The University of North Dakota Energy and Environmental Research Center has been awarded a $765,000 contract from the Federal Aviation Administration to optimize and develop the specifications for aviation-grade ethanol fuel. This fuel can be utilized in Piper, Cirrus and Cessna aircraft. "We burn 532,000 gallons of aviation gas annually," said Bruce Smith, Dean, John D. Odegard School of Aerospace Sciences. "With estimates showing that this fuel can be as much as 50 cents less per gallon than our current aviation gas, switching to aviation ethanol will create important savings."

Potential benefits of aviation ethanol include the fact that it is lead-free, its high octane content provides more power than standard aviation gasoline and it causes less engine wear than aviation gas, allowing longer time between engine overhauls.

If alcohol is such a great fuel (and fuel additive), then why isnt everyone using it?  

 The truth is, most petroleum companies have used it, at some point in their history, and many continue to use ethanol as an octane booster / oxygenator.  Pure grain alcohol is rated at 106 octane, and it is so good that it doesnt take all that much to raise the octane of 85 or 87 octane up to 90 octane, so that it can be sold as premium and obtain a much higher price. Alcohol fuel has been the main fuel of the Indianapolis 500 for almost its entire history, and fuel dragsters racing the  ¼ mile drag strip use alcohol fuel. Ethanol (grain alcohol) was popularized during  the OPEC oil embargo,  around 1979-1981, because US-produced ethanol could displace from 5% to 10% of the fuel needed in the US, while imports were being shorted. So, the big five oil companies (at that time they were Shell, Arco, Standard Oil, Texaco, and Mobil) all started building big commercial distillation plants  in the deep South, including Texas, but mostly around Mississippi and Louisiana (this was because it was easy to bring in the large quantities of grain  (as well as imported molasses from Caribbean sugar cane, and sugar beet pulp from all the Southern sugar beet farms.  This wasnt the first time ethanol was used, either. During World War Two, ethanol was produced in very large quantities, and many new plants in the Midwest were built to supply the US Navy & Airforce planes with aviation fuel, which was anywhere from 20 % ethanol to pure 100% alcohol. People in the US used ethanol- spiked fuel to conserve petroleum for the war effort, and gas rationing was so stringent at this time that people were issued gas stamps which they had  to show at the gas station, to show that they were allowed to buy gas say, twice a month (or whatever their allotment).

 So the petroleum companies already knew a lot about ethanol as a fuel and as an additive, and have had this in their bag of tricks for a long time. All through the 40s and early 50s, premium gas wasnt called premium, it was called ethyl, short for ethyl alcohol. In the 50s, though, someone came up with the idea of adding this incredibly cheap waste product, lead dust from the mining and metals industry, to gasoline.  Leaded gas displaced ethanol because it was a lot cheaper and because it did slow down the combustion of the gasoline (which tends to burn to fast to be able to get all the power out of it). They could still offer a premium brand, and it cost a lot less to make it, the oil companies profited enormously. They just ignored the fact that lead did not enter into the combustion cycle at all: it just inhibited it, and ended up as lead dust all over the cities, which started getting heavily polluted and grayish colored from all the lead dust landing on the streets, of the walls of buildings, and on the hands of little children playing outside.  Well, with the oil embargo of the 70s, they went back to ethanol, as an octane booster.  They made a marketing mistake, though: they decided to call it Gasohol, and they promoted it hard and heavy. The term, gasohol confused people though, and a very high percentage of people werent sure if they could put it in their car.

 At this time, ethanol started so getting popular as an alternative fuel, that many people, from farmers organizing alcohol production co-ops (like the one we started in California: the Calif. Alcohol Fuel Producers Association, or CAPFA). Even big companies like Archer-Daniels/Midlands (as in Midlands Oil) started turning corn into fuel grade ethanol.  Ethanol production came into its own during the late 70s early 80s, so much so that a new trade journal, Gasohol, USA, flourished almost immediately after going to press, and became a major industry trade journal, with big advertising dollars from the growing ethanol industry.  Suddenly farmers knew they could produce their own fuel, as well as the fact that this was a clean- burning fuel, much better for your engine in many, many ways. Now these people had a voice,  with this widely circulated magazine.

