With soaring gas prices making alternative fuels more attractive, ethanol - a grain alcohol made from a variety of crops including corn, sugarcane, barley and wheat - has become a popular alternative.

Dependence on foreign oil has led the U.S. to promote ethanol as a home-grown alternative to gasoline, which has fostered a growing industry. Brazil, a nation which has long sought to have a strong national energy sector has implemented policies to promote ethanol use.

As a result, Brazil’s carmakers recently announced they had sold more than two million vehicles tailored to run on alcohol. These new generation “flex-fuel” vehicles, which can run on a combination of gasoline and ethanol, have increased their market share of sales from around 28 percent last year to 77 percent this year.

In fact, it has become so popular that Volkswagen's Brazilian unit said earlier this year that it will no longer sell only gasoline-powered cars, but will make all new vehicles flex-fuel capable.

Though still a tiny industry compared to gasoline, ethanol could become a more prominent part of the U.S. and world fuel supply in years to come. For the moment, ethanol appears to be a growing a niche market.

President George Bush has already set 2025 as the target date for replacing three-fourths of the oil imported from the Middle East. Brazil already satisfies nearly half of its domestic passenger vehicle fuel demand with ethanol.

What is ethanol?

Ethanol is a form of renewable energy that emits less pollution than gasoline. While the latter is made by distilling crude oil; ethanol is made from the starchy parts of plants. The world's largest producers of ethanol are the U.S., which makes it primarily from corn, and Brazil, which makes use of sugarcane.

While 100 percent pure ethanol is not normally used as motor fuel, it can be combined with any percentage of unleaded gasoline. The most common blend is known as E10, a mix of 10 percent ethanol and 90 percent gasoline that can be used in any new vehicle available in the US today. Ethanol is currently blended into 40 percent of the country’s gasoline, and a majority of all gas stations in New York make E10 available to consumers, according to Pacific Ethanol Corp.

Flex-fuel vehicles (FFV) can run on E85, a higher concentration with 85 percent ethanol and 15 percent gasoline. Government tests have shown that E85 vehicles reduce carbon dioxide levels, a harmful greenhouse gas and a major contributor to global warming.

The FFV system allows the driver to use any combination of gasoline or ethanol, ranging from 100 percent unleaded gasoline to 85 percent ethanol. A driver can therefore use unleaded gasoline if ethanol is not readily available.

USA: Thirsty for fuel

While the U.S. has only 5 percent of the world’s total population, it has the highest demand for oil. Among other technologies, President Bush has promoted ethanol use in a bid to end what he has called America’s addiction to oil. Last year, an energy bill was approved by lawmakers, which requires the U.S. to boost its ethanol production from 4 billion gallons in 2005 to 7.5 billion by 2012.

Even with the new law in place, the production of ethanol pales in comparison to the nation’s overall fuel requirement, which is 140 billion gallons of gasoline per year. Increasing the supply of ethanol would require investments in infrastructure and new technology.

Pricing, Efficiency

For consumers today, the price of ethanol is competitive with that of gasoline. According to DTN, from August 21 to 24, the price of ethanol averaged $2.73 in various mid-western states was $2.73. Gas around the country was $2.93 according to the U.S. Government's Energy Information administration.

In terms of cost, the price of ethanol and gas are constantly varying but competitive. From August 21st to August 24th, the price of ethanol averaged at $2.75 as opposed to gas which stood in at $2.93 per gallon.

Fuel efficiency, not just price, is a concern to many consumers. According to the Energy Information Administration, 1 gallon of gasoline contains 139,000 btu (British Thermal Units), while E85 contains 94,190 btu, meaning that one gallon of E85 has about one third the energy of a gallon of gasoline.

According to the National Ethanol Vehicle Association, while E85 contains 27 percent btu than gasoline, actual driving experiences indicate that the loss of fuel mileage in a vehicle using E85 will range from 5 percent to 12 percent depending on the driver and the conditions of the terrain.

Future Promise

While all ethanol is the same, there are different processes used to obtain it. Ethanol can be generated from various crops including corn, wheat and soybeans. However new technology is being developed which can make ethanol from a wider variety of sources, such as corn stalks, grain straw left over after harvest, switchgrass, quick-growing grasses, wood chips, paper pulp, and even municipal waste.

When the technology used to process these cellulosic sources is employed at a commercial scale, it will allow ethanol production to soar to new heights, according to a spokesperson for the American Coalition of Ethanol.

While the consumption of ethanol is bound to increase in the coming years, some feel that it will be part of an overall strategy to move to alternative fuels.

“The ethanol industry has never promised to replace gasoline, but it has gone a long way to reduce our dependence on petroleum based fuel for transportation”, said Gregory Pettit, senior vice president of Hill & Knowlton.

Ethanol may not be the magic bullet, it may only be part of the equation, he added.