.

“You have some retailers trying to take more margin. For those that are selling E85 at these higher prices, they're making enormous margin on that product right now,” says Cooper. “In markets where you have more stations selling E85, we tend to see lower prices because there's more competition. If you have two stations across the road from each other both offering E85, you're going to see them offering that product at competitive prices. So a lot of factors play into it, and we are seeing a wide discrepancy in pricing strategies for E85.”

Small Slice of Demand

While E85 is an attractive price on the road, not every vehicle can fuel up on the higher blend of ethanol today. Cooper says E85 is still a relatively small share of demand, as it’s only approved for use in flex fuel vehicles. According to RFA statistics, the U.S. has 25 million to 26 million flex fuel vehicles on the road, which is one out of every 10 vehicles.

E15, which recently was cleared for use during the summer driving season by the Biden administration, is approved for 97% of vehicles on the road today.

“For E15, those blends are approved for virtually every vehicle on the road today. Any vehicle built after the year 2000 is legally approved to use the 15% ethanol blend,” says Cooper.  “E15 is offering a 10, 15 or 20 cent discount, oftentimes, and sometimes more than that.  We've seen even 30 or 40 cents a gallon lower than E10 regular gasoline.”

House Votes for Higher-Ethanol Blends 

Ethanol was the focus of a bill in Washington, D.C. this week. On Thursday, the House passed a bill that seeks to increase the availability of higher-ethanol fuel blends in hopes of tackling the rising cost of fuel. Called the “Lower Food and Fuel Costs Act,” it passed with a vote of 221 to 204 and includes several agriculture provisions.

Among those includes efforts to address the cost of food and supply chain issues, remove summertime E15 restrictions and then allocating $200 million to widen biofuel infrastructure and equipment.

Is Ethanol Bad for Your Car? 

Critics of ethanol say higher blends of ethanol in gasoline is what causes a large reduction in miles per gallon (MPG), which then causes those gasoline options to not see the savings in the end. Cooper says while there is a small reduction in MPG, drivers are still coming out ahead with prices today.

“I drive an F 150 flex fuel vehicle, and I tend to get 12% to 15% lower MPG when I'm using E85,” says Cooper. “But if I'm paying 30% or 40% less for E85, I'm still coming out on top by a by a wide margin. So that's something else that we hear a lot about is  the MPG issue. And again, if you look at it on a cost per mile basis, you're saving money when you use E85 and E15."