California now allows more ethanol in gasoline — is this going to save drivers money?
Californians pay the highest gasoline prices in the United States, a fact that has grown more politically salient amid rising affordability concerns. On October 2 of 2025, Governor Newsom signed legislation that proponents claim will reduce gasoline prices by up to $0.20 per gallon and thereby save California drivers as much as $2.7 billion annually.
The new legislation allows gas stations to sell fuel that contains 15% ethanol and 85% refined petroleum, known in the industry as E15. At present, almost all gasoline in the United States is E10; it contains 10% ethanol and 90% petroleum.
Why do we currently use E10 and not some other percentage?
The federal Renewable Fuel Standard mandates the use of ethanol. The reason we blend it at exactly 10% lies in a set of arcane air-quality rules. When gasoline evaporates, it releases smog-forming chemicals, and evaporation increases in summer heat. To limit this pollution, the EPA requires summer gasoline to be formulated so it evaporates less. However, a 1978 amendment to the Clean Air Act weakens this requirement for gasoline blended with exactly 10% ethanol in conventional gasoline markets (about half the US market). This effectively means gas stations can sell E10, but not E9, E11, or E15 in these markets.
Air quality requirements are not the only drag on E15. Many carmakers have approved it for use in their cars in the past decade, but some still recommend against it. EPA has approved it for sale in any 2001 or newer model of car, but prohibits it from use in motorcycles, boats, lawnmowers, snowmobiles and similar machines. Moreover, fuel pumps dispensing E15 are required to include a label stating these restrictions.
How would E15 be sold in California
California’s new legislation specifies that “blends of gasoline containing 10.5 percent to 15 percent ethanol by volume may be sold in the state“ until the state air resources board (CARB) completes an evaluation of these fuels. At that point, the state will either adopt a regulation establishing the specifications of these fuels or, if they are found to be incompatible with air quality regulations, cease the sale of them.
A study from scientists at UC Riverside found that increasing the ethanol blend rate to 15% would not exacerbate air pollution. These findings suggest it is likely that E15 will pass the evaluation.
CARB has two options to establish specifications for E15. First, it could redefine the specifications of standard California gasoline (known as CaRFG) to include E15. Under this option, gas stations could stock E15 in their regular pumps as long as they posted the EPA-mandated label. Switching to E15 everywhere would likely require oil refiners to coordinate to reconfigure their gasoline so that the blend meets technical and environmental specifications.
The second option is to develop a new specification for E15 and add it to the list of approved alternative fuels, a category that already includes hydrogen, natural gas, and E85. CARB staff indicated that they are leaning towards the second option. This option would require retailers to install pump infrastructure to dispense this alternate fuel in addition to standard gasoline.
E15 did not expand in other states when it was allowed
Classifying E15 as an alternative fuel has been tried at the federal level in conventional gasoline markets every summer since 2019. It is always allowed as an alternative fuel every winter in most of the country and throughout the year in reformulated gasoline markets, which are cities with high smog levels.
E15 is currently available in about 3,000 of the 145,000 gas stations in the United States, mainly in corn belt states. Gas stations have sold very little of it.The figure below shows that (i) the ethanol blend rate is the same in the winter when E15 is allowed as in the summer when it was not allowed, and (ii) the overall ethanol blend rate remains close to 10%.
E15 is not a lower cost fuel
The figure below shows the difference between the wholesale prices of ethanol and gasoline. It shows two lines, (i) the difference between the prices in cents per gallon (unadjusted) and (ii) the difference after accounting for the fact that gasoline contains 50% more energy per gallon than ethanol. This means that a gallon of E15 contains about 1.7% less energy than a gallon of E10. In road trials, cars running on E15 get 1% to 2% fewer miles per gallon than those burning E10.
The top graph shows that unadjusted ethanol prices have been below gasoline prices for much of the last 15 years. Yet, fuel suppliers did not voluntarily expand ethanol blends even in 2018 when ethanol was 70c cheaper than gasoline. The bottom energy-adjusted plot shows a major reason why. After adjusting for energy content, we see that ethanol is more expensive than gasoline for almost all of that time.
This analysis focuses only on ethanol’s energy content and ignores other key properties, especially octane. E10 became cost-effective partly because oil refiners could produce cheaper, lower-octane gasoline and rely on ethanol to raise the final fuel to required standards. Today, refiners blend 84-octane gasoline with 10% ethanol to make 87-octane fuel. If E15 became common, refiners could make 82-octane gasoline and still meet the 87-octane standard after blending with ethanol. However, it is unclear how much money refiners would actually save by switching from 84- to 82-octane gasoline.
Why is E15 priced lower than E10 in other states?
A recent study sponsored by the Renewable Fuels Association uses state-level data over a 20-year period to show that fuels with higher ethanol blends are priced lower than E10. This study has been used by ethanol advocates and California politicians to claim that allowing E15 will lower gas prices for Californians by about 20 cents per gallon. This same information can be seen in the map below from E15prices.com. It shows E15 prices 25 cents per gallon, or 8.2%, lower than E10.
The lower price of E15 does not reflect a lower cost of producing ethanol. In fact, even if the extra 5% (by volume) of ethanol in E15 were free to produce, the cost of production would drop by only 13 cents. The ethanol is not free, however. As shown above, it typically costs slightly more than gasoline to produce, after adjusting for the lower energy content.
Policy incentives help explain why E15 is slightly cheaper than E10, but not enough to justify a 25-cent discount. Under the federal Renewable Fuel Standard, each gallon of E15 earns about 5.7 cents more in net subsidies than E10, savings that can be passed on to consumers. In California, E15 would also avoid about 1.3 cents in cap-and-invest permit costs and earn less than one cent more in low carbon fuel standard credits. These state-level savings, however, would leave less cap-and-invest revenue to distribute and less subsidy for other clean fuel producers in the low carbon fuel standard.
So, if it is not supply, then it must be demand. When companies wish to sell a product that consumers are not enthusiastic about, then the price has to drop to clear the market. People don’t want to buy E15, and sellers appear to be taking a loss on the small amounts they sell, perhaps with the goal of expanding the market. If demand were to increase to the point that E15 became a viable fuel, then the price would rise.
Conclusion
Thanks to our work with the legislature, we have averted billions of dollars in higher costs at the pump by avoiding the kinds of severe gasoline price spikes we saw a few years ago.
— California Governor Gavin Newsom, October 2, 2025
The outcomes of California’s new E15 law will depend on how CARB chooses to regulate E15 under the new law. If it adds an alternative fuel specification for ethanol, as seems most likely, then I expect the results to be the same as in other states when the EPA allowed summer E15. Few gas stations will offer it and few drivers will buy it. Consumers don’t understand it and may be wary of it; gas stations will be averse to paying for the labeling and new fuel dispensers.
If CARB were to update the CaRFG specifications to include E15 – which it has indicated it will not do – then there would be more scope for consumer adoption because consumers would use it without knowing. Gas stations could provide it without installing new capital, but not at a substantially lower cost relative to E10.
Either way, the new law will not avert billions of dollars in higher costs at the pump.
This article is cross posted at the Energy Institute blog. I generated the two graphs using this R code.