Ethanol: Behind the Buzz

Production is booming. Global output of ethanol more than doubled between 2000 and 2005. It comprises the bulk of the worldwide biofuel market, which is forecast to grow to $80.9 billion by 2016 from $20.5 billion in 2006. The U.S. and Brazil dominate, dividing more than 70% of the ethanol market evenly between them, with the European Union and South and Central America capturing most of the remainder.

Much like liquor, ethanol can be distilled from different ingredients through various methods. Three ingredients dominate the industry: sugar, corn and cellulose. Although they produce identical final products, each raises different technological, commercial and political issues.

Sugar ethanol is produced from sugar cane and beets, mainly in Brazil. Because sugar can be fermented directly into ethanol, production is efficient and yields a healthy 8.3:1 "energy balance" -- the ratio of energy produced by a fuel to the energy needed to manufacture it -- according to the International Energy Agency. Indeed, among varieties of ethanol, only sugar-based ethanol can compete with gasoline, unaided by tariff or direct subsidy. It also leaves a clean carbon footprint, emitting 80% less net greenhouse gases than gasoline.

The growth potential for sugar ethanol is significant. In Brazil alone, investors are planning to put some $14.6 billion into expanding production capacity, and by 2012, expect to be producing 9.5 billion gallons of ethanol annually. A study commissioned by Brazil's Ministry of Science and Technology concludes that Brazil could increase exports to more than 50 billion gallons, one-tenth of current world gasoline production, by 2025. Other South American and Caribbean nations are also expanding sugar ethanol production, and Africa offers additional potential growers.