Less than a year ago, ethanol was hailed as a miracle fuel. For example, in Time’s 2007 Global Warming Survival Guide they exhorted us to “Turn Food Into Fuel” to help us survive global warming. But in 2008, they call ethanol a scam because of the environmental costs (ethanol results in using more land for crop production and the latest studies show that ethanol production results in greater greenhouse gas emissions than merely using petroleum).

But that’s not all. There are other environmental problems associated with today’s biofuel production. Environmental Defense is concerned that ethanol plants use too much groundwater. Another new study argues that corn-based ethanol production increases nitrogen pollution levels in the rivers and the Gulf of Mexico. And the biofuel plants in Iowa, the epicenter of biofuel production in the United States, have violated environmental regulations a whopping 394 over the last six years.

The current state of affairs for ethanol production does not look good. So what should we do about the massive downsides to current ethanol policy? Here are 5 steps to move forward ethanol policy that will help the environment.

1. End the ethanol subsidies and mandates. When we thought ethanol was a miracle fuel (as late as last year), Congress enacted a number of subsidies and mandates to force ethanol use. This was premature. Ethanol is not an environmentally-friendly fuel and we should stop subsidizing and forcing people to use it.
2. Be humble. Before we rush off to crown a new energy champion, let’s admit that we can’t foresee future energy markets. Let’s let technologies develop without mandating and subsidizing a champion prematurely.
3. Promote cellulosic ethanol, but not through subsidies and mandates. It is possible that cellulosic ethanol (ethanol from the cellulose of plants, not just the sugars and starches) is in our energy future. If we want to promote it, then enact tax breaks for it’s production instead of using mandates. If cellulosic ethanol truly produces 540 percent more energy than used to produce it, it will be cost competitive with petroleum.
4. Remember there are other possible sources of biofuel than just corn. This is related to #3, but there are a number of possible sources of ethanol. Usually when people talk about cellulosic ethanol they talk about switchgrass. Maybe switchgrass is an answer, but there’s also biofuel from algae and biofuel from waste, among other possibilities.
5. Don’t worry, there are incredible incentives to develop next-generation energy technologies. Currently oil is at $102 a barrel and oil companies are is making a killing. For example, ExxonMobil made $86 billion in profit in 2007 on $405 billion in revenue while Chevron made $59 billion in profit in 2007 on $221 billion in revenue. When energy is this expensive, and literally trillions of dollars are at stake, smart people have incentives to figure out next-generation energy technologies so they can cut into the hundreds of billions of revenue oil companies make.