SAN ANTONIO SUCHITEPEQUEZ, Guatemala, Apr 20 (Reuters) At the Palo Gordo refinery two hours' drive south of Guatemala City, a Brazilian-designed ethanol processing plant hums next to decades-old machinery turning freshly cut cane into sugar.
The plant is part of a new push across Central America to reduce the region's reliance on expensive imported oil by following the example of Brazil, Latin America's alternative energy powerhouse.
Sugar-producing countries are looking to ethanol to breathe new life into the decades-old sugar industry. The fuel, also known as ethyl alcohol, is made from a sugar by-product and then mixed with gasoline to reduce pollution and lower prices.
''Sugar cane has changed its name,'' said Erick Perez, who manages alcohol processing at the Palo Gordo plant.
''Now we call it 'energy cane,''' he said, showing off the three-storey ovens that burn cane fibre to generate all the electricity used by the refinery.
Palo Gordo does not yet produce alcohol in a car-ready form because of a lack of demand, said Perez, but some countries in the region are trying to expand local markets for ethanol by passing laws that promote its use.
All the small Central American economies are net oil importers, and record high oil prices are causing economic hardship for local businesses and consumers in a region where a quarter of the population lives on less than $1 a day.
In Honduras, sugar producers are planting 11,000 hectares (27,200 acres) of new sugar cane to provide raw materials for two ethanol refineries.
''We need to reduce our dependence on oil by promoting the production of ethanol and biodiesel,'' Honduran President Manuel Zelaya said recently. ''In addition to fuel, what we can generate is a number of important jobs growing sugar cane.'' Zelaya's government is also promoting a four-year project to grow 200,000 hectares (494,000 acres) of African palm, a tree with oil that can be converted into biodiesel.
INVESTOR INTEREST Costa Rica's state-run national gasoline refinery RECOPE began a pilot project last month to add 7.5 percent ethanol to gasoline at 63 gas stations in the country.
The programme, funded in part by Brazilian oil company Petrobras, cost $15 million and will eventually be expanded across the country in an attempt to bring down Costa Rica's oil costs, which jumped by 45 percent between 2004 and 2005.
Oil prices and environmental concerns are expanding worldwide markets for ethanol, since burning alcohol instead of gasoline reduces carbon emissions by more than 80 percent.
Green power and nuclear energy are competing to be the solution for reducing pollution from the electricity sector, the main greenhouse gas producer.
In Brazil, three-quarters of all new cars burn either ethanol or gasoline depending on which is cheaper at the pump, and ethanol is now available at nearly all of the country's 34,000 gas stations.
The U.S. ethanol market grew 11 percent between 1995 and 2004, according to the U.S. Trade Representative. The European Union set a target for biofuels to account for 2 percent of all transport fuels used in Europe by 2005, rising to 5.75 percent by 2010.
''Central American countries can be competitive producing ethanol from sugar and there are strong groups in the private sector who are investing,'' said Arnaldo Vieira de Carvalho, who promotes lending to alternative energy projects at the Inter-American Development Bank.
''If they don't sell it to the local market they can sell it internationally.'' BIODIESEL For those without access to massive sugar refineries, leftover grease from fast-food chains like Taco Bell is enough to run an environmentally friendly car.
Guatemalan chemist Pedro Ordonez says he powers his 2006 Lincoln Frontier on biodiesel he makes himself.
The fuel, made from almost any vegetable oil, can fill up the tank of a diesel engine or be used as an additive to diesel in the same way ethanol is mixed with gasoline.
Last year, a group of eco-minded travellers drove a 1974 bus from California to Mexico powered only by old cooking oil from taco stands and Chinese restaurants to make a point about the viability of alternative energy.
Most projects in the region are small-scale, like the grease-powered car used by Ordonez, but El Salvador last month opened Central America's first biodiesel plant with money from Finland, to produce 400 litres (quarts) of the fuel a day.
The plant will process seeds from the Higuerillo tree, commonly used to provide shade for coffee plants in the region and the fruits of the Jatropha bush, a plant native to Mesoamerica and ideal for biodiesel production.
Guatemalan entrepreneur Ricardo Asturias is also launching a biodiesel project using Jatropha plants and already has some 300,000 growing around the country in order to start fuel production next year.
''This boosts agricultural production and helps the environment,'' said Asturias. ''Step by step, we are learning how to make it profitable.'' REUTERS SB HS0843