Abstract: Driven by the “dual carbon” goal, biomass liquid fuel has emerged as a vital solution for expanding fossil fuel reserves, reducing greenhouse gas emissions, and combating global warming and climate change. Its prominent “carbon reduction” characteristics make it a compelling choice. Fuel ethanol, the most widely utilized bioliquid fuel globally, is a renewable green fuel derived from cellulose in biomass, such as agricultural waste and wood, through microbial fermentation. It is characterized by high vaporization heat, a high octane number, and cleaner combustion, making it suitable for commercial production. Therefore, the development of fuel ethanol is a critical energy strategy to address energy constraints and promote the sustainable development of the circular economy in China. Fuel ethanol production usually involves raw material pretreatment, cellulase hydrolysis, and microbial fermentation. However, various challenges still hinder large-scale production. This paper discusses the production processes of fuel ethanol and evaluates its lifecycle, focusing on its potential to reduce greenhouse gas emissions. It also summarizes the economic benefits of various ethanol production technologies. Initially, the basic principles and current status of ethanol technology are described, highlighting challenges in producing fuel ethanol from lignocellulosic biomass. These challenges include cell wall stubbornness, multistep pretreatment processes, extended hydrolysis time, degradation product generation, and high production costs. Future research will concentrate on developing a comprehensive suite of technologies designed to optimize low-energy, high-efficiency, and environmentally friendly pretreatment processes for raw materials. This includes creating cost-effective and high-performance hydrolases crucial for enhancing enzyme formulation efficiency in biomass conversion. Additionally, genetic engineering techniques will be employed to cultivate microbial strains that are resistant to both heat and inhibition. These engineered strains will efficiently utilize both pentose and hexose sugars, significantly improving ethanol yields. By integrating these innovative approaches, we aim to boost the overall efficiency of fuel ethanol production and contribute to a more sustainable biorefining process. Life cycle evaluation studies of fuel ethanol production technologies have shown that fuel ethanol plays an important role in mitigating climate change and achieving net zero emission targets by sequestering carbon fixed during biomass growth compared to fossil fuels. Among these, second-generation fuel ethanol performs best, followed by first- and third-generation fuel ethanol. Power consumption is a major contributor to acidification potential and global warming potential, indicating a need for new technologies or alternative power structures can be developed to reduce environmental impact. However, there are issues in the evaluation process, such as inconsistent system boundaries, insufficient data inventories, and diverse evaluation models, necessitating the establishment of a unified standard to further improve the life cycle evaluation system. In addition, a comprehensive analysis of the cost-effectiveness of various ethanol technologies was conducted through a comprehensive life cycle economic assessment. Current pricing makes second-generation fuel ethanol more expensive than gasoline, prompting a focus on improving the efficiency and affordability of cellulase while encouraging the production of high-value by-products. This paper aims to provide valuable insights for future research in fuel ethanol refining technology.