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Denatured alcohol is not, in itself, a preferred product — that is, it is not something which would be normally demanded if given the alternative of normal ethanol. Denatured alcohol and its manufacture are a public policy compromise. The supply and demand for denatured alcohol arises from the fact that normal alcohol (which in everyday language refers specifically to ethanol, suitable for human consumption as a drink) is usually very expensive compared to similar chemicals, being highly taxed for revenue and public health policy purposes (see sin tax). As a result, if pure ethanol were made cheaply available as a fuel or solvent, people would drink it.

Denatured alcohol provides a solution to permit legitimate use and manufacture of ethanol, whereby cheap ethanol can be made available for non-consumption use without the risk of it being converted for consumption. The process creates a modified ethanol that is not suitable for drinking, but is otherwise similar to ethanol for most purposes. As a result there is no duty on denatured alcohol in most countries, making it considerably cheaper than pure ethanol. Consequently, its composition is tightly defined by government regulations which vary between countries.

In instances where absolutely pure ethanol is needed at a reasonable non-consumption-taxed price (for example, at chemical research laboratories), tight security procedures are required to eliminate the possibility of conversion for human consumption — specifically, tracking the purchase and distribution of the alcohol and ensuring compliance of workers who handle the pure ethanol.[citation needed]...