The Clean Air Trust

Cost of E85 & substitute fuels

for e85 vehicles (in case e85 is not available)

Price of E85

Flexible-fuel vehicles (FFVs) are gradually invading the highways of America today with a growing number of five million. FFVs are automobiles that can run on ethyl alcohol, gasoline or combination of both. They are also known to operate using E85 (85% ethanol and 15% petroleum). More people are choosing to drive FFVs because they are powered by ethanol, which is a known substance that can lessen emission levels. Campaigns to use E85 is very rampant and this is reflected through the increasing number of E85 fueling stations especially in the United States.

Minnesota, Illinois, and Wisconsin are among the states of the that have the most number of E85 fueling stations. This fact proves that there is an increasing demand on this alternative transportation fuel in the country. A basic economics concept states that the price or cost of a commodity depends on the demand of that commodity. The changes in the demand for E85 can be linked in the changing prices of E85.

Pricing E85

Just like the regular petroleum, there are factors that comprise the price of E85. The retail prices of E85 are affected by its wholesale price, which is greatly affected by the gasoline prices. Since E85 is a mixture of ethanol and regular petroleum, its price is influenced by imported oil. It is only logical to say that if the price of the imported petroleum increases, the possibility of increasing E85 prices is high.

Apart from the said aspect, another factor that affects E85 prices is the government intervention specifically the implementation of federal tax credit. The federal tax credit is the incentive that fueling stations can avail of when they blend ethanol to the petroleum that they vend. This tax credit both indirectly and directly influence the prices of E85. The said incentive lowers the federal road tax that companies must pay thus, gasoline prices change.

Furthermore, just like any commodity, the supply-demand balance is the biggest influence in pricing. During spring in 2005, it was recorded that the supply of ethanol was high and the prices in the wholesale level was low. The prices are proved to change every season because during summer in 2006, the costs of ethanol increased while the demand for ethanol outstripped supply.

Most analysts also attribute the sudden shift in E85 demand to oil firms who lessen the Methyl tert-butyl ether (MTBE) additive and opted to use ethanol. More often than not, E85 prices are stable, which indicates that supply catches up with demand.

Another factor that affects in pricing E85 is the environment. Ethanol can be acquired from food stocks such as sweet potatoes and sugar cane. In the U.S., ethanol is usually acquired from corn. Since E85 is composed mostly of ethanol, a change in weather and climate affect food stock production. Thus, if food stock production is low, the volume of ethanol that can be produced is less. Less ethanol supply could mean less supply of E85, which can increase E85 prices. Some observations are made that during spring, E85 is rated cheaper compared during summer. This proves that seasons and weather can affect E85 prices.

Prices of E85

The prices of E85 vary in different states because there are states that can produce their own ethanol while some have to depend on the ethanol supply from near cities and states. If a state has its own ethanol plants like Minnesota, it is expected that they have lower E85 prices. Minnesota uses more than 15% of its average crop to produce ethanol. It has a total of 16 ethanol plants that produce more than 550 million gallons of ethanol every year.

E85 prices change everyday and they differ from one state to the other. On the 25th of November 2006, Brooklyn Center, Minnesota priced E85 $1.749 per liter while in Kankakee, Illinois, a liter of E85 was $2.059 a liter on the same day. On the 29th of the same month, people of McFarland (Madison), Wisconsin was able to buy a liter of E85 for $1.799 and Kankakee, Illinois had E85 for $2.049 per liter.

It was also observed that on December 05, 2006, CENX, located at Truman, Minnesota, rated this alternative fuel $1.79 per liter while Shell in Philadelphia, Pennsylvania priced E85 with a quite high cost of $2.29 a liter. Another comparison in E85 prices is its price in Northfield, Minnesota where a liter costs $1.75 while it rated $2.07 a liter in Springfield, Montana.

Furthermore, the prices of E85 seem to be more competitive than the cost of unleaded gasoline. This is proven by some of the states where unleaded prices are higher than E85. In December 6, a liter of unleaded in Egan, Minnesota cost $2.189 per liter while E85 was only sold at $1.789 per liter. In Sierra Vista, Arizona, E85 price was $1.89 a liter while unleaded was a bit pricey at $2.19 a liter.

The prices mentioned were from the records of American Lung Association of the Upper Midwest. In other parts of the country, the prices of E85 also vary but the difference is not that much.

Alternative Fuel for E85 Vehicles

Apart from E85, E85 vehicles or FFVs can run on other percentages of ethanol. In the U.S., for every eight gallons of petroleum sold, one gallon would contain ethanol. Most of the ethanol blended gasoline contain 10% ethanol. This mixture (10% ethanol and 90% gasoline) is called E10 or gasohol and is utilized as octane enhancer to improve the quality of the air.

In Brazil, the leading ethanol producer in the world, the FFVs run on pure alcohol, which has 95% ethanol (95% purity). Brazilians also use gasoline blended with 25% ethanol, which is mandated by its government. Also, Brazil's FFVs are powered by fuel with 25% ethanol mixed with additives or octane boosters.

The prices of E85 vary in every state and is affected by different factors such as the price of imported oil, government interventions, and other natural factors. Although its price differ depending on the season, the demand for E85 and ethanol are proved to be increasing. Some experts believe that the hiking demand on E85 is a proof to what Henry Ford and Charles F. Kettering said that ethanol is the "fuel of the future".