To counter the poorer btu value of ethanol, it does burn slightly cleaner, more efficiently, losing less btu to waste heat.
Put another way, ethanol is slightly more efficient, less waste, than gasoline. Gasoline is made of many different compounds, all with different flash points, which makes the bang of combustion a bit less controlled - or more wasteful.
So your equation isn't right.
Generally a 50 to 60 cent difference in price is enough to justify ethanol being a better buy.
For a non-flex vehicle, research has found the 30% blend the original poster is using is often the 'sweet spot' of the best efficiency per gallon and per dollar. Going higher than that may cause some of the problems mentioned - or may not. Depends on the setup and components of that engine and fuel system.
Now, if you set up an engine from the design to use the strong suits of ethanol - higher octane, less heat waste, smoother flash point - you could have a pretty efficient engine, a lot cleaner and energy efficient than a gasoline engine. However, we are stuck, at this point in time, using gasoline engines and making them work with ethanol as well. The compromise is all on ethanol, not on the gasoline side.....
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