AMERICA has discovered the business opportunities of alcohol; not the Martinis that traditionally oiled negotiations at the three-hour working lunch, but alcohol as fuel for cars.

Concerned at his nation’s dependence on foreign oil, President George W Bush signed the Energy Policy Act in August 2005, which requires 5% of motor fuel to be home-produced by 2012.

In America, the chosen renewable biofuel is ethanol — ethyl alcohol made from corn (maize). Production will nearly double from four billion gallons in 2006 to 7.5 billion gallons in 2012.

So the ethanol industry — traditionally linked to chemical and pharmaceutical processes — is set for a major expansion.

Brazil, however, has seen it all before. In the mid-1970s, the government initiated the “Proalcool” programme to convert sugar cane into ethanol with the aim of becoming the first country in the world to convert to renewable fuel.

Its motives were the same as in America today — independence from imported oil — but the reasons were entirely economic rather than due to concerns over security of supply or the environment.

It was a happy coincidence that Brazil’s ethanol-powered cars produced 50% less greenhouse gases than equivalent petrol engines.

Proalcool worked well at first, and by 1985 ethanol-powered vehicles accounted for 90% of the new-car market. But then the oil price stabilised, the government changed and the subsidies were withdrawn.

There was a shortage of ethanol at the pumps when the world sugar price was high and producers sold sugar instead of converting it into fuel.

Sales of ethanol cars dropped to almost zero by 1997 and stayed that way until the idea was revived in 2003 when oil prices started to rise again.

This time the ethanol cars had an important difference: “flexi-fuel”. Today’s models can run on both petrol and ethanol. A computer control unit detects what kind of fuel is in use and adjusts the engine accordingly. It was developed in Brazil by Magneti Marelli, the electronic-component company that is part of Fiat.

More than 70% of new cars sold in Brazil are flexi-fuel-powered, which means their owners will not be stranded if the filling stations run out of ethanol, and also that they can choose their fuel according to the prevailing price.

Ethanol produces slightly better performance than petrol, but fuel consumption increases by up to 30%, so it needs to be at least 30% cheaper. This isn’t always the case, as the price depends on the season and the region of the country.