Alas, various regulations and laws partly replaced the marketplace as a driving force behind 'innovation'. Whether that's bad or good is an entirely different issue I wouldn't want to get into.

Well, the FEDs saying that we want butanol powered vehicles would definitely be a good enough incentive. If (and that's a big *IF*) butanol, or a blend with significant amount of it becomes a fuel, it would be phased in over several years, so car makers would have time to test it, and may not need to worry about older engines that weren't tested with butanol.

In any case, the race is still on, and whoever can come up with a suitable alternative to gasoline could hit a very big jackpot. E85 may be nice for some, but (at this moment) it's more expensive to make than gasoline, and furthermore it is not suitable for the vast majority of cars out there.

Personally, I think there will be several sources of alternative fuels, and various waste products will probably make up a significant portion of it. Growing most everything require fresh water which is already in a short supply in many places. However, waste products like yard waste, garbage, etc., are already exist and require not much additional water.