Should E85 fuel prices rise just as fast as regular gas?

As oil prices have soared in recent weeks, so have retail gasoline prices. But what about YE+ETHANOL.jpgbiofuel prices? Why is the cost of crop-based fuel going up just as fast as regular gas?

A thoughtful reader recently asked me about the pricing of E85, a biofuel that contains 85 percent ethanol, which is made from corn, and 15 percent gasoline; and is available locally at various gas stations.

Here’s the reader’s question and an answer from a University of Tennessee expert.

From Bill Wolfe, who lives in Powell and is a Certified Registered Nurse Anesthetist for Mercy Health Partners:

“Roger, has anyone ever asked the question why when the gas prices go up, the price of e85 goes up just as much? If the cost of oil is the reason for the gas price increase, how are gas stations allowed to raise e85 as well? Seems to me it’s just a case of trying to take advantage of a bad situation and price gouging. Many people bought an auto that uses e85 in an effort to cut down the use of oil, and we should be able to enjoy that ability without being gouged. Where is the incentive to use e85 if it goes up in price just like gas? Just asking.”

Professor Daniel G. De La Torre Ugarte, Agricultural Policy Analysis Center, Department of Agricultural Economics, was kind enough to email this pricing explanation:

“Here are a couple of thoughts:

“1. First of all E85 is a substitute of Gasoline, and as such the price of E85 will move in the same direction that the price of gasoline moves. This partially due to the fact that as the price of gasoline increases the demand for E85 will increase, as more drivers of flexible fuel cars choose to (use) more E85.

“2. There could be periods in which E85, could move in opposite direction, especially when there is an excess of ethanol production. As the production of ethanol hits the blend wall, the only outlet for more ethanol (besides exports) would be E85, so in periods in which the supply of ethanol, exceeds the demand (blend requirements) ethanol prices would tend to decrease, until producers adjust their production.”

Related info:

East Tennessee Clean Fuels Coalition

Oil hovers around $106

Photo: Associated Press archives