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Since ethanol is a renewable source of energy and it contributes to lower CO2 emissions, ethanol produced from biomass is expected to increase in use as an alternative fuel. It is recognized that for spark ignition (SI) engines ethanol has advantages of high octane number and high combustion speed and has a disadvantage of difficult startability at low temperature. This paper investigates the influence of ethanol fuel on SI engine performance, thermal efficiency, and emissions. The combustion characteristics under cold engine conditions are also examined. Ethanol has high anti-knock quality due to its high octane number, and high latent heat of evaporation, which decreases the compressed gas temperature during the compression stroke. In addition to the effect of latent heat of evaporation, the difference of combustion products compared with gasoline further decreases combustion temperature, thereby reducing cooling heat loss.