Many car buffs look to Europe or Japan to see what the future holds, particularly when it comes to the latest in alternative fuels.

The reason is simple: Gasoline costs more than $7 a gallon in both those places.

Of course, in Japan – where I spend part of each year at our home in Kyoto – I always enjoy the added bonus of three to five hardworking service-station employees who swarm my car like they’re part of an F1 pit crew, but that’s merely a nicety that helps me feel better about the money I’m literally pouring into my gasoline tank.

In Europe, I don’t get the pit crew, but I do get diesel. And thanks to tax breaks in many of the countries there, diesel can be cheaper than gasoline. No wonder, then, that more than 50% of the vehicles sold in the European market are diesel powered.

Could we see a similar shift here in the United States market?

Perhaps. But there will first have to be some mighty big changes. And, ironically, they’re many of the same changes that have to take place to clear the way for such other alternative-fuel technologies as ethanol or hydrogen to be fully commercialized. In the face of a trillion-dollar "pork fest" – courtesy of the U.S. government – this really chafes my hide as both a taxpayer, and as a consumer.

Diesel and the Democratic Socialist Republic of Oregon

For instance, only 45% of the nation’s service stations have diesel fuel available for sale, and most of them – not surprisingly – are concentrated along our freeways and highways, leaving suburbanite commuters and behind-the-wheel city dwellers in a lurch. This means that I can own any diesel vehicle I want, but am effectively limited as to where I can drive it.

It’s the same with ethanol.

Then there’s the cost. Right now, diesel is selling for only 20 cents less than a gallon of gasoline. In years past, diesel was actually a great deal cheaper than gasoline. Now, however, diesel is likely to get far more expensive as demand for this close cousin to gasoline escalates even more.

Part of that heightened demand will come from newer diesel vehicles. But, ironically, much of the demand increase will come from government legislation related to ethanol production that requires output to increase from 4.7 billion gallons a year in 2007 to 7.5 billion gallons a year by 2012. Here’s why: The bulk of the machinery used for ethanol production – as well as the machinery used to harvest the corn used to make ethanol – is diesel-powered.

Talk about a paradox.

Still, with the fuel consumption of European vehicles averaging 36 miles per gallon, versus only 22 miles per gallon here in the U.S. market, this might be a moot point, since many of the world’s top "clean diesel" cars – such as the 74 mpg Volkswagen AG Polo – aren’t even available here. Nor will they be anytime, soon.

And that’s a literal "crying shame," considering that many of them can be much more environmentally friendly than the current crop of "hybrids" that are all the rage among U.S. consumers.

But where it really gets frustrating for me – especially as I stand at the gas pumps here in what I like to call the "Democratic Socialist Republic of Oregon," where my family and I live when we’re not in Kyoto – is that, according to the U.S. Environmental Protection Agency, if just 33% of U.S. drivers switched to diesel vehicles, this country could cut oil imports by more than 10%. What’s more, consumption would plummet by a staggering 1.5 million barrels of crude per day.

That should make you sit up and take notice.

How to Play the Alternative Fuel Trend

One interesting long-term play that the Money Morning staff has uncovered of late is agri-biotech giant Monsanto Co. (MON), which just last week released a quarterly sales-and-profit report that eclipsed anything Wall Street had anticipated [To read Money Morning's recent analysis of Monsanto's business prospects and financial position, please click here. The report is free of charge].

Once largely a moribund chemical company, Monsanto in recent years has moved heavily into the agricultural-biotech field with its genetically engineered seeds and its "Roundup" branded herbicide. Monsanto is already seeing a benefit from the growing demand for food and other agricultural commodities as Third World economies continue to emerge. And investors can expect that to continue.

But Monsanto is also benefiting from the move to alternative fuels, such as ethanol. And if you think about that, it makes perfect sense. Genetically engineered seeds improve crop yields. And since ethanol is produced using either corn or sugar, soaring worldwide energy demand will pressure producers of alternative fuels to be as efficient as possible.  That need for boosted crop yields will further stoke demand for Monsanto’s seed products, as well as its herbicide.

If funds are more you style, consider some of the better-quality exchange-traded funds (ETFs) that focus on "clean" energy technologies – which include alternative fuels. One of the top names is PowerShares WilderHill Clean Energy (PBW).

