Ethanol as an alternative fuel has the advantage that is available today, has been approved for use in vehicles, has an established distribution market and has been accepted by the end consumer. In the transportation sector, ethanol is the most widely used liquid biofuel in the world. In the US, nearly all ethanol is blended into gasoline at up to 10 percent by volume to produce a fuel called E10 or "gasohol," which is widely available. Automakers also produce a limited number of flex fuel vehicles for the US market that can run on any blend of gasoline and ethanol, up to 85 percent ethanol by volume (E85). Currently, E85 has limited availability, primarily at stations clustered in the midwestern states.

Ethanol can be produced by fermenting sugars from any feedstock which contains plentiful natural sugars, or starch that can be readily converted to sugar. Popular feedstocks include sugarcane (Brazil), sugar beets (Europe) and maize/corn (US). The next expansion in ethanol development will be its creation from biomass rather than food crops. Plants and other biomass residues can be processed into fermentable sugars. Such potentially low-cost resources could be utilized to yield significant quantities of fuel-quality ethanol, generically termed "cellulosic ethanol." The production of cellulosic ethanol currently is not cost-competitive with gasoline or corn-based ethanol. Arbor Fuel is currently developing yeast strains that will make cellulosic ethanol a viable economic option for expanded ethanol production.