An E85 engine is a gasoline engine with some parts changed to be non-corrosive to ethanol. Since ethanol contains less energy per gallon, burning it in a low compression ratio gasoline engine results in very poor mileage -- 75% of that of gasoline.
If you go 300 miles on a tank of gasoline, and fill it with E85, you will only go 225 miles. For every 3 stops to fill-up with gasoline, the driver will have to stop 4 times if running E85.
In 2012, ~13.01 billion gallons of fuel grade ethanol were used in the US.
(EIA AEO Table 17.) Of this 99.42% was blended into E10 (10% ethanol, 90% gasoline) and only ~74.6 million gallons, 0.58%, into E85 (85% ethanol, 15% gasoline).
The current process is that the ethanol producer ships the ethanol to the oil company blender who adds gasoline to it to make either E10 or E85.
This process means that the oil companies control the price of E85 just like they control the price of gasoline. E85 is priced so that it costs the consumer more money to burn E85 per mile than gasoline, roughly $800 per year according to www.fueleconomy.gov.
E85 began life due to a government mandate, the Corporate Average Fuel Economy Act (CAFE). It has been in the marketplace for 21 years, since 1992, with 100's of millions of dollars of advertising put into it. It has gained only 0.2% market share penetration after all that time and money.
Consumers have plainly indicated they aren't buying this product. The vast majority of gasoline retailers are franchisees, not owned by the oil companies. They are very reluctant to purchase E85 and put it into one of their tanks since they believe it won't sell. They are right.
This is why, as of March 2013, there are only 2,329 E85 dispensers in the US (DOE), not because of any distribution problems or lack of E85 capable vehicles.
Another way to look at this is: If E85 offered the same mileage as gasoline, we would have switched over to it long ago since it costs less per gallon, and motor fuel is a very price sensitive product.
Congressional bills have been introduced to require a rapid increase in the number of new E85 capable vehicles. This does not seem a reasonable strategy to force the manufacture of more E85 vehicles when the public has clearly shown over the last 20 years that it isn't interested in buying E85.
E15, E20, E30
There is a lot of consideration being given to intermediate blends such as E15, E20, and E30 and the EPA has approved the sale of E15 for certain model year vehicles and a few stations in the U.S. are selling it.
There is a good case for E15 in that it would immediately help the ethanol industry which is in trouble due the current blend limit of 10% ethanol and price increases on corn.
However, there is a real dispute about potential problems with storage tanks, piping, and pumps. Also, there is no requirement that E15 actually be used and even if it comes into use, it cannot make us independent of imported oil or significantly lower CO2 emissions.
Beyond that level, trying to go to E20 or E30, there are problems:
1. the oil companies will still control the price of the fuel,
2. it is a lot of work to do it,
3. the same amount of money will have to be spent to convert
dispensers and tanks to the higher levels of ethanol as we would
spend to convert to E100, and,
4. last, but not least, if a terrorist group send a bomb or plane into Abqaiq or Ras Tanura, we have skyrocketing fuel prices again with all the attendant problems.