Because of a combination of environmental concerns, high fuel prices and the impending peak oil, development of cleaner alternative fuels and advanced automobile power systems vehicles, Alternative Fuel Cars are becoming more popular.

Battery electric vehicles (BEVs) are not necessarily alternative fuel cars, but they are a great substitute for traditional petroleum and diesel gasoline. Their main energy storage is in the chemical energy of batteries, which are zero-emission passenger automobiles that do not produce tailpipe emissions while being driven. There are various neighborhood, city and highway-capable electric cars available in several countries. Because of the premium price of electric cars brought about by the high cost of the battery packs, quite a few countries and local governments have created tax credits and other enticing offers for early buyers of electric vehicles.

Other alternative fuel cars make use of ethanol, which is a renewable resource made from grain and corn products through a fermentation and distillation process. It is a high-octane liquid that is biodegradable and does not contaminate water. The higher the octane level of a fuel, the slower it burns, which makes ethanol a good fuel source. To minimize harmful emissions of petroleum gasoline, ethanol is mixed with it. E10 is a blend of 10% ethanol and 90% gasoline, which can be used for all gasoline vehicles. E85 is a blend of 85% ethanol and 15% gasoline, which can only be used in flexible fuel vehicles (FFVs).

Biodiesel can also be used for alternative fuel cars, produced from domestic, renewable resources like vegetable oil and animal fat. It can be used alone or mixed with standard diesel. These oils need to undergo transesterification, which is a chemical reaction where the fat or oil is purified and reacted with alcohol to produce esters and glycerol. This type can be used in compression-ignition or diesel engines with little or no alterations. Biodiesel is easy to use, nontoxic, biodegradable, and basically free of sulfur and aromatics.

Hydrogen is also widely used for alternative fuel cars. As a primary source of power for locomotion, hydrogen can be used in two methods: (1) combustion, where it is burned in engines in essentially the same method as traditional gasoline cars, and (2) fuel-cell conversion, where it is turned into electricity through fuel cells to power electric motors. With either method, the only byproduct is water. In addition, the most resourceful use of hydrogen entails the use of fuel cells and electric motors instead of a traditional engine. When hydrogen reacts with oxygen inside the fuel cells, it generates electricity to power the motors.