"We would normally expect the spot price of ethanol to exceed the wholesale spot price of gasoline by about 50 cents per gallon, the amount of the ethanol tax credit." (DOE) This statement from the US Dept. of Energy is the key to understanding wholesale ethanol prices. Here's how they work.

Blenders will pay 51¢ more per gallon for ethanol because they get a 51¢ blenders credit from the federal government. So if wholesale gas is $1.50, blenders will pay $2.01 for ethanol. However, since it really costs them only $1.50 (after the subsidy), they will sell it as if $1.50 were the wholesale price. So far, no harm to the consumer (only to the taxpayer who paid the subsidy).

But the reason blenders (and gas stations) will pay (after subsidies) the same for ethanol is because they can sell it at the same price as gasoline to consumers. A consumer will pay the same for ten gallons of E10 as for ten gallons of gasoline even though the E10 contains a gallon of ethanol. Virtually all consumers are willing to pay the same for the gallon of ethanol for three reasons. (1) They often don't know there's ethanol in their gasoline. (2) There is often ethanol in all the gasoline because of state requirements, so they have no choice. (3) They never know the ethanol has only 2/3 the energy of gasoline and gets them only 2/3 as far.

The result is that drivers always pay much more for ethanol energy than for gasoline energy, simply because they pay the same amount per gallon. In effect when gasoline prices are $2.00 gallon, they pay $3.00 (plus a little) for the same amount of ethanol energy.