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