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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.