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Originally Posted by landrovered
Ethanol is added to gasoline as an oxygenate to reduce emissions not to increase octane. Ethanol replaced MTBE as the oxygenate of choice due to MTBEs ability to have a small amount of MTBE contaminate a very large amount of drinking water.
Octane as previously mentioned is actually added to make the gas/air mixture harder to ignite so. It does not increase the caloric content of gasoline, it actually decreases it. Octane is control not power. Power comes from a properly timed and near stochiometric combustion process and that requires control to achieve.
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Ethanol does increase the octane level of gasoline. That's not the reason for it's inclusion, but it is an effect.
Power comes from complete combustion of a high energy content fuel. Stoichiometric is usually too lean for maximum power in practice.