Whether you burn ethanol or gasoline you of course add CO₂ to the atmosphere. In fact, you add somewhat more from ethanol as the energy yield from gasoline, mostly octane, C₈H₁₈, is better than from ethanol, C₂H₅OH.

However, the whole point is that ethanol is produced from biomass, that is: crops that have been grown recently. It does not add any more CO₂ to the atmosphere than the amount removed from the atmosphere for those plants to grow. Plants take CO₂ from the atmosphere to create the sugars that are ultimately fermented into ethanol. Petroleum of course has been buried in the ground for millions of years, so when it is burnt this results in a net addition of CO₂ to the atmosphere.

Of course it is not as simple as that, especially if the ethanol is coming from corn. Corn may be a poor choice, since it is a food crop, and it takes a lot of fertilizer and energy to grow. The energy resulting from burning corn-based ethanol may require as much oil to create as you would have obtained if you burnt the oil for energy in the first place. Sugar cane is a much better, and it is the main source of ethanol in Brazil, a country that has decided to try to convert all cars and trucks to ethanol.

For the long term, we need to find the best enzymes to convert waste cellulose from fast growing grasses, and wastes such as corn husks to sugar (glucose) which can then be converted to ethanol. Scientists are working on that, but it will probably take a few years. Ethanol does have another advantage when used in automobile engines in that it also reduces other emissions a bit, smog generating ones.