Field of Ethanol Dreams...And Cheap Gas

I found an odd sight on the road in Iowa over the weekend: Gas stations across the eastern third of the state selling higher-octane midgrade unleaded for as much as 6 cents a gallon less than regular unleaded gas. It didn’t hurt that those prices were right around $2 a gallon as well, considerably lower than the Chicago-area prices I’m used to paying. I struggled to think of a reason, so I checked it out with an Iowa government official.

Does Iowa’s role as a corn-producing state have a lot to do with the practice?

“You bet,” said Renee Mulvey, with the Iowa Department of Revenue. “It’s very much to promote ethanol.”

The ethanol blend for the midrange unleaded I bought (at $2.04/gallon) is 90-10 gas/ethanol, Mulvey said, and the tax rates for the gasohol, as Mulvey calls the midgrade fuel, is roughly 2 cents a gallon cheaper than regular unleaded. Mulvey noted that even though the tax difference is only 2 cents per gallon, and gasohol is running about 6 cents less per gallon, she couldn’t begin to explain how gas station owners determine their end prices.

Of course, being such a big corn producer, Iowa’s also very interested in E85 (gas with 85% ethanol), which has an even lower tax rate.

Despite the price, Iowa consumers are still buying more ethanol-free regular and premium gas than gasohol by a margin of 85 million gallons to 52 million gallons.