Production of ethanol from agricultural and forestry residues, municipal solid waste, energy crops, and other forms of lignocellulosic biomass could improve energy security, reduce trade deficits, decrease urban air pollution, and contribute little, if any, net carbon dioxide accumulation to the atmosphere. Dilute acid can open up the biomass structure for subsequent processing. The simultaneous saccharification and fermentation (SSF) process is favored for producing ethanol from the major fraction of lignocellulosic biomass, cellulose, because of its low cost potential. Technology has also been developed for converting the second largest biomass fraction, hemicellulose, into ethanol. The remaining fraction, containing mostly lignin, can be burned as boiler fuel to power the conversion process and generate extra electricity to export. Developments in conversion technology have reduced the projected gate price of ethanol from about US$0.95/liter (US$3.60/gallon) in 1980 to only about US$0.32/liter (US$1.22/gallon) in 1994. Technical targets have been identified to bring the selling price down to about US$0.18/liter (US$0.67/gallon), a level that is competitive when oil prices exceed US$25/barrel. However, at current projected costs, ethanol from biomass could be competitive with ethanol from corn, particularly if lower cost feedstocks or other niche markets are capitalized upon.