All valid arguments re ethanol. It highlights one problem with our economic system though: it only recognises human energy, which is valid but not the whole story. At the moment our society is built on the efforts of plants/algae and geological processes over millenia. Nothing can produce energy in the quantity and quality or rate at which that has provided, except terrestial nuclear fusion and that is a LONG way off being viable.
The economic system also takes into account the products of previous generations of human energy and this is how economies are able to grow: each generation leaves behind a little more product than they use in their lifetimes. The economic system is very reluctant acknowledge wrong turns and to discard any of that human energy, regardless of whether it will have to be discarded eventually anyway. This is why extant government 'subsidies' for alternative fuel sources are required: the existing fuel infrastructure is ' historically subsidised' by previous generations' energy input, both human and fossil.
I would prefer to see this subsidy accounted for directly by government excises on 'dead end' fuel sources rather than see any one alternative promoted. I think that the excises on diesel and petrol are currently too low to account for the 'historical subsidy' but would have to be ramped up slowly to avoid undo economic stress and would be political suicide for any political party attempting it. Unfortunately, as it will hurt more not to do that.
Ultimately, informed free markets (as much as they exist as truly 'free') ARE probably best left to determine outcomes IF they can be configured to take into account the true cost of utilising any resource and IF they acknowledge that there are fundamental limits to the levels of resources available on this planet. Government intervention is usually required. Carbon taxes are one attempt at doing this, as are laws ensuring manufacturing wastes are disposed of at minimal cost to the environment.
Globalised markets rely on cheap energy (mostly oil) to function. If the cost of fueling ships to move goods from production to market rises substantially, it becomes cheaper to once again localise the souce of production. eg. the value of sugar as a domestic ethanol feedstock may rise. This becomes more difficult if the means of production has also been 'exported' ie. dismantled in favour of production in other countries.
There are other issues. Ethanol, best case, currently has a return of excess energy over that required in its production of less than 2:1. Oil, given the energy required to find and extract it, is currently around 8-10:1, depending on who you believe, but will slowly decline as more and longer holes are required to be drilled and more inaccessible areas explored for its discovery and extraction. Ethanol has scope for improvement but probably not to 8:1. These are not economic costs, rather fundamental limits to the use of these sources of energy.
The RATE of oil extraction and use is related to the energy return on investment and ultimate quantity extracted also. I am not a geologist but I will try to explain as I understand it. Oil is generally contained in porous rocks (like big sponges) and as oil fields 'age' and oil and gas are extracted, the driving force, pressure, for pushing the oil through through the 'sponge' reduces and so the rate of flow decreases. Water can be allowed to flow or be pumped in to push the remaining oil through but this takes the addition of extra energy. There are limits to the rate at which water can be pumped through also; too fast and the oil breaks into smaller droplets and is left behind as irrecoverable, or may be left in small pockets in the irregular shapes of fields. More holes or horizontal (longer) holes can reduce the distance which oil has to travel hence speeding the rate of extraction but each extra length of hole drilled takes more energy, both human (economic cost) and resource (lower net return).
The best hope for ethanol is the development of processes for extracting it from feedstocks other than starch/sugar - namely lignin and cellulose. These represent a much larger proportion of plant material and have less (but not always nil) economic value for other purposes. In order for those processses to be developed, an economic incentive has to be in place: humans have to see a reward for their effort. There has to be a market and they can't compete currently with historically subsidised oil, nor be brought on quickly enough when they can.
Ethanol is better than most alternatives in that it can take advantage of some of the energy locked in the existing infrastructure developed for (and using) oil. The same is true of biodiesel but the scope for substantially increasing the production of it is limited because the potential feedstocks are limited and tend to be in competition with food production rather than complementary.
Most of the relevant issues are discussed on the 4 corners Peak Oil forum (a search will find). What isn't given any mention is the role biotechnologies might play in accessing alternatives to oil. Unfortunately, most of the monetary return (and the glamour) in biotech is currently in the production of high value medical products. Some of this is political in that there is distrust of genetically modified foods and methods of crop production using it.
There is scope for improvement in all aspects of oil/gas substitution using biotech. Nitrogen fertiliser (natural gas) use could be reduced by incorporating nitrogen fixing bacteria into rhyzozomes in the roots of plants, like those naturally occuring in legumes, for example. Crop yields can be improved (within fundamantal limits once more) using GM crops - whether through pest resistance or manipulating desirable parts of the plants to be produced in greater proportion.
Industrial processes for producing things like chemicals and precursors for plastic production can be improved or substituted for, by using biologically derived enzymes or genetically modified organisms, and biologically derived feedstocks, the range of feedstocks being opened up by the use of the enzymes and/or GM organisms. Ethanol from ligno-cellulosic feedstocks is just one example. Material substitutions can be made in some cases eg. cellulose fibres used in composite materials.
As an aside, the best woods have strength to weight ratios in compression equal to or exceeding mild steel and, due to their low densities, they can be used in such a way as to have stiffness to weight ratios better than all but carbon fbre composites.
If biotech is used to develop complete organisms, whether improved crops or micro-organisms for industrial processes, the need for substantial changes in infrastructure is reduced - they are self-replicating.
