It's long, but hopfully worth the read:

Are There Problems with E85?
By ED WALLACE || BUSINESSWEEK ONLINE


During the comment period for the RFG (reformulated gas) program,
supporters of ethanol had argued that the volatile organic compound
(VOC) emission standards in the program -- 42 U. S. C. 7545 (k) (3) (B)
(i) -- would preclude the use of ethanol in RFG because adding ethanol
to gasoline increases its volatility and raises VOC emissions,
especially in the summertime.


Background
The American Petroleum Institute v. the U.S. Environmental Protection
Agency [Docket #94-1502 (Heard by the U. S. Court of Appeals for the
District of Columbia Circuit and decided on April 28, 1995)]


If there were ever a time when the truth in advertising standards
should be put back into place, it's now -- during the current (third)
attempt to convince the public that the massive use of corn-derived
ethanol in our gasoline supply will alleviate our need for foreign oil.
Ultimately, the answer to just one question determines ethanol's actual
usefulness as a gasoline extender: "If the government hadn't mandated
this product, would it survive in a free market?" Doubtful -- but the
misinformation superhighway has been rerouted to convince the public
its energy salvation is at hand.


The use of ethanol to reduce our dependence on foreign oil is nothing
new. We also considered it during our nation's Project Independence in
1974, the year after the first Arab oil embargo. After the second
energy crisis in 1979, an income tax credit of 40 cents per gallon of
190-proof ethanol produced was instituted as an incentive for refiners
of ethanol to blend this product into gasoline.


Because this federal largesse now existed, within five years, 163
ethanol plants had been built -- but only 74 of them were still in
operation. As gasoline availability opened up in the 1980s and gas
prices went down, many ethanol plants simply went out of business.

Shortly thereafter, in yet another attempt to broaden the product's
usage, Congress enacted a law that allowed car manufacturers to take
excess mileage credits on any vehicle they built that was capable of
burning an 85% blend of ethanol, better known as E85. General Motors
took advantage of the credits, building relatively large volumes of the
Suburban as a certified E85 vehicle. Although in real life that
generation of the Suburban got less than 15 mpg, the credits it earned
GM against its Corporate Average Fuel Economy (CAFE) ratings meant that
on paper, the Suburban delivered more than 29 mpg.


Other manufacturers also built E85-capable vehicles -- one such car was
the Ford (F) Taurus. Congress may have intended simply to create a
market for this particular fuel by having these vehicles available for
sale. But what the excess mileage credits actually did was save Detroit
millions each year in penalties it would have owed for not meeting the
CAFE regulations' mileage standards.


Act II, Scenes 1 and 2
In the mid-'90s the Clean Air Act of 1990 kicked in, mandating that a
reformulated gasoline be sold in the nation's smoggiest cities. So the
Clinton Administration again tried to create an ethanol industry in
America, by having the Environmental Protection Agency mandate that
fully 30% of the oxygenates to be used in gasoline under that program
come from a renewable source. But members of the American Petroleum
Institute had already geared up for the production of Methyl Tertiary
Butyl Ether (MTBE), their oxygenate of choice. The ensuing lawsuit was
argued before the Court of Appeals for the District of Columbia on
February 16, 1995.


The EPA took the position that it had been given a mandate to find ways
to conserve the nation's fossil-fuel reserves, so it needed a renewable
fuel -- and ethanol neatly fit that bill. But there were problems with
that argument, not least of which was the fact that the judges could
find no charter or mandate from Congress that gave the EPA the
statutory right to do anything about fossil fuel, reserves or
otherwise.


Even more damaging, the EPA's own attorney admitted to the judges that
because of its higher volatility, putting ethanol into the nation's
fuel supply would likely increase smog where it was used. One of the
judges, on hearing that the EPA was actively promoting a substance that
could in fact diminish air quality, wondered aloud, "Is the EPA in
outer space?"


The final decision favored the American Petroleum Institute. The judges
agreed that the EPA was bound by law only to promote items that would
improve air quality -- not to reverse the nation's advances in smog
reduction. That decision was apparently forgotten with record speed. In
the summer of 2000, ethanol as an additive was mandated for the upper
Midwest, including the city of Chicago and parts of the state of
Wisconsin.

More About E85
Learn more about the potential of E85:

After Asian economies had collapsed in the late '90s, the price of oil
had fallen to as low as $10 a barrel. Gasoline was selling in many
parts of the U.S. for as little as 99 cents a gallon. But by 2000, the
per-barrel price had risen to $32, and gas was averaging $1.55 a gallon
nationally. As they are today, the nation's drivers were incensed by
the rising prices of gasoline and oil. And then reformulated gasoline
made with ethanol hit Chicago and points north. Gas prices there
suddenly soared over $2.00, with a few stations selling their product
for as much as $2.54 per gallon.


