Ethanol (a.k.a. alcohol) will certainly grow as a business and serve as a partial solution to our energy problem, particularly given that it is now taking the place of the gasoline additive MTBE. However, even if large-scale cellulosic ethanol technology is perfected, I don't believe it can become the primary solution to the world's energy needs.
The often-used example of Brazil does not apply to most parts of the world and may not even apply to Brazil if they see high economic growth with its attendant energy demands. Brazil is in the tropics with an all year round growing season and an enormous amount of arable land relative to its population food requirements and the number of cars on the road.
In contrast, domestic ethanol as the primary solution will definitely not work for the world's most populous countries, such as Japan, China, India, Pakistan, Indonesia, etc. Those countries are either breaking even on domestic food production or are net importers. If you argue that ethanol is to be grown elsewhere and shipped, where are the vast tracts of unused arable land? And, bear in mind, the calories burned by two ton cars are much greater than those burned by 170 pound humans.
Let's consider the specific example of the United States vs. Brazil (production is taken from the Oil & Gas Journal and consumption from the BP Statistical Review, 2002 data). Oil consumption in the US is 27 barrels per person per year (BPY) vs. 4.2 BPY in Brazil, but the US also produces more oil at 11 BPY vs. Brazil at 3.35 BPY. Therefore, Brazil has to close a gap of 0.85 BPY, whereas the US has to close a gap of 16 BPY, resulting in a per person supply/demand imbalance 19 times greater than that of Brazil! Moreover, the US has a population 50% greater than Brazil, but has less arable land and a shorter growing cycle. If the US had the same per person oil usage as Brazil, it would be a major oil exporter. This is why the "Brazilian Miracle" is still limited to Brazil.
Photosynthesis vs. Photovoltaics
Another way to think about the problem is that plants are essentially just a very inefficient way to convert sunlight into stored chemical energy. Crops typically have a net efficiency of about 1/2% or so, compared with commercially available photovoltaics at 20%. That means you need about 40 times more land area for crops than you do for photovoltaics to capture the same energy. Complicating the issue is that crops require arable land, which will apply great pressure to what little remains of unfarmed wilderness areas around the world. In contrast, photovoltaics can usually be installed on your home or business rooftop, efficiently delivering energy right where it is consumed and taking up no extra land at all.
If you want to use plants most effectively as an energy source for transportation, the best way is to burn them whole (no processing needed!) in a combined cycle biomass electric generator at 60% efficiency and use the output to charge electric vehicles. That requires no technology breakthroughs, uses the full energy content of the plant, and is far more efficient than refining a small part of the plant or even most of the plant, using cellulosic technology, into ethanol to power the 20% efficient internal combustion engines of cars.
Photovoltaics and Ethanol Efficiency
The map shows the relative areas required to offset 50% of the miles driven in the US for photovoltaics, cellulosic ethanol and corn ethanol. Compared to photovoltaics, cellulosic ethanol, which is still unproven at large scale, requires a huge land area, even when using the assumptions of its most optimistic proponents. That is why Tesla Motors will be co-marketing solar panel solutions from partners like SolarCity. With just a small 10 ft by 15 ft solar panel tucked away on the roof of your garage, you will generate enough electricity to travel about 400 miles per week in the Tesla Roadster. If you travel less than that, you will be energy positive with respect to transportation and the excess electricity will offset your home's power usage.
---- UPDATED SEPTEMBER 8, 2006 ----
[From a discussion I had with Prof. Nate Lewis at CalTech]
The fastest growing crop, switchgrass, stores energy at a yearly averaged rate of 1 W/m2, for a peak solar efficiency of less than 0.5% (220 W/m2 mean latitude yearly averaged insolation). However, you would be lucky to get 0.2% after considering energy inputs and outputs. Wang and the Argonne GREET model are somewhat more optimistic, achieving about 0.3% net for taking the fastest growing crops and just burning them. Making ethanol is another story altogether, and if not negative, is less than 0.1% at best and more like 0.01% from current corn technology and maybe 0.1% from cellulosic if cellulosic is ever actually developed to work at commercial scale. There is an excellent paper by Pimentel, a professor at Cornell, and Patzek, a prof at Berkeley, in Natural Resources Research (Vol. 14:1, 65-76) on the energy yields of a variety of crops, including corn, switch grass, wood, soybeans and sunflowers.
The Future of Electric Energy Storage
Lithium-Ion batteries are the most efficient way to store electricity today, but I suspect we will find that there are even better technologies down the road. In fact, my original reason for moving to Silicon Valley about a dozen years ago, before I got distracted by the Internet, was to do a Ph.D. at Stanford in the physics and materials science of high-energy density capacitors, specifically for electric vehicle applications. Prior to that, I had worked for two summers at a small company called Pinnacle Research, which focused on ultra-capacitors. Capacitors have the advantages of a quasi-infinite cycle and calendar life, extremely low charge/discharge losses, and charge times measured in minutes (if you have high voltage and thick wire) for a car-size pack. If the capacitor energy density problem is solved, the gasoline vs. electric car contest goes from being a contestable fight to gasoline getting the Wrestling Smackdown.