Ethanol does have a higher octane than gas, but the biggest reason for more torque and power is its heat of vaporization, which is higher than gas.
It takes more heat to vaporize a stoichiometric amount of ethanol than gas. Thus, the incoming air gets cooler. Cold air is more dense, meaning that a greater mass of air is drawn into the cylinders and thus more fuel can be burned. This increases the torque.
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