In 2008, the steady rise in ethanol consumption reduced U.S. demand for motor gasoline by an estimated 5 percent and accounted for 20 percent of the increase in domestic corn prices, according to a new assessment of U.S. biofuels by the Worldwatch Institute. Concerns over energy security and climate change, as well as a range of government incentives, fueled the production of an estimated 9.5 billion gallons of biofuels in the United States last year alone, a 39 percent increase over 2007.

The Worldwatch report Red, White, and Green: Transforming U.S. Biofuels offers an assessment of the policies, technologies, and market factors that have driven the rapid expansion of the biofuel industry over the past decade, but that have left some 21 percent of U.S. annual capacity idled in the first months of 2009. The report also looks at the impacts associated with large-scale production of “first-generation” biofuels such as corn-based ethanol and soy biodiesel.

“Biofuels production today can be more harmful than helpful,” said Jane Earley, co-author of the Worldwatch report. “As a renewable energy source, bioenergy should continue to be seen as a promising part of a sustainable energy future, but we must begin the transition to second- and third-generation biofuels immediately.”

Studies suggest that the environmental costs associated with the current biofuel industry—including water pollution, wildlife habitat loss, and declining freshwater resources—likely outweigh the benefits. Claims about the climate change benefits of biofuels are often inflated, as many of these fuels in production today lead to minimal, if any, reductions in greenhouse gas emissions.

The report emphasizes that diversification of feedstocks and technologies—including production of “second-generation” fuels such as cellulosic ethanol and “third-generation” fuels such as algae biodiesel—would provide a more stable basis for large-scale biofuel production. It also argues for the increased use of biomass for electricity production, including for transportation uses by way of electric vehicles.

Three broad efforts in U.S. policy could make biofuels production more environmentally sustainable and help ensure that use of the fuels contributes to both energy security and global efforts to reduce greenhouse gas emissions, according to the report. These include spurring the rapid development of cellulosic and other advanced biofuels, developing sustainability standards upon which government support for the fuels would be conditional, and creating a holistic energy policy across all transport-related sectors.

“The state of play within the biofuels industry has changed dramatically in the last two years alone,” said Alice McKeown, report co-author. “As the economics of the fuels shift and as new policies and technologies emerge, we have the opportunity to ensure that clean and sustainable biofuels, rather than just more biofuels, are a priority.”

The steady rise of corn as a biofuel was powered almost entirely by large corporate interests. Large agribusiness companies that were more interested in profit than sustainability. We were never going to grow enough corn, to make enough fuel to power our auto industry, and the damage that our large mono-culture agriculture system does to the planet is unsustainable anyway. I am glad that 2nd and 3rd generation biofuels that use less land, less water, and are scalable are now moving in to take corns place. The problem is going to be that these large companies are going to fight the change.