The Biofuels Directive places an onus on EU member states to ensure biofuels are available on their markets. This paper investigates the use of ethanol derived from biomass type 1 (residues and wastes) and biomass type 2 (energy crops). The technology involved in generating ethanol from energy crops is mature; the same cannot be said for generation of ethanol from residues; many proposals are mooted to generate ethanol from lignocellulosic biomass, but they are not at a commercial scale. Literature is available however on expected yields and economics of ethanol production from lignocellulosic biomass. This paper investigates three options which produce ethanol: 50 million Lpa of ethanol from sugar beet, 50 million Lpa of ethanol from waste paper and 200 million Lpa of ethanol from waste paper. The economics of ethanol production from sugar beet were the worst of the three due to the requirement to buy the sugar beet. Economies of scale are significant: larger plants produce cheaper ethanol. Indeed it was found that for the large plant, the production cost was zero if a gate fee of '100 Euro/t was charged for waste paper. The three options were applied to Ireland. It was found that an investment in an ethanol industry of C561 million would produce 5.7% of the energy value of petrol and diesel in Ireland; the reference value for the minimum portion of biofuels placed on the market in 2010 is 5.75%. The greenhouse-gas savings would equate to 18% of the 1990 transport emissions. (c) 2004 Elsevier Ltd. All rights reserved.