On the Value of Ethanol in the Gasoline Blend

There has been much debate and much written about the likely costs and benefits of including ethanol in the domestic gasoline supply. Costs and benefits fall into two major categories--environmental and economic (e.g., Stock, 2015). One economic consideration is the potential impact on domestic gasoline prices from augmenting the gasoline supply with biofuels. A second economic consideration, and one that has received the most attention, is the cost of ethanol relative to petroleum-based fuel. What has been missing from the analysis of the value of ethanol in the gasoline blend is an estimate of the net value of ethanol based on: i) an energy penalty relative to gasoline; and ii) an octane premium based on the lower price of ethanol relative to petroleum sources of octane. This article provides an analysis of that net value since January 2007.