Is it better to fill up with regular gas or with discounted (and subsidized) ethanol blended fuel? In Iowa, for instance, it is ten cents cheaper to fill up with ethanol blend than to buy regular. It looks pretty tempting when filling up to spend less per gallon, but does the discount make it worthwhile?

The National Highway Traffic Safety Administration data show that ethanol has 75,670 british thermal units (BTUs) per gallon instead of 115,400 for gasoline. What this means is that with ethanol, one has to burn more fuel to generate the same amount of energy – 1.53 gallons to be exact. So ethanol has 35% (34.43% to be more exact) less energy per gallon than does regular gasoline. One would expect, then, that filling up with E85, which has a combined 81,629.5 BTUs, would achieve 29% fewer miles per gallon than straight gas. This works about about right. In a recent test by Consumer Reports on a Tahoe, the fuel economy dropped 27% when running on E85 compared with gasoline (from 14 mpg overall to 10 mpg (rounded to the nearest mpg). So using BTUs for the calculations seems reasonable.

So now let’s look at it from the perspective of a person filling up in a state with subsidized ethanol blend available widely. The ten cent discount comes with 90% gasoline/10% ethanol blend. Given this blend, we can expect 3.5% fewer miles per gallon. So in order to justify the price, one would expect the discount on blended fuel from regular gasoline to be more than 3.5% (otherwise we’d pay more on an energy-equivalent basis to use ethanol). That doesn’t happen to be the case today.

With gas at about $3.60 and blend at $3.50, that’s only a 2.8% discount in price. (The higher gas prices go the smaller that ten cent price discount will be on a percentage basis.) If we assume the 3.5% less mileage is a good number, the breakeven price (where we should be indifferent between the two) is $2.86 for regular, $2.76 for blend. We’re definitely above that. For E85, prices should be 29% cheaper, or $2.56, for a fuel purchaser to be indifferent between the two alternatives. The last I saw, it was about $2.90.

Just some fuel for thought.

*Full disclosure: I’m filling up with regular. I’ll take a look again when (if) prices fall to $2.86 or the price discount widens.*

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