Not sure where you got this from but E85 is actually a higher octane maybe its boosted here in NA I dont know but its been rated as a performance fuel. The fuel efficiency is a little less but it burns a lot cleaner and the ethanol is water soluble so if you dump it it wont pollute the ground as much. Its at quite a few places in Denver for about 2.15 per gallon right now. And if you cant find it E85 cars will run on straight gasoline as well.
Yes, I agree with you that ethanol is a higher octane. It is pure alcohol (in fact, you can drink it, pure alcohol, not e85). But, E85 only has 72% as much energy as normal gasoline
(see
http://www.usatoday.com/money/industries/energy/2006-02-14-e85-usat_x.htm)
I also agree with you on it being cleaner and better for the environment. But the fact is that consumers will not use it even if it is on an even keel. Just being better for the environment is not enough to get a lot of consumers to switch. Price of E85 must be 72% of the price of normal gas to be the same, but again, you have to stop for gas a lot more, something not a lot of people want to do.
It probably won't change for years to come. There are 2 or 3 ethanol plants scheduled to open, but they are 2-3 years out. So, supply is low, that is why price is high. There are not many refineries, and a ton of supply is being sucked up by gas refiners, who use it as a replacement for MTBE.
The only way, at least for the next 2-3 years E85 will work is if the government steps in and subsidizes it. Note I am not arguing against E85, just stating the facts on why it is not feasible right now (from a retailers perspective).