The Federal Reserve Claims That Mixing Ethanol With Fuel Will Lower Gas Prices. We're Skeptical.

The Federal Reserve Claims That Mixing Ethanol With Fuel Will Lower Gas Prices. We're Skeptical.

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      Gas prices have just reached an average of $4 per gallon in the US, and people are understandably frustrated. As the conflict with Iran continues, the crucial Strait of Hormuz remains closed, disrupting 20% of the global oil supply. Meanwhile, the EPA proposes a solution to reduce prices: by mixing more ethanol into the fuel supply, thereby extending America's fuel reserves. What could possibly go wrong?

      Well, depending on the age and maintenance of your vehicle and your location, the implications could be quite serious. This week on The Drivecast, we examine the matter in detail.

      This is a highly debated subject, so let's establish some facts. Except for specialized blends, most gasoline in the US is already composed of 10% ethanol, known as E10, meaning every gallon consists of 90% gas and 10% ethanol. Ethanol serves as an oxygenator, helping fuel burn cleaner and increasing the octane rating. Historically, we used lead for this purpose, but that proved problematic.

      In some states, particularly in the Midwest, E15 gas—15% ethanol and 85% gasoline—can be purchased, labeled as 88 octane at the pump. It's also cheaper, as you’re getting less gasoline and more ethanol per gallon; however, air quality regulations limit its sale in summer due to increased smog production compared to E10.

      The EPA is focusing on relaxing these regulations to let oil companies produce E15 longer into late spring and summer than usual, prior to the regular June cutoff. In theory, this would make more of this cheaper ethanol-infused fuel available for an extended period. However, E15 gas is only available at a limited number of gas stations across the country. Increasing the supply won’t significantly lower the prices of regular 87, 89, 91, and 93 octane gas in the short term.

      Even if you assume demand for E15 (88 octane) will lessen the need for higher octane grades, it introduces another major issue. Ethanol is a solvent that can damage older engine components, including rubber seals and certain plastics, potentially causing significant damage—one reason its percentage is typically capped at 10%. The EPA warns against using E15 in cars manufactured before 2001, a crucial piece of information absent from their optimistic press release. Moreover, in newer vehicles, E15 could reduce fuel economy because it has a lower energy density than gasoline.

      So, don't expect this to resolve the issue.

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      Full Transcript

      Joel Feder: Have you noticed those gas prices? And by "man," I mean Kyle, living in LA, where everything costs an arm and a leg.

      Kyle Cheromcha: Please don’t remind me. I actually saw $8 a gallon displayed on a gas sign recently. It's impossible to ignore. It definitely makes you stop and stare, and not in a good way. It’s really painful out here.

      Joel: Andrew, what are prices like in your area?

      Andrew Collins: In rural New York, we’re finally surpassing the $5 mark for 93 octane, which is unusual for here. Usually, it hovers around the $3 range, but it’s been a concerning few weeks.

      Kyle: I can’t say I feel sorry for you. None of this is pleasant. Everything is frustrating, but there is something oddly comforting about witnessing the rest of the nation panic over $5 gas while we’ve been paying well above that in California for years. I feel a bit like Bruce Willis in Die Hard—“Welcome to the party, pal.” That’s where I’m at.

      Joel: You don’t understand. I live where we have snow and negative 40 wind chills. I shouldn’t have to pay for that sunshine tax. I’m pretty sure you pay extra for living in a snow-free area.

      Kyle: California has its benefits and many reasons for its high costs, but that’s not our topic today. We’re here to discuss ethanol. Andrew, can you give us a quick overview? What is ethanol?

      Andrew: Ethanol is a type of alcohol

The Federal Reserve Claims That Mixing Ethanol With Fuel Will Lower Gas Prices. We're Skeptical.

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The Federal Reserve Claims That Mixing Ethanol With Fuel Will Lower Gas Prices. We're Skeptical.

As gas prices surpass $4 per gallon, the EPA suggests that more affordable, ethanol-rich fuel will alleviate the burden. However, the calculations don't seem to align, yet the potential dangers are quite clear.