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How ethanol is jacking up your gas costs

By Claes Bell, CFA · Bankrate.com
Saturday, October 2, 2010
Posted: 8 am ET

Next time you pull your auto up to the pump, take a second to look for a now-ubiquitous sign that says some variation of "This fuel may contain up to X percent ethanol." If you've already seen it, you probably didn't think much about it. But the ethanol content that little disclaimer warns you of could actually be driving up your annual gas costs.

Ethanol-blended gas could be costing you big at the pump

Ethanol-blended gas could be costing you big at the pump

We've all heard that using ethanol could be more environmentally friendly than gasoline (although that's debatable), and that could help reduce our dependence on foreign oil.

But those benefits, however tenuous, don't come without a price to American drivers, even after you take into account billions of dollars in government subsidies. That's because ethanol literally has less bang for the buck than gasoline. That is to say, it is less energy-dense, meaning you have to burn more of it to drive a car the same distance than you would with pure gasoline.

What that means for the average driver is that when they drive up to a pump and fill their car with E10, the most common type of ethanol-gas blend made up of 90 percent gasoline and 10 percent of ethanol, you'll be getting poorer fuel economy. How much poorer? Well, the EPA puts the fuel economy reduction at 3 percent to 4 percent for E10.

That may not sound like much, but over the course of a year, it adds up. Let's do a thought experiment: Say you own a 2011 Chevy Malibu with a V-6. The EPA estimates, if you drive 15,000 miles a year, you'll use about 750 gallons of gas, at a cost of $2040. Now add 4 percent to that, and you're talking about 780 gallons, or an increase of $81.60 to your annual fuel budget.

What's more, the Renewable Fuels Association, the trade group representing the country's ethanol producers, is asking the EPA to push for widening the use of E15, or a fuel mixture that's 15 percent ethanol. Whatever you believe about that mixture's effect on older cars and non-road engines, using E15, or at some future point E20, will almost certainly push your annual fuel costs even higher. A study conducted by the Oak Ridge National Laboratory found E20 degraded fuel economy by almost 8 percent. With our Chevy Malibu, that would be an extra $163.20 over the cost of using pure gas.

So what can you do about it? Keep an eye out for gas stations in your area that don't have the 10 percent ethanol signage on pumps. There's a Web site called pure-gas.org you can check out, too, that allows users to identify "pure gas" stations in their areas.

What do you think? Is adding ethanol to gas a bad idea? Are the potential benefits worth the costs?

(h/t to CNET's cartech blog)

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12 Comments
gladys
October 08, 2010 at 2:43 pm

Thank you for the pure-gas.org info. I'll click on it and hope to find non-ethanol gas. I have a like-new, '89, one owner, 50K mile, Honda Prelude that did not like the 10% blend. Had to pay my mechanic to fix it, then drain all the fluids and put it in storage. I also had problems with a riding lawn mower.

Dave Stevens
October 04, 2010 at 3:15 pm

Pure-gas wants ethanol out of the fuel blend for a reason. Here we are with today's price $81.79 per barrel of oil. 10% unemployment and the economy suffering world wide. No sustainable recovery is possible with so much money coming out of the middle class pockets for energy. It will get worse! If you experiment with blender pumps (where they are available)you could find that a 30% or 50% blend will give you pretty good milage(depending on the vehicle). With cars and pickups such as my 2001 intrepid and 1992 Dakota that are not flex fuel I am finding at a 50% blend, milage at 17 MPG with the Dakota (3.9 v-6) and 23 MPG (2.7 v-6). At the 50% blend the check engine light does not come on. I have used this blend in Iowa, Nebraska and Minnesota for four years with out any problems. Ethanol is suppose to be more corrosive than gasoline but I have had no problems after four years of use in engines with high milage. 159,000 on the Dakota and 126,000 on the Intrepid. I mix E-85 at $1.99 per gallon in the midwest with E-10 at approx. 50% when blender pumps are not available. E-85 is 105 % octane. Ethanol may be less in BTU's but is higher in octane. Increased performance. I love the product. The refiners are putting out at times poor quality gasoline where they need to add the ethanol just to get the octane rating to 87. I know this for a fact. They won't tell you this either. Ethanol is not the answer alone. It will take many sources, electric, biofuels (advanced such as butanol with higher BTU content) etc. Also sometimes the fossil fuel industry trys to confuse us by using the terms renewable energy (such as biofuels and electricity from wind and solar) and the word alternative energy (such as air gas) which is really the natural gas/propane industry. The fossil fule industry likes to use the word alternative enrgy when we are thinking renewable energy.

