Since many people are working in this area of research, I will only provide a basic outline of the different RENEWABLE liquid fuel technology options available. 

Ethanol - Nice fuel but at a high ecologic cost.

There is some debate as to the energy return vs. the conventional energy spent producing ethanol fuel.  There is also the food vs.fuel issue too.  Whatever the case, ethanol will still find it's way into machines where no other fuel will do since it is probably the closest affordable substitute for petrol.  For example,  machines that absolutely need high density fuel such as light airplanes may still use it.  However, in the future, it would likely be produced from fields plowed by horses rather than tractors and it will be a luxury fuel.

• Engine Modifications required to use ethanol
• For E10 (10% ethanol, 90% gasoline), no modification is needed for most late model automobiles.  Only side effect might be that the fuel filter may become clogged since the engine gets "cleaned" by ethanol on the first use.  For E85 (85% ethanol, 15% gasoline) the fuel system needs to be made for it - but a handful of automobiles already are. To learn more, visit HERE.
• Toxic fuel issue - It's a fuel so it's dangerous - but at least it's not cancer causing.  Spent mash can be mulched or fed to cattle.
• Corrosion - Many automakers now make cars that can handle E10 so corrosion is becomming less of a factor.
• In a small 4 stroke engine, making the throttle accept more fuel and replacing some seals & tubing may be all that is required. 
• Producing fuel
• Tough Questions: Where do we get the feed stock?  Where do we get fertilizer? How do we raise yeast?  THEN, we need to use MORE energy for processing feedstock into fuel!  With subsidies, it makes financial sense to use diesel to produce alchohol.  However, from an ENERGY standpoint, it doesn't (as evidenced by farmers continuing to use lower cost GASOLINE, PROPANE or DIESEL for tractors rather than using ETHANOL to power them)
• Another area for energy loss - Not only does feed stock need to be grown and gathered, but then it needs to go through fermenting too! Which would use less energy, having a still on site or transporting the feedstock somewhere? 
• The Federal government and state governments currently tax ethanol heavily (because you could potentially drink it) so it's important to have the correct permits when producing fuel.
• To read about how you can make your own still, visit HERE.
• Future hope - new brewing technology from S.U.N.Y. ESF might help commercial scale production of ethanol from woody biomass.

On the surface, methanol is attractive.  The feedstock can be produced from trees that grow on marginal land - such as trees found on the sides of mountians.  However, methanol has some issues.  Today's methanol is currently produced from natural gas so it has the same depletion issue that oil has.  It can also be produced from coal using coal gasification technology - but it again faces a depletion issue.  Methanol can be produced from renewble wood but the process produces relatively little methanol for the amount of byproducts it makes (charcoal and other nasty chemicals are not practical to separate at the small scale).  For these reasons, I suspect that coal based methanol will probably be used only a short time (10-20 years) as a motor fuel then it will become too expensive to simply burn.  However, methanol's tale will not be over.  Both renewable and non-renewable methanol can be partially recycled when used to make biodiesel (see last summary below)

• Engine Modifications required to use methanol
• The engine will use more fuel per mile driven so orifices or injectors need to be widened or reprogrammed to pass more fuel
• Toxic fuel issues are similar to gasoline.  Don't drink it, splash in eyes, etc...
• Corrosion and rotting may be a problem for some metal, rubber and plastic parts since auto makers don't currently build fuel systems for methanol.
• May be marginally safer than gasoline - since water can be used to fight a fuel fire

• Producing fuel
• Can be made from trees and trees don't need to be actively "farmed". 
• Feedstock is easier to raise but it's harder to process into liquid fuel without toxic byproducts. 
• In the past, it was a side product when making charcoal from wood. The vapors from heated wood were collected and chemicals were distilled out. Collecting vapors for all the products is too small of a scale for a backyard setup.  You would get a LOT of charcoal, a small bit of methanol and a toxic brew of other nasty chemicals (in small quantities, clearly not cost effective to separate). For this reason, it's usually better to produce methanol on an industrial scale.
• Want to know how wood methanol was commercially produced in the past?  Visit HERE

Biodiesel has one huge issue that makes it troublesome as a fuel.  The problem is that the vehicles that currently use it tend to be very large.  In the US, It's hard but small high mileage cars that use biodiesel exist and are widespread in Germany. In fact, if you go to the Smartcar web site FAQ, you will find that that the U.S. government has for years prohibited importation of ultra small cars that could use biodiesel!  At the same time, behemoth diesel pickup trucks continue gain popularity due to differing emissions, safety requirements and tax incentives.  Ironically, classic cars are exempt from new emissions requirements so they can still be driven.  As a result, this has caused a very tight market for diesel cars. The compact diesel car market is so tight that many owners wanting to use small biodiesel vehicles continue to settle for diesel cars that are more than 20 years old!  There is also one more problem. There is not enough land area! Unless automobiles become radically smaller, perhaps on the scale of small motorcycles, the age of personal ground transportation will eventually come to an end. 

Engine Issues

• Diesel engines come in all sizes.  For example, model airplanes frequently use very small diesel engines due to their simplicity.
• You can easily modify a diesel engine to be a "grease car" to burn straight oil.
• Inexpensive conversion kits are available consisting of a wider fuel line, bigger fuel filter and heater to keep the "grease" or vegetable oil in a liquid form.
• Want to learn more about turning a diesel car into a "grease car"?  Visit HERE
• For using biodiesel, no diesel engine modification is needed!
• Engine sometimes runs better
• Usually, biodiesel doesn't violate an engine warranty

Producing Fuel 

Questions to answer: Where do we get the feed stock?  Where do we get fertilizer? Where do we get the fuel for powering the tractor for harvesting?  After all this, do we get out more than we use? 

Toxic fuel issues: Biodiesel is less harmful than fossil diesel if spilled.  Glycerin byproducts from biodiesel can be made into products such as biodegradable soap.

Corrosion - Many claim diesels work better on Biodiesel due to the enhanced lubricating abilities of the fuel.

For "grease cars": Oil can be pressed from soybeans, peanuts and other oil bearing seeds, then burned straight.  Only filtering is required.  Animal based oil can also be used if it is not too thick. 

For regular diesel engines: Pressed oil from the above step can be processed using methanol and potash additives into a diesel product for use in unmodified engines!  Unlike ethanol or methanol, the processing is not particularly complex.  It is a simple low-energy process that can be done using household materials.

• Additional additives to oil are needed - methanol and potash. 
• Much of the methanol used in making biodiesel can in theory be recovered from a home production process - what percentage could be recovered if produced commercially?
• It is somewhat easy and cheap to make - no sophisticated "still" is needed.
• Moderate safety issues in fuel production - but the process is probably safer and substantially less expensive than building and operating an alcohol still.
• Usually using biodiesel usually doesn't violate an engine warranty
• Jelling in low temperatures is an issue for both veggie oil and biodiesel, so some fossil diesel may still be needed for starting in winter.  However both technologies can still be used in sub-zero weather if proper precautions are taken.
• Home biodiesel production is for now practically unregulated - so a permit is not usually needed (but it's wise to find out anyway). 
• Want to know how to make Biodiesel?  Visit HERE

About the author: 
The author of this page is William McCracken - a disclaimer for this site can be found HERE