SAO PAULO, BRAZIL - A group of U.S. Senators visited Brazil in August to take a look at the country's ethanol industry. "It was a real eye-opener. I was just amazed what we learned," said Sen. Mel Martinez (R-Fla).
What most impressed the delegation was the choice Brazilians have at the pump. Since the 1973 oil embargo, Brazil has battled to achieve energy independence, replacing gasoline with ethanol, an alcohol distilled from sugarcane.
Today, Brazil is the world's largest producer of sugar and ethanol. Brazilian cars are also equipped with engines that can run on ethanol and gasoline, or any blend of the two. Known as "flex-fuel" cars, they have dazzled the market since their launch by Volkswagen in March 2003. Last month, they captured 66.7% of new car sales. All the major Brazilian car manufacturers now make them, including Ford Motor and General Motors.
In Brazil ethanol, or "alcool" as it is called, costs only $2 at the pump, compared to $4 for a gasoline-ethanol blend (Brazil no longer sells regular unblended gasoline). And while ethanol-powered cars consume 25% to 30% more fuel per mile than gasoline cars, the average motorist can save about $820 a year by switching to ethanol.
So why it hasn't been tried in the United States, where hybrid models and hydrogen fuel-cell technology receive the most attention? Surprisingly, flex-fuel technology has been around in the U.S. longer than Brazil. Most cars are already built to run on a 10% ethanol blend, known as E10, though few owners know it.
Some 4.5 million cars in the U.S., mostly SUVs, can handle up to 85% ethanol, or E85. But less than 150,000 were sold as alternative-fuel vehicles.
That may now be changing.
In September, Ford Motor announced it was stepping up its production of ethanol vehicles for the North American market. New models will include the F-150, Crown Victoria, Mercury Grand Marquis and Lincoln Town Car. "Ethanol is typically cheaper than regular gasoline, and we're going to do all that we can to support it," said President Bill Ford in a speech to employees in Dearborn, Mich. Ford has since begun a prime time TV advertising campaign for its ethanol vehicles, noting that it plans to produce 250,000 ethanol vehicles next year, way ahead of its plans to produce 250,000 hybrid cars by 2010. But major obstacles remain. Unlike Brazil, U.S. producers make ethanol from corn, which is a far less efficient source, yielding four times less energy than sugar. Ethanol prices in the U.S. are less competitive than in Brazil. U.S. producers are protected by a 54 cent per gallon tariff on Brazilian ethanol.
Another big problem: the lack of a distribution infrastructure to bring ethanol to the pumps. Oil companies like ExxonMobil (nyse: XOM - news - people ), BP (nyse: BP - news - people ), Chevron (nyse: CVX - news - people ) and others have so far shown only modest interest in ethanol, which is currently blended into about 30% of U.S. fuel. Most of that is E10. Only about 600 out of the country's 176,000 stations offer E85. The U.S. currently produces about 3.8 billion gallons of ethanol, slightly less than Brazil. But U.S. ethanol production is rising dramatically, thanks to generous corn subsidies, (at least $4.5 billion according to the U.S. Department of Agriculture) and tax incentives for fuel distributors. There are currently 93 ethanol plants in the United States, with another 24 under construction. Production is expected to rise to 5 billion gallons by the end of next year.
That's still a drop in the bucket compared to what the U.S. would need to meet a radical market shift from regular gasoline use, estimated at around 140 billion gallons a year.
Even so, last year the use of ethanol reduced the U.S. trade deficit by $5.1 billion by eliminating the need to import 143 million barrels of oil, according the Renewable Fuels Association, which represents ethanol producers.
In recent years, major energy companies weren't interested, leaving the field wide open to smaller entrepreneurs. Ethanol became the salvation for Midwest corn growers struggling to make ends meet with a saturated market and slumping prices. Farmer-owned plants continue to account for about three-quarters of ethanol production. But Archer Daniels Midland Company (nyse: ADM - news - people ), the agribusiness giant, recently began to flex its muscles, announcing plans to expand its ethanol capacity to 500 million gallons through the construction of two new corn-milling plants. "Ethanol demand is growing rapidly as the world's energy requirements are being met increasingly from renewable sources such as corn," said Edward A Harjehausen, a senior vice president at ADM.
So far, U.S. sugar growers have not branched out into ethanol. Under the highly controlled U.S. sugar program, prices for raw sugar are far more advantageous. But that could change as Washington pushes its global free trade agenda. Sugarcane growers in Florida recently commissioned an ethanol study. Oil industry executives testifying at Senate hearings recently urged that the solution for U.S. energy needs lies in better "access" to new exploration and streamlining refinery permits. To be sure, experts agree that gasoline still has a major role in U.S. energy supply. But with demand and future prices of fossil fuels uncertain, the day of renewable energy may have arrived.