Now with all that environmental concernments, ethanol has been considered a good option by some people. I prefer biodiesel or straight vegetable oils, but there are those who prefer something that can be easier to burn in their regular gassers. But to have better results with this alternative fuel a few mods are recommended.
Ignition: since ethanol resists more to the detonation, it requires some advance and a higher-capacity ignition coil is also a good option. Ignition wiring must be in good conditions to avoid electric runaways, so those high-performance silicone-coated copper cables are strongly recommended. Spark plugs with a lower thermal grade usually have better results in ethanol-powered engines.
Compression: it's usual to have higher compressions in engines to work with ethanol. Compression ratios above 12:1 can lead to not need too much variations in the ignition advance. Either a different piston design or a lowered cylinder head can be used. Ethanol has a lesser energy density than gasoline, but higher compressions help to take it more efficiently.
Cold start ability: this is a sensible point to ethanol. In Brazil it's very common to see an auxiliary gasoline tank to be used in cold starts, while in other countries such as Sweden, France and the United States it's more usual to find the ethanol blended with regular gasoline from 15% (E85) to 30% (E70). A few years ago, Robert Bosch Gmbh. released a start system special to the so-called "flexfuel" vehicles, the FlexStart, spotting injector tips with a heater element incorporated to them, allowing the fuel to be heated until 120°C, easing the startup and also stabilizing the idle speed in the first 2 minutes after the start. The device had been used commercially only in a special edition of the Volkswagen Polo for the brazilian market in 2009, but should still be considered a serious option to a dedicated-ethanol engine.
Air intake and fuel injection: in some older dedicated-ethanol engines the intake manifold was made out of metal and could be heated by the water from the cooling system to avoid it to freeze due to the ethanol flowing alongside the intake air, but currently plastic manifolds are found almost in every car. With regular indirect injection or with a carburettor the heating is extremely helpful, but currently there are some engines featuring a direct injection setup, so it would be not so easy to have this problem. Maybe direct injection could also ease the cold starts. By the way, since ethanol has a lower energy density, its consumption is about 30 to 43% higher than gasoline, so more flow would still be required even with some mods intended to increase the efficiency with ethanol.
Cooling system: ethanol usually works better when the engine is allowed to operate in a higher temperature, for this reason a more restrictive thermostatic valve can do miracles in a water-cooled engine. For an air-cooled one it's harder to control the temperature, so idling and startups won't be so smooth, but it's not impossible to overcome this difficulty. In some older Volkswagen boxer engines from the 80s there was an automatic fold-away thermostatically-controlled airflow restrictor to leave the engine reach a temperature more suitable to operate with ethanol. However, currently only Honda motorcycles are offered with air-cooled engines able to run on ethanol and there is no airflow restrictors, mainly because of the current electronic fuel injection system that adjusts itself to operate smoothier.
Another thing that I would recommend is about valve seats lubricity requirements: it's not a bad idea to blend from 2% to 5% 2-stroke engine oil in the ethanol, even when using it in a 4-stroke engine. The oil would reduce the fatigue on valve seats, and also protect fuel lines from the more corrosive effects of the ethanol.