Ethanol is produced primarily by the fermentation of starch from grains (mostly corn) or sugar from sugar cane. It is most commonly used as an oxygenate in reformulated gasoline and in a gasoline blend called "gasohol." These fuels can be burned in gasoline engines. Specialized engines, on the other hand, are needed to burn pure ethanol.

Vehicles burning reformulated gasoline or gasohol will emit slightly more GHG emissions than conventional gasoline fueled vehicles. Reductions associated with burning pure ethanol depend on the feedstock. Ethanol produced from corn has life cycle GHG emissions about 15% less than gasoline vehicles. Ethanol produced from woody biomass (E-100) has GHG emissions 60 to 75% below conventional gasoline.

In engines burning reformulated gasoline using ethanol, NOx, VOCs and CO are reduced approximately 3%, 17% and 13%, respectively, below gasoline engines. Vehicles burning other ethanol fuels reduce NOx, VOCs and CO by approximately 5%, 40% and 20%, respectively.

A gasohol-fueled automobile costs no more than a comparable gasoline vehicle. Since ethanol is derived from grains and sugars, the production of ethanol for fuel is in direct competition with food production in most countries. This keeps ethanol prices relatively high, which has effectively ruled out its use as a motor fuel except where, such as in Brazil and the US, it is heavily subsidized.

Blended ethanol fuels are commercially available across the US and in several foreign countries.

The Brazilian "Prooalcool" program to promote the use of fuel ethanol in motor vehicles has attracted worldwide attention as a successful alternative fuel program. Despite the availability of a large and inexpensive biomass resource, however, this program still depends on massive government subsidies for its viability.

The high cost of producing ethanol (compared to hydrocarbon fuels) remains the primary barrier to widespread use. The limited NOx reductions are also a concern.