These are some of the better profit opportunities that exist now. Let’s hope our leaders wise up; if they do, additional profit opportunities will emerge.

News and Related Story Links:

• Money Morning:
  Ethanol’s a Farce and We’re Our Own Worst Enemy When It Comes To Energy Alternatives

• Wikipedia:
  Formula 1

• Web site:
  Barrett-Jackson Auto Auctions

• Money Morning Investment Research Report:
  Outlook 2008: Alternative Energy Companies Will Power "Green" Profits in the New Year

• Money Morning Investment Report:
  Monsanto Reaps Huge Rewards From Its Blossoming Seed Business

For months we’ve heard nothing but great things about ethanol.

And true to form, the experts here at Money Morning have ignored most of the resultant investor buzz.

The truth is that ethanol’s a farce and we’re our own worst enemy when it comes to refining the technology anyway – literally.

For one thing, ethanol – in its current state – is anything but the road to energy independence. Sure it can help out, but even if we were to convert 100% of available corn crops to ethanol production, our gasoline dependence would drop a mere 12%.

In order to get some serious leverage, and truly displace gasoline in this country, we’d need 120% of all available cropland – meaning we’d give up planting anything else. No beans, no fruits, no potatoes … you get the idea.

Here’s another fact most folks riding the ethanol bandwagon seem not to know: Because the U.S. government required oil refineries to use more than 4 billion gallons of ethanol last year – regardless of how much it actually cost – wholesale prices were more than double the cost of conventional gasoline. And that doesn’t even include the costs of delivering the ethanol, which boosted its "real" price even more.

That leads us to gasoline prices at the pump, which include federally mandated  subsidy taxes in designated "clean air" areas that boost the price by 60 cents or more per gallon.

As a taxpayer and free-market advocate, I’m hopping mad, because what’s really at stake here is the trillion-dollar "porkfest" laid out by the Beltway Boys [in my view, they deserve to referred to as "The Beltway Bandits"]. It’s just one more example of badly squandered capital – money that could have done some real good if spent correctly, but is instead wasted to support yet another technology with dubious prospects.

In all fairness to ethanol proponents, marked improvements in the refining process that are not yet commercially marketable could conceivably transform ethanol into a profitable product. Were that to happen, U.S. consumers and commercial interests would obviously use more of the new fuel.

But that brings us to the second problem. And that problem is…well…us.

As it turns out, most people in the U.S. Corn Belt love the idea of growing more corn, but they’d rather not have an ethanol distillery in their own back yard.

Unfortunately, in the world of alternative energy, that "I support it, so long as you put it somewhere else" is a common sentiment across much of the U.S. market right now. It doesn’t matter what form of alternative energy you’re talking about – either solar farms, with angled solar panels arranged like crops in furrow-like rows, or sprawling wind farms, each with a battalion of windmill towers, their propellers spinning at a hypnotic pace – communities want them built elsewhere.

People are resisting wind farms in the gorges here in Oregon. Along the coasts, citizens are resisting liquid-natural-gas (LNG) facilities. Many can’t agree on independent power production sites. And they sure can’t get it together for the biggest boy on the block, nuclear power.

Seems we’re our own worst enemy.

Guess we better bank on doing business with the OPEC folks (Organization of Petroleum Exporting Countries) awhile longer and continue pouring our hard-earned tax dollars down the garbage disposal so that Congress can continue to finance its trillion-dollar pork-fests.

It’s a shame. This doesn’t happen in other countries, which have sound energy policies. It’s yet one more reason why the U.S. economy will continue to fall even further behind the rest of the world, since low-cost power and energy are one of the best economic-development tools around.

Let’s hope that we wise up, before we fall too far off the pace.

News and Related Story Links:

• Money Morning News:
  LDK Shares Plunge Another 26% Due to Worries, Barron’s Report.

• Money Morning:
  Fluor to Build Polysilicon Plant in China.

• Money Morning Investment Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

• Money Morning News:
  China Solar Cell Maker JA Solar to Sell $280 Million Worth of Additional Shares.

• Money Morning News Analysis:
  When Corruption is Low, Your Profits are High.

• Answers.com:
  Solar Energy.

• Wikipedia:
  Wind Power.