E85 costs less because it doesn't contain as much energy per gallon. No one would buy it and take the 20% drop in mileage if it was the same price as regular gasoline.
Personally, I love ethanol gas. Our minivan burns it, and we use it all the time. It's not a big deal for now as right now the US is a next exporter of petroleum products. And we buy little oil now from the Middle East. But when we were, I like it. I'd rather be paying corn farmers in Iowa than some Shiek in the Middle East. I'll even pay a premium in the form of lower gas mileage for that satisfaction.
Of course right now we are on an upswing of domestic production thanks to fracking but that won't last.