E85 consists of 85% ethanol made from corn and 15% gasoline made from oil. Most automotive fuel in the US that is used by "gasoline" engines today consists of 10% ethanol and 90% gasoline. In addition to its value as a renewable, nonfossil-based fuel, the ethanol serves as an oxygenating agent, which is especially important in California where emissions from automotive combustion contribute to creating smog. Ethanol as an oxygenating agent reduces smog-forming chemicals in exhaust. The EPA wants to increase the percentage of ethanol to 15% in regular gas to reduce the amount of fossil carbon emitted by the transportation network. This is somewhat controversial right now, but most tests have shown the cars manufactured after 2001 can run without any modification and without any negative effect. Of course, this leaves the people with cars manufactured before 2001 with a problem if the entire fuel distribution network switches to 15% ethanol, but we've seen this movie before. When the US switched from leaded to unleaded gas in the 1970's, cars with older engines had to continue using leaded to lubricate the valves, or the driver needed to add something to a tank of unleaded. Retailers continued to sell leaded gas for a while, but have you seen any leaded for sale lately?
In fact, it is possible to fuel any recent vintage car with E85 or even E100 (100% ethanol) without any long term effect on the car. The manufacturers have eliminated rubber and plastic fittings that might be degraded by ethanol from the fuel lines, tank, and other fixtures in the fuel system. Nonmetal fixtures are degraded by gasoline too, just not as quickly, so removing them decreases the probability that the fuel system will experience a failure, which might be quite serious if leaking fuel catches fire. The lower energy content in ethanol does cause problems for the car's engine control computer, though. Because the car ends up using 30% more fuel with E85 than with E10, the engine control computer triggers the Check Engine light (that little light which looks like an oil can on most car dashboards, and comes on usually in rather mysterious and not very critical circumstances). The light stays on until it is cleared on the CAN bus (the car's control system bus) by a computer control plugged into a USB port somewhere in the front of the passenger compartment. So, in theory, we could use E85 without any modification to our plug-in Prius, if we were willing to drive around with the Check Engine light on all the time. There are also conversion kits for modifying the fuel control system so the engine computer doesn't report a fault when the car uses more fuel than the engine computer expects, so we could theoretically install such a kit when Propel puts an E85 station within convenient range if we wanted to avoid the Check Engine light problem.
Now, corn-based ethanol is really not the best choice for a renewable transportation fuel. Raising the corn and processing it to ethanol takes so much fossil based energy that E85 results in only a 20% reduction in life-cycle fossil carbon emission (rather than the immediate carbon emission from just using the fuel). And the ethics of using a food crop for transportation fuel when the world population is 7 billion and rising - and the amount of agricultural land isn't growing - is pretty questionable in my opinion. With cellulosic ethanol (ethanol made from plant waste and crops such as switchgrass that aren't used for food), the reduction can be much better, around 86%, according to Propel's website. Production facilities for cellulosic ethanol are gradually starting to come on line, but it will be many years before corn ethanol is completely displaced.
I did a quick calculation to see how much converting our plug-in Prius to E85 would reduce our direct carbon emissions. In the calcuation, I didn't take into account the life-time reduction, but rather just the immediate reduction of substituting fuel which is 85% nonfossil ethanol. My estimate on how much fossil carbon our plug-in Prius and the (as yet undelivered) Nissan Leaf charged from our new solar PV system will generate is 1.11 metric tonnes per year (see this post for more information on how I estimated our projected carbon footprint), and our total fossil carbon footprint was estimated at 2.81 metric tonnes per year. If we were to go with E85, we would reduce our transportation contribution by 85% to 0.167 metric tonnes per year, which looks pretty significant, for an overall fossil carbon emissions footprint of
My conclusion is that between the minimal carbon reduction, the hassle and cost of doing an E85 conversion (if we want to avoid the Check Engine light problem), and the ethical issue, conversion to E85 is not worth it at this time. This might possibly change when cellulosic ethanol becomes the baseline for E85.