Jan. 23 (Bloomberg) -- For the handful of American drivers who fill up with ethanol-based fuel, the best place to live by far is Minnesota, home to 182 of the 556 dedicated stations in the U.S.

That tiny number of ethanol pumps, in light of the 170,000 conventional gas stations in the U.S., shows how few American motorists outside the agricultural Midwest know or care much about ethanol.

General Motors Corp. and Ford Motor Co. are trying to make the fuel more popular by manufacturing more ethanol-friendly models and by stepping up ethanol promotions. Midwest states likewise have passed some incentives, as has the federal government in the latest energy bill.

GM, Ford and numerous environmental groups have been asserting, correctly, that burning E85 -- comprised of 85 percent ethanol and 15 percent gasoline -- rather than gasoline helps to cut carbon dioxide emissions, suspected by many scientists as a culprit in global warming. (In some places fuel that motorists think is pure gasoline already contains as much as 10 percent ethanol.)

And because the fuel can be derived from sugar, corn or other vegetable matter, it's renewable and also lessens dependence on crude oil.

Troubles Abroad

For those who believe that some of the U.S.'s foreign- policy headaches stem from importing too much Middle Eastern oil (I'm not one of them), increasing use of ethanol may hold the promise of easing military tensions, reducing the incidence of terror attacks or at least making life easier for U.S. diplomats.

From the perspective of GM and Ford, more E85 consumption could be a technologically simple answer to ecological critics: It works in vehicles equipped with conventional engines, specially adjusted so they can burn gasoline, E85 or any combination. GM and Ford, which so far have sold about 2 million such vehicles, don't even charge extra for E85 capability.

And E85 could help support the fading popularity of larger sport-utility vehicles like the Chevrolet Tahoe and Ford Explorer, making them more acceptable to those who say they do unacceptable harm to the environment.

Doesn't Pay

There is, of course, a big catch. Depending on the price a filling station decides to charge, it can cost more to use E85 than to use gasoline. Even though E85 usually is less expensive than gasoline, it costs on average 10 percent more to use it because a car doesn't go as far on a gallon of E85.

So it's easy to see why E85 isn't more popular. Without a financial incentive, how many voters will write to their representatives demanding more E85 pumps?

``If you have more pumps and then more infrastructure (refineries), then things will fall into place that make it a better value proposition,'' said Sherrie Childers-Arb, a GM spokeswoman.

The popularity of Toyota Motor Corp.'s Prius and other gas- electric hybrids has taught Toyota and its competitors that some U.S. consumers will actually pay a premium for an advanced technology that can reduce emissions and fossil-fuel consumption.

The number of hybrid buyers in the U.S., however, remains less than 1 percent of the market. That number may include some who would use E85 if they weren't already making their environmental statements with a Prius or other hybrids.

Incentives Needed

Without massive government subsidies and other financial incentives to the consumer, ethanol is a vexing chicken-and-egg problem: Not enough users without more availability and a lower price; and not much availability and lower price without more users.

One place that has succeeded in popularizing ethanol is Brazil, although by means that wouldn't work in the U.S. Following the energy crises of the 1970s, Brazil decided to reduce reliance on imported oil -- while increasing demand for sugar -- by mandating ethanol use and enforcing its production.

Brazil's military dictatorship supported research into ethanol-burning cars and loaned money to sugar producers. The country finally ended price supports for sugar in the 1990s, though ethanol now accounts for about 20 percent of Brazil's transportation fuel usage -- compared to worldwide use of alternative fuels of less than 1 percent.

Forced Change

The strategy has worked well for the nation and even better for Brazilian sugar producers. Commodity traders now believe that world sugar prices are poised to soar because the transportation fuel market is consuming so much of the crop. A Bloomberg survey of 17 traders, analysts and buyers on Jan. 16 found the median estimate is for raw sugar prices to rise about 40 percent this year over 2005.

The volatility of gasoline prices, caused by hurricanes and Middle Eastern unrest, strengthens the case made by ethanol's boosters.

``So much of our fuel cost is based on events we have no control over,'' said Phil Lampert, head of the National Ethanol Vehicle Coalition in Jefferson City, Missouri. ``To the extent we can produce more of our own fuel, that's a benefit.''

Lampert has a point. In the past few weeks the stroke that felled Ariel Sharon, Israel's prime minister, and concern over Iran's nuclear policy have sent tremors through world oil markets, sending crude oil prices higher. The price of wholesale gasoline in New York is trading at almost a three-month high.

But without more financial reward for using E85, drivers are more likely to curse bad headlines from abroad, dig deeper in their wallets at the filling station -- and vow to buy a smaller car next time.

To contact the writer of this column: Doron Levin in Southfield, Michigan dlevin5@bloomberg.net

Last Updated: January 23, 2006 00:28 EST