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

With the average price for gas at over $5.00 nationwide, drivers are searching for the cheapest prices. Gasoline with higher blends of ethanol are seeing an uptick in demand. In fact, 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.”

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-RIN credit that is today worth about $1.50 a gallon," he says. "Some marketers and blenders are passing along a portion 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.”

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 overall 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, is approved for 97% of vehicles on the road.

“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, 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. 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. The “Lower Food and Fuel Costs Act,” 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.

Editor’s Take:

Increased use of ethanol is good for farmers, less expensive for consumers and cleaner for the environment. It also is a “home-grown” fuel source that supplements our gasoline supply. As this article points out, in certain, albeit limited, situations the savings can be considerable. Another method to increase the value of ethanol no matter the blend would be to increase blend credits or RINs. This approach, of course, is controversial and would likely take an act of congress to accomplish. As things stand right now, there is still an advantage to blending ethanol with gasoline which extends our available fuel supply and helps keep the price to consumers lower than if using pure gasoline. The continued use of ethanol also puts additional dollars in the pockets of farmers/ranchers so they can afford to buy or lease your trucks. Make sure you have inventory on AgTruckTrader.com so farmers and ranchers can see what you’re offering.