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Ethanol raises the octane rating *because* it burns cooler. Modern (automobile) fuel systems are sealed so there isn't a lot of water to be absorbed. The fuel delivery chain has been upgraded over the last few decades so water isn't an issue there, either. Ethanol won't harm the "rubbers" used in fuel systems, though methanol will. The problem with ethanol is that it
*does* burn cooler so has less energy content (lowers gas mileage).