The crushing burden of hidden taxes on E85 renewable fuel

There’s historic news out now — that E85 fuel is available on a wholesale basis for less than 85 cents per gallon. The Anderson’s in Denison, Iowa are wholesaling E85 for $0.84, and Little Sioux Corn Processors are right there at $0.85, with Absolute Energy not far behind at $0.89 per gallon.

On a wholesale mile-for-mile energy cost basis, E85 is less expensive now than either straight gasoline or CNG (compressed natural gas), despite the collapse in oil & gas prices over the past 18 months.

Here’s the hard data on that.

So, why aren’t E85 sales skyrocketing? Partly due to there being 15 million flex-fuel vehicles on the road out of 300 million registered vehicles. Partly due to there being 3200 E85 outlets out of about 130,000 places to buy road fuel.

But that’s not the complete story. Some of it is contained in the retail discount to gasoline, as opposed to the wholesale discount.

Let’s revisit that hard data.

Whoa Nelly! How did a fuel that’s 20% cheaper at wholesale get to be 6% more expensive at retail? Who do we arrest for price-gouging?

Sheriff, arrest thyself.

Turns out that an insidious destroyer of renewable fuels and opponent of a low-carbon society is, ahem, the government, through the mechanism of fuel taxation.

You see, fuels are taxed by the gallon, not by energy content. So, when you introduce a renewable fuel with 20% lower overall price-per-mile but containing a 20% lower energy density, you have to use 20% more gallons in your annual driving, and you pay 20% more in local, state and federal taxes.

Here’s how CA.gov proudly breaks it down, for branded and unbranded gasoline.

Your eyes can quickly do the math that there’s something like $0.56 in taxes per gallon, which means that E85 customers pay $0.78 in taxes per gasoline-gallon equivalent (GGE). And that means that, as fuel prices drop and the tax component (which is fixed) becomes a bigger part of the cost of fuel, it becomes almost impossible for renewable fuels to beat out gasoline on price, entirely due to tax policy.

To achieve a 5% price advantage over gasoline — which you could consider as a minimum point at which people would start fuel-switching, E85 renewable fuel would have to wholesale today at $0.67 per gallon, or a 51% savings at the wholesale price.

Solution, anyone?

That’s too much of a burden to place on renewable fuels. The solution is not too hard. Simply do what is done with Compressed Natural Gas and tax everything on a GGE (gasoline gallon equivalent) basis.

At the end of the day, it’s revenue-neutral — renewable fuel patrons would end up paying the same taxes as the patrons of gasoline on a mile-for-mile basis. But it removes an unfair burden that will stymie the adoption of high-blend renewable fuels by consumers.