Sukamadek
October 04, 2010 at 6:38 am

Well almost all the comments on this page are from the CORN ethanol industry, a protected agri-welfare program to say the least. Corn ethanol is a ridiculous idea taking as much energy to make as you get from it. Sugar Ethanol returns 8 times more energy than required to make it but since we don't grow sugar we're stuck with this welfare program. As for E85 it is a way for the auto industry to avoid meeting the CAFE standards because the dummies at the EPA only count the amount of GASOLINE used to move a vehicle a specific distance E85 is only 15% gasoline so a gas guzzler getting 10 miles per galloon gets credited with 66.6 miles per gallon.

Alan R
October 03, 2010 at 10:01 am

Claes, It is a shame you did not do your degree in engineering rather than "writing" you may then have been inspired to dig a little deeper into, and have a better understanding of, the facts surrounding ethanol, rather than regurgitating the API supported miss information and anti ethanol crusade. A crusade made even more ludicrous by the fact that the billions of dollars of government subsidies you elude to, the Volume Ethanol Excise Credit (VEETC) goes to the members of the API, blenders like Valero, Sunoco etc., and not the ethanol producers.

The heat rating of any fuel used in an Otto engine is a key factor, but only one of the factors influencing fuel consumption. The biggest variable is the individual controlling the vehicle, something we can al do something about on a personal level. If you really want to understand the role that biofuels can play in the US economy contact informed sources on both sides of the argument. The Clean Fuels Development Coalition wouldbe a good starting point. What you did not mention was as calculated by Proffesor Woteki of the Journal of Agrobiotechnology Management and Economics, that if you had your way and eliminated ethanol as transportation fuel, annual farm income for US corn growers could fall by up to $10.2 billion and 112,000 jobs would be lost. Even if your facts were correct I will gladly pay $81 a year to keep the money and jobs in the US instead of paying it to Chavez and his corrupt regime or worse. Please apply a little more rigor to your investigative writing and give a more balance view of the facts.

Thank you

Alan R

Bobby Fontaine
October 03, 2010 at 9:06 am

Ethanol replaced MTBE. MTBE was made from natural gas that there previously wasn't a market for and r toxic waste left over from oil refining. So producing it provided relief to the economy and therefore strengthened the value of the dollar even though it was a defective fuel product. Stopping using it added the burden it relieved back to the economy while ethanol has an unbelievably intense burden on the economy, and that is even if it worked as a fuel. The fact is that both MTBE and anhydrous ethanol costs more mileage than they give back in spite of claims otherwise.

If you look at where the value of the dollar started to decline, which was the first domino to fall in the economy crashing, it happened the same month that ethanol use started in the spring of 2006. This inevitably lead to a rise in oil prices and therefor a rise in gasoline prices. What’s ironic is that without the rise in gasoline prices, ethanol could not have competed with gasoline so oil companies wouldn't have added it to gasoline even though the law required it.

Our economy was built on a model requiring cheap energy to work correctly. If we do not admit that ethanol is a problem and get rid of it or change the way our financial system works to accommodate defective fuel products being required by the federal government to added to gasoline, the economy will never recover. We either need to stop using anhydrous ethanol altogether, move to hydrous ethanol, or change from a free market based economic model to one that puts supporting anhydrous ethanol being added to gasoline at its center, like creating a state ordered religion with corn and ethanol worshiping at it’s center, the Mayans did it, maybe it would work for us. Oh yeah, we don’t have time, the Mayan end of the world will be here in a couple years.

Larry Johnson
October 03, 2010 at 8:09 am

This article several inaccuracies and includes innuendo frequently used by the oil industry to discredit ethanol. I will just respond to three of them.

1. In most states, there is no requirement to label ethanol blends up to 10% so looking for a label is of little value.

2. Approximately 90% of all gasoline sold in the U.S. today contains 10% ethanol. Extending gasoline supplies by 10% lowers gasoline prices, saving all consumers money.

3. The Energy Independence and Security Act of 2007 requires the use of 36 billion gallons of biofuels by 2022. Congress (not the Renewable Fuels Association) will need to raise tha allowable limit for ethanol and other biofuels to comply with that law.

And finally a question; Even if it did cost an additional $81.60 per year to use ethanol, what is the impact of paying nearly $400 billion per year to import two thirds of our oil needs? And consider that much of that money is used to finance terrorism!

