GM and SAAB (= GM at the time) didn't seem to have a problem with encouraging the use of ethanol:
http://www.parliament.vic.gov.au/ar...iofuels/transcripts/EDIC_GM_Holden_270807.pdf
"Mr BATISH — What will make the biggest impact on the climate right now would be E10; there is no doubt about that, because not everybody is able to sell cars and it will be a much quicker thing to do. Most cars are capable of running on E10 up to a certain age. Should we stop there? No. We should go further; we should go to E85. As I mentioned before, there are some manufacturers who have the capability — or who have the engines — to run on E85."
With regard to the car's tank, if condensation is a problem with E10 it's a bigger problem with a straight HC fuel where any water is going to sit in the tank as liquid water. Unless you are pouring water in through the filler, it's not a problem with either; Air at 100% humidity, 25C holds 0.020g water per gram of air. How many changes of air, even in a near empty tank, (water) ice cold for the sake of argument, exchanged through the carbon canister and tank ventilation hoses, and the short time the cap is removed when filling, would it take to to drop 1.2L of water into the fuel? How many actually occur over the course of a full tank?
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Ground water is a potential problem with E10 in service stations but avoided by handling procedures and verifying the integrity of the tank. If you did happen to get some water in one fill, and it has to be in solution for it to get from the servo's tank to the car, and the servo has a problem if it has water in an E10 tank, particularly if it's enough to cause phase separation, subsequent dry fills of E10 will remove it.
HC only fuels are given a settling period after filling the servo tank to allow any water in the storage tank to drop back down through the fuel. If the servo doesn't wait long enough, you can get the water. The focus on fuels containing EtOH is to avoid the water being in there in the first place. Which would you rather?
The long term viability of generating EtOH as a transport fuel is unknowable but it does at least show potential and some immediate benefits as currently produced in Australia. The current EROI is discussed in a couple of the 2007 submissions to the Vic. government. Looking at just the EROI doesn't give the full story either if it's taking energy sources in a form unusable in vehicles and generating (an) energy source that can be used in vehicles.
It is suggested that mandating EtOH use will create a market that will drive investment in better ways of producing the stuff. Personally, I'd rather just stick a bigger excise on the fossil fuels, maybe returned as working capital for developing alternatives, not just plug in biofuels either, and see what comes out. Policy depends on what the priorities are, energy independence, CO2 reduction, balance of payments, rural employment etc.