Renewable Accounts: Taking notice of E85
Driving to campus one morning last week, I noticed the sizeable price difference between regular gasoline and E85 at a service station on Main Avenue in Fargo. I did a quick calculation in my head and continued on to Barry Hall.
I’ve been paying close attention to retail gas prices recently because the difference in the price of a gallon of gasoline and E85 has dual importance to me. As a bioenergy economist, I follow the biofuel markets, policies and news. As a consumer, I occasionally comparison shop to see if I’m getting a good deal at the pump.
The math I did was pretty simple. The goal was to compare the different costs of energy. E85 has about 73 percent of the energy of regular gasoline, so I multiplied the price of regular gasoline by three-fourths as I waited at the stoplight. I left my smartphone on the dash to trade precision for safety. Based on my quick calculation, E85 still was more expensive on an energy basis but more competitive than the last time I checked.
My professional interest in the relative price of E85 is driven by curiosity in how the market will adjust to meet the Renewable Fuel Standard (RFS). The RFS is a federal law that mandates the amount of biofuels the nation must use by year through 2022.
Until recently, the ethanol mandate has been less than 10 percent of supplied motor gasoline. E10 (10 percent ethanol and 90 percent gasoline mix) is a natural home for ethanol. However, this year or next, more ethanol will be mandated to be used than can be blended into E10. The issue has been dubbed the blend wall.
While some think that the situation requires scrapping the RFS completely, the law gives the market the power to sort things out.
One obvious home for this extra ethanol is E85. However, to increase its sales, something’s got to give. That something is E85’s price, so that’s why I’m watching retail fuel prices. In full disclosure, I have access to a lot of rack and retail fuel prices through NDSU’s commodity trading lab, but I also like seeing the price on the sign at the gas station just like other consumers.
It’s important to note that E85 and regular gasoline are not perfect substitutes in measures other than energy content. Of course, many vehicles are not designed to handle higher blends of ethanol and engines may not utilize the energy equally well. At the same time, traditional fuels and biofuels have different energy security, environmental and economic development implications.
In the U.S., consumers rule. There are many people who enjoy fueling their vehicles with E85 and there are those who will not use it, even if its relative price falls lower than other blends.