Pete Moss
October 02, 2010 at 9:54 pm

Sounds like somebody is a little biased! You neglected to mention that ethanol costs less than gasoline and that all of the money stays in America instead of going to people that want to kill us! you also forgot to mention that petroleum products have increased significantly over the last several years and we have absolutely no control over the cost whatsoever! The average price of gasoline is approximately $2.55 per gallon, and that is in a major recession. What do you think it is going to do when the economy starts to rebound? Would it not be better to support renewable resources and domestic production of petroleum rather than bash an industry that has replaced 10% of imported oil??? I find it somewhat disengenuous when articles point out perceived issues but never provide solutions to such problems.

Emerson
October 02, 2010 at 7:51 pm

Yes, ethanol provides less mileage and everyone has known that for a long time. Your article is incomplete because it doesn't tell people why that costs them money. What should be happening is consumers should get a price break when they use ethanol, either as a fuel in their flex-fuel cars (E85) or added to gasoline. They don't get a price break because the ethanol industry in the US is inefficient, a burden to taxpayers ($6 billion a year) and protected from outside competition by a hefty tariff on imported ethanol that would make a difference in prices at the pump. The only "disadvantage" for ethanol users should be filling up a bit more often, which is a very small price to pay for the environmental and economic benefits of cutting CO2 emissions and generating jobs. Unfortunately, the inefficient, protected ethanol industry in the US doesn't deliver, in spite of the huge support it gets with taxpayer money. We should broaden our horizons and look at what others are doing - all answers do not lie in the 50 states. Brazil is the world's most efficient producer and user of ethanol, and over there, drivers pay about half the price of gasoline for their ethanol. When you use straight ethanol as they do, you lose about 25-30% in mileage, but when you pay 50% less, you are way ahead. That's reality in Brazil, so let's explain that to US consumers. The problem is not ethanol, the product. The problem is how ethanol is done in the US - inefficiently, with heavy subsidies and using corn, which should be used for food, not fuel. Brazilian ethanol is made from sugarcane - much more efficient and much cheaper to make.

Bill_USA
October 02, 2010 at 3:50 pm

The article is wrong. The savings are greater than the cost of the Excise tax credit by about 6 cents per gallon of gas (E10).

WHat this article fails to consider is that the Excise Tax Credit to blenders of $.45 per gallon of ethanol blended, also brings down the cost of any fuel in which ethanol is blended.

Because of this tax credit, the blender sells the blended ethanol (e.g. ~E10 for most gasoline) at a reduced price depending upon how much ethanol has been blended. For every gallon of ethanol blended the $.45 Excise tax credit reduces the price of the blended fuel about $.63, meaning we save about $.177 per gallon of ethanol we buy. As E10 that would take about 10 gallons of gas with 10% ethanol (or a savings of about $0.0177 per gallon of E10)..

Now, there is another thing to consider here. Since ethanol is increasing the supply of fuel by about 7.6% because of the Price Elasticity of gasoline - this causes the price of gas (and ethanol, actually) to come down. The amount is subject to honest debate but conservative estimates put the reduction at about 3%. THis means gasoline without the supply of ethanol gasoline would cost about $2.7835 a gallon, instead of $2.70, for savings, thanks to ethanol, of about $0.0835 per gallon. The total reduction in the price of gas for the Excise tax credit impact and the impact of extra fuel supply is then $0.101 (.0177 + .0835 ) per gallon of E10. Considering both the Excise tax credit and the PRice Elasticity of gasoline the price we would be paying for gas without the Excise Tax credit and the supply of ethanol would be $2.801 instead of $2.70.

Regarding fuel efficiency - actual tests of miles per gallon on E10 versus straight gas do NOT show a loss of 3% to 4% but actually it is more like a 1.4% to 2% loss (one of these studies was done by the American Petroleum Institute). That's because using the Heat content (e.g. BTUs per gallon) of the ethanol versus gasoline is not a very good way to estimate fuel efficiency when using a 'light' blend of ethanol such as E10. The higher octane of ethanol vs gasoline (Ethanol 113 vs 92-93 for gasoline) benefits your combustion and the loss in mpg is not as large as the BTU content would predict.

So if we compute the additional cost for 2% lower mpg you get $0.0551 additional expense for gas (against a price of $2.70 a gallon). But since your are paying $0.101 less for that gas you have a net SAVINGS of $0.0461 (.1012 - .0551) or about 4.6 cents per gallon or a percentage savings of 1.7% (.0461/2.70)

Joe
October 02, 2010 at 12:16 pm

This is misleading. The refiners pay approximately one dollar a gallon less for the ethanol in that blend. So the total cost of that gallon of fuel would be ten cents higher if it was not blended. So, basically it is a wash and the use of the ethanol benefits our country. The benefits outweigh the costs. Do you want to feed the Islamic terrorists or the Americans who make Ethanol