[Updated 2:59 pm]
If there's an emerging market for alternative fuels, it's not because of the recent $3/gal gas. Rather, it is more likely to have been spurred by realities under the ground: the growing likelihood that we have discovered most major known oil reserves and that for the next half-century oil production will yield less fuel at a higher cost. But three dollar gas will act as a market stimulus for alternative fuels, which may ultimately be the camel that breaks petrol's back.
Three varieties of alternative fuels have emerged as serious contenders to fill America's gas tanks: biodiesel, ethanol, and converted coal. They each have benefits and costs, and I've tried to compile info on the salient points. I'm starting with converted coal and I'll add biodiesel and ethanol later today.
Converted Coal (Fischer-Tropsch)What it is: A process developed by Germans in the '20s that later fueled the Nazis and apartheid South Africa in which coal is gasified to produce clean-burning diesel. The gasification process removes nitrogen, carbon dioxide, and particulates. The process of producing the diesel creates massive amounts of carbon dioxide, but it can be captured before entering the atmosphere.
Where it comes from: Right now, converted coal isn't used in the US, but Montana governor Brian Schweitzer has an ambitious program to convert Montana's vast coal resources. Pennsylvania Governor Edward Rendell announced a pilot project last fall that will fuel the state's vehicles. The company Sasol in South Africa is currently the major producer of converted coal diesel. The future is fairly bright for coal--global and US reserves far exceed oil reserves.
Production cost per gallon: $1/gallon (Montana's estimate)
Pollutants: Reductions in nitrogen, carbon dioxide, and particulates out of the tailpipe. The amount of greenhouse gasses created per gallon produced far exceeds gasoline, but many of these could be trapped before entering the atmosphere.
Energy efficiency: NA
Current availability: Not available in the US.
Conversions needed for vehicles: None.
Downsides: Although it is theoretically possible to capture carbon dioxide in the production of diesel from coal ("carbon sequestration"), it has never been attempted on a large scale. Although this fuel reduces vehicle emissions, it doesn't eliminate them. Coal mining is an environmental hazard. Production requires additional energy sources, increasing environmental cost.
EthanolWhat it is: Ethanol is alcohol made from crops (mostly corn in the US) produced essentially through distillation. While it has obvious economic advantages in production over mideast oil, it is inefficient and still produces greenhouse gases in the engine. It presents a viable alternative to oil, however. In just three years, Brazil shifted from an oil-based transportation system to sugar-cane produced ethanol. The sugar cane, which produces higher yields, costs less than gas and has allowed Brazil to achieve energy independence.
A different kind of ethanol, cellulosic ethanol, can be made from most kinds of biomass and is produced enzymatically and far more efficiently. It is currently in an early stage of development, but is quite promising.
Where it comes from: Ethanol is produced in small amounts as an additive in regular gasoline. It is mainly produced by corn-producing states in the Midwest.
Production cost per gallon: Ethanol is more expensive than gasoline. Current estimates, minus federal subsidies, put the price at $3.31. Because ethanol produces less energy per gallon, it costs $4.91 to drive as far as on a single gallon of gas.
Cellulosic ethanol is projected to cost $.50-.90 a gallon.
Pollutants: Reductions of 20%-30% in greenhouse emissions over gasoline. Less carbon monoxide, but more volatile organic compounds and carbon dioxide. (However, growing crops to produce the ethanol removes carbon dioxide.) Cellulosic ethanol is far cleaner, with an 80% reduction over gasoline.
Energy efficiency: NA
Current availability: Regularly used as an additive; some places--Midwest particularly--sell E85, the 85% ethanol product.
Conversions needed for vehicles: None for gas/ethanol mixtures where ethanol is less than 85%; simple conversions for engines are available for all-ethanol use.
Downsides: Ethanol takes a large amount of energy to produce. It is theoretically possible in modern, efficient plants, for ethanol to be produced at a ratio of about 1 BTU for every 2.5 consumed. However, in older, less efficient plants, it can take as much energy to produce ethanol as it does to create it--sometimes even more (up to 1.5 BTU for every 1 produced). This does not include the resources used to produce the source crop. Lower-energy fuel that takes great energy to produce without enormous gains in greenhouse gasses. More expensive than gasoline at today's prices.
BiodieselWhat it is: Fats from vegetable or animals that are converted to alkyl esters (a process known as "transestiferication"). A variety of oils are used in production of biodiesel: vegetable oils (either "virgin" or waste) or animal fats, including lard and tallow. It may be combined with regular diesel fuel in any combination and used directly in diesel engines without modification. It can erode some rubber parts in cars built before 1992, but may increase the life of fuel injectors due to higher "lubricity."
Biodiesel is available in three varieties. B20 is a mixture of 80% regular diesel and 20% biodiesel. B99 is a 1%/99% mixture, and B100 is pure biodiesel.
Where it comes from: Plants like this one produce biofuel across the country. It is a growth industry and there are various sites online explaining how to set up a biofuels business.
Production cost per gallon: $1.04/gallon. (Current retail price in Portland: $3.17/gallon)
Pollutants: Reports vary. Reductions in carbon monoxide (50-100%), carbon dioxide (80-100%), hydrocarbons (10-50%,) polycyclic aromatic hydrocarbons (56%-97%) and particulates (50%) over gasoline. Nitrogen oxide emissions unchanged. Eliminates sulfur emissions. See here, here (pdf), and here for sources.
Energy efficiency: Highest content of any alternative fuel in comparison to gasoline: 3.2 BTUs produced for every one spent.
Current availability: Available in many major US cities. Updated map here.
Conversions needed for vehicles: Has to be a diesel engine, otherwise no alterations are necessary.
Downsides: The amount of available waste oils is insufficient to replace current fossil fuel use; compensating through animal or crop production has environmental costs. High gel temperature, so problematic in colder climates.
Other: Make your own biodiesel. Learn how here or here.
Converted Coal: CBS News, EPA, Wikipedia, Billings Gazette, National Renewable Energy Labratory, DOE, Energy Efficiency and Renewable Energy.
Ethanol: CBS News, Harvest Clean Energy, Wikipedia, Free Market News, Scripps Howard, Z facts.
Biodiesel: National Biodiesel Board, Biodiesel America, Dept. of Energy, Wikipedia, BlueOregon.