The Digest’s 2018 Visual Guide to the economics, politics of renewable fuels

So, why not simply value ethanol as an energy carrier? What do the economics look like there. In all our slides, we have looked at the RFS-driven carbon premiums and the octane value. What about the straight energy value? This graphic will help you on that.

If a gallon of 85-octane RBOB gasoline sells at $1.60 (we estimated a value based on the December wholesale price for 87-octane fuel), a gallon of ethanol has a BTU energy value of $1.06 per gallon. That’s because ethanol has two-thirds of the energy of gasoline.

But, whoa Nelly. It’s not quite as simple as that, and for that we go back to Octane School. The whole point of higher octane is that engines can run at higher compressions and efficiencies without damaging engine knock, if they have higher octane levels. You get more power and fuel efficiency that way — one reason why racing fuels are invariably 100-octane, and why 100-octane fuel is important for aviation where efficiency is at a premium.

So, E30 engines can operate under certain conditions at almost parity to 85-octane gasoline, and that changes the value of fuels. (more on that here) E30 has been described as the “sweet spot” for ethanol blending, and you might wonder why we have so little of it. The answer is that petroleum companies want something in the E5—E10 range because they see ethanol as a valuable oxygenate and octane source and nothing more, and ethanol producers want E85 because they would like to have another big volume market open for them to spur growth.