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Bio-ethanol can be produced from several type of biomass, and the CO2 emission of bio-ethanol is low compared with gasoline. Bio-ethanol is a high octane fuel, therefore, it has characteristics that allow it to burn at a high compression ratio condition. However, bio-ethanol is usually refined to be high purity ethanol (>99.5%). It requires much energy to refine; thus large-scale refinery plants are needed, increasing the cost of refining bio-ethanol. High purity ethanol (>99.5%) can be refined after fermentation and a distillation. If hydrous ethanol can be used as a fuel for engines, the distillation process can be simplified. As a result, the costs of refinement can be reduced. An innovated engine can be developed by using hydrous ethanol as the fuel because three highly efficient methods can be combined. First, exhaust heat can be recovered by the steam reforming of hydrous ethanol. Second, the reformed gas, which contains hydrogen, can be combusted under dilute conditions.

The internal combustion engines waste large amounts of heat energy, which account for 60% of the fuel energy. If this heat energy could be converted to the output power of engines, their thermal efficiency could be improved. The thermal efficiency of the Otto cycle increases as the compression ratio and the ratio of specific heat increase. If high octane number fuel is used in engines, their thermal efficiency could be improved. Moreover, thermal efficiency could be improved further if fuel could be combusted in dilute condition. Therefore, exhaust heat recovery, high compression combustion, and lean combustion are important methods of improving the thermal efficiency of SI engines. These three methods could be combined by using hydrous ethanol as fuel. Exhaust heat can be recovered by the steam reforming of hydrous ethanol. The reformed gas including hydrogen can be combusted in dilute condition. In addition, it is cooled by directly injecting hydrous ethanol into the engine.