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The second generation methanol lean burn system has been developed. The power unit is a new, 4 valve 1.6L in-line four with compact combustion chambers. Lean misfire limit was extended by using a swirl control valve in the intake port which improves combustion under partial load. Lean mixture control is made by using a signal from lean mixture sensor provided in the exhaust manifold. An EGR system has been newly adopted to reduce NOx emissions and a under-floor type catalyst is also used to reduce formaldehyde emission in the cold transient mode in addition to the manifold type catalyst. Permissible excess air ratio range (PEXARR) was defined and used to indicate the potential for reducing vehicle NOx emissions in engine dynamometer tests to optimize compression ratio, valve timing and swirl ratio and to evaluate the effect of the EGR.