At some stations in southeast Wisconsin, where reformulated gasoline
wasn't required and gas cost considerably less, pumps ran dry in the
panic, as savvy consumers topped off their tanks. Citing the Lundberg
Survey, the Associated Press on June 12, 2000, stated, "Dealers in the
Midwest, where many cities use a reformulated gas blended with the corn
derivative ethanol, are paying a premium at wholesale."


Just a few months later, Brazil -- which had worked toward energy
independence since the mid-'70s oil crisis and had already mandated
that the percentage of ethanol in its fuel be raised to 24% -- was
forced to import ethanol refined by the Archer Daniels Midland Co. when
the nation's sugar-cane crop suffered a devastating drought. Brazil
understood that a year of poor crops was just as damaging to its
national fuel supply as Iran taking its oil off-market would be to the
rest of the world.


Then came the third act in this ethanol play -- and possibly the most
misleading and disingenuous PR campaign ever.


Act III: Cue the Fact-Checker
It started with Congress, which mandated that even more ethanol be used
to extend the nation's fuel supply. From General Motors, an ad campaign
called "Live Green, Go Yellow" gave America the impression that by
purchasing GM vehicles capable of using E85 ethanol, we could help
reduce our dependence on foreign oil.


What GM left out of its ads was that the use of this fuel would likely
increase the amount of smog during the summer months (as the EPA's own
attorneys had admitted in 1995) -- and that using E85 in GM products
would lower their fuel efficiency by as much as 25%. (USA Today
recently reported that the Energy Dept. estimated the drop in mileage
at 40%.)


But one final setup for the public has gone unnoticed. At the Web site,
www.fueleconomy.gov, which confirms the 25% to 30% drop in mileage
resulting from the use of this blended fuel, another feature lets users
calculate and compare annual fuel costs using regular gasoline to costs
using E85.


But the government site's automatic calculations are based on E85
selling for 37 cents per gallon less than regular gasoline, when the
USA Today article reports that at many stations in the Midwest E85 is
actually selling for 13 cents per gallon more than ordinary gas. Using
the corrected prices for both gasoline and E85, the annual cost of
fueling GM's Suburban goes from $2,709 to $3,763. Hence the suggestion
that truth in advertising should come back into play. Possibly GM could
rename this ad campaign "Shell Out Green, Turn Yellow."

From BusinessWeek

Epilogue: Get this Wasteful Show Off the Road
The other negative aspect of this inefficient fuel is that numerous
studies have found that ethanol creates less energy than is required to
make it. Other studies have found that ethanol creates "slightly" more
energy than is used in its production. Yet not one of these studies
takes into account that when E85 is used, the vehicle's fuel efficiency
drops by at least 25% -- and possibly by as much as 40%. Using any of
the accredited studies as a baseline in an energy-efficiency equation,
ethanol when used as a fuel is a net energy waste.


Furthermore, no one has even considered the severe disruption in the
nation's fuel distribution that mandating a move into ethanol would
cause. Over the past month, gas stations from Dallas to Philadelphia
and parts of Massachusetts have had their tanks run dry due to a lack
of ethanol to blend. The newswires have been filled with stories
bemoaning the shortage of trucks, drivers, railcars, and barges to ship
the product. Ethanol can't be blended at refineries and pumped through
the nation's gasoline pipelines.


The recent price spikes for gasoline have forcibly reminded the people
of Chicago and Wisconsin of what happened when ethanol was forced on
them during the summer of 2000. Moreover, the promise of energy
independence that Brazil has explored through ethanol is widely
misunderstood. Recently a Brazilian official, commenting on our third
and most recent attempted conversion to ethanol, said that when Brazil
tried using agricultural crops for ethanol, it achieved only a 1:1.20
energy conversion rate, too low to be worth the effort.


Final Bow?
On the other hand, ethanol from sugar cane delivered 1:8 energy
conversion, which met the national mandate. Unfortunately for us, sugar
cane isn't a viable crop in the climate of our nation's heartland. But
the part of Brazil's quest for energy independence that the media
usually overlooks is that ethanol wasn't the only fuel source the
country was working on: Its other, more important, thrust was to find
more oil. To that end, last week Brazil's P50 offshore oil platform was
turned on. Its anticipated daily output is high enough to make Brazil
totally oil independent.


More smog, infinitely worse gas mileage, huge problems in distribution,
and skyrocketing prices for gasoline. Maybe now that we're witnessing
the third act in America's ethanol play, the upcoming epilogue will
close this show forever. Even great advertising works only if the
product does.


Editors Note: The thoughts and opinions presented here are solely those
of the author and do not represent AOL or AOL Autos.