What happened then was that the petroleum industry started running a counter-advertising campaign against the growing grass-roots effort intent on converting cars to switch to alcohol. To give you an idea of how big this movement was, many groups, such as CAPFA, and Chuck Stones company, Future Fuels of America, started lobbying their congressmen, and talking to their state governors, and we even got an alcohol fuel tax exemption passed in Congress (an exemption which continues to this day). So every week you started seeing articles in the newspaper about how corrosive, or how inefficient pure alcohol was, while at the gas pumps, people saw gasohol with signs saying, contains ethyl alcohol, and they didnt know what to do. So gasohol sales dropped, and the shortage of unleaded regular persisted, keeping the unleaded gas market overextended. So, regular gas prices continued to soar, and oil companies continued to make a killing with the high prices they were getting.  A lot of this was totally twisted propaganda, with adulterated and manipulated statistics. They would say things like it takes more energy to produce it than you get out of it.  Well sure, you could make a case for inefficiency if you purposely built a plant that was designed to be inefficient. This would be like only testing one particular car, say, a big 1960 model Cadillac V-8 engine for fuel efficiency, and never bothering to ever test another car on the road to see if there was ever anything better than that. In fact, the propaganda was even worse than that: they didnt bother to actually test alcohol production facilities, rather, they just built a case from a theoretical, completely made-up assumptions, in short, a flawed mathematical model. This same mathematical model would keep re-appearing in so many reports, that people accepted it as true, just because the oil pundits had told them so many times that it was true.   A couple agricultural universities, such as UC Davis, subsequently did studies of these new commercial distillation plants to disprove this myth, and they determined that with an efficiently run distillation plant you have a net energy gain of over 65%, which is not a bad equation at all.

OK, enough history for the moment. Let us look at MTBE itself, and what has happened throughout the world wherever it was used. First of all, through no fault of the MTBE additive, most gasoline stations throughout the world have underground buried gasoline storage tanks. In some soils, which are fairly inert or non-corrosive, these tanks can stay buried for 200 years and they will never leak (although, being mostly steel, they will rust if not properly internally and externally coated with an anti-rust coating. However, there are a lot of different types of soils in the world, and many are quite aggressive & corrosive, so even a lot of  new tanks less than 10 years in the ground, and a whole lot more older tanks, 20 or 30 years underground, developed leaks. The gasoline seeped out continuously, perhaps at a slow rate, but that gasoline keeps traveling followed by even more gas continually leaking and spreading, eventually working itself down in to the aquifer, or water table as it is commonly called. As nasty as petroleum is, it still tends to float on top of water, and does not invariably contaminate the water supply.  Some aquifers are like underground rivers, and the gas gets mixed in and even though it can be quite diluted, it is poisonous. In fact the MTBE is thought to be cancer-causing a dilutions of parts per billion, while many other carcinogens must be 1,000 times more concentrated, and are measured rather, in parts per million.  In other words, MTBE is some bad, nasty stuff.  Once it gets down into the underground water supply, how are we ever going to get it out? It can cause birth defects, as well as cancer, and the point is, why take the risk to mix it in our gasoline and store it dangerously close to our underground drinking water supply, if we have a much safer product available?

At the beginning of this answer I stated that ethanol is an Oxygenator. This is because there is an Oxygen molecule at the core of its chemical makeup. So, when it is burned with gasoline, it tends to make it more efficient as it provides more oxygen inside the cylinder  during the combustion cycle.

You can guess the answer to why oil companies still prefer to use MTBE over ethanol: cost. They may only save $0.03/gallon, but over the millions of gallons of gas they sell, this is a big figure for them. It is likely to be more like $0.30/gallon cheaper than ethanol, which cost the refineries around $0.80/gal.

First of all, to mix alcohol with gasoline, you have to remove all the water content, because water and gas dont mix, but alcohol mixes quite well with gasoline.  See this link, How Pure do you want it?