What people don’t realize is that to grow all the “bio” for the biofuels, we need fossil fuel inputs. If (when) oil gets expensive, that will indirectly raise the price of producing ethanol as well.
Currently, as @TaoSan says, special interests (in this case, the corn lobby) has influenced legislation geared toward keeping corn the primary raw input for ethanol in the US. Brazil has done amazing things with sugarcane (which also skips the part where corn starch needs to be made into sugar to be fermented), but Brazil is sugarcane’s natural habitat. To import all that sugar (if they were willing to sell it to us) – would take lots of fuel.
There’s a lot of potential with somehow converting cellulose into fuel. There’s studies on how much we could make, and at what cost… everything except how to make it. We still don’t know how.
But until then, we’re using fossil fuels to turn food crops into fuel, pricing people out of meals so that we can drive around (to some degree). I suppose that’s the free market at work, but it can’t hold together like that forever.
Also, here’s an interesting infographic. I wonder if it’s true? (It’s from here.)