Octane rating does not relate to the energy content of the fuel (see heating value). It is only a measure of the fuel's tendency to burn in a controlled manner, rather than exploding in an uncontrolled manner. Where the octane number is raised by blending in ethanol, energy content per volume is reduced.
or this article showing the reasons WHAT ethanol does for octane rating. Now if you want to say that it is the government giving subsidies to someone your probably right. could they use a different additive to the fuel to achieve the same thing? yes! there are many other candidates on the list in the Wikipedia article. But that's a different arguement in my opinion. I hate the government in my business too but the only way to change that is move or vote.
Why is ethanol an effective octane booster?
The octane number written on the gas pump is Anti-Knock Index (AKI). Itís an average of two octane ratings using the same test equipment but using different operating conditions. The methods produce a Research Octane number (RON) and a Motor Octane Number (MON). Both were once considered important and thatís why AKI is an average of the two. With modern engines and fuels systems, recent studies have shown that RON is more important than MON. So in these cars, the higher the RON the better these cars perform. For an AKI rating of 91 the lower the MON the higher the RON. This difference is called sensitivity. All gasoline components have different sensitivity. Most hydrocarbon components have low sensitivity. Ethanol has high sensitivity and so, modern performance cars benefit from gasolines with ethanol. Why does ethanol have higher sensitivity? One reason is related to the cooler combustion that results from ethanol combustion. Higher knock tendency is directly related to higher combustion temperature.
Here is a comparison of two fuels with different octane with and without ethanol.
91 Grade - no ethanol
Ultra 94 - with ethanol
Notice the difference in RON number from 91 grade without ethanol (97.2) and the RON of Ultra 94 (101.5). The difference is 4.3 numbers. That is significantly more than the 3 numbers difference between 94 and 91 AKI labelled on the pump. That is why gasoline with ethanol can be the best performance fuel for today's cars.