The United States consumes about 186 billion gallons of light-duty road motor transportation fuel annually, most in the form of petroleum-based fuel (i.e., gasoline and diesel). However, biofuels are a small, yet growing, component of U.S. fuel consumption, accounting for an estimated 10 billion gallons in 2008, or 5% of total light-duty road motor transportation use by volume. Ethanol and biodiesel are the most common agriculture-based biofuels. Ethanol accounted for about 92% of agriculture-based biofuels consumption in 2008, and biodiesel for 8%, on an energy-equivalent basis. Together with imports, U.S. ethanol consumption was 6.7 billion gallons in 2007 and 8.9 billion gallons in 2008. Although a small volume compared with total liquid fuel consumption, it nevertheless displaced roughly 88 million barrels of oil in 2007 and 125 million barrels in 2008, compared with oil imports of about 3.7 billion barrels. This report focuses on "first generation" biofuels—that is, those currently in commercial production (corn-starch ethanol and foreign-produced sugar cane ethanol). "Second generation" biofuels, primarily cellulosic biofuels, are not yet produced on a commercial scale in the United States. Historically, fossil-fuel-based energy has generally been less expensive to produce and use than energy from renewable sources. However, since the late 1970s, U.S. policymakers at both the federal and state levels have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based energy. These programs have proven critical to the economic success of rural renewable energy production. The benefits to rural economies and to the environment are not always clear and come with costs, leading to a lively debate between proponents and critics of government subsidies that underwrite agriculture-based renewable energy production. Proponents of government support for agriculture-based biofuels have cited national energy security, environmental benefits (such as reductions in greenhouse gas (GHG) emissions to moderate climate change rates), and higher domestic demand for U.S.-produced farm products as viable justifications. In addition, proponents argue that rural, agriculture-based energy production can enhance rural incomes and employment opportunities, while expanding the value added to U.S. agricultural commodities. In contrast, petroleum industry critics of biofuels subsidies argue that technological advances in seismography, drilling, and extraction continue to expand the fossil-fuel resource base, which has traditionally been cheaper and more accessible than biofuels supplies. Other critics argue that current biofuels production strategies can only be economically competitive with existing fossil fuels in the absence of subsidies if significant improvements in existing technologies are made or new technologies are developed. Until such technological breakthroughs are achieved, critics contend that the subsidies distort energy market incentives and divert research funds from the development of other potential renewable energy sources, such as wind, solar, or geothermal, that offer potentially cleaner, more bountiful alternatives. Still others question the rationale behind policies that promote biofuels for energy security. These critics question whether the United States could ever produce sufficient feedstock of either starches, sugars, or vegetable oils to permit biofuels production to meaningfully offset petroleum imports. Finally, there are those who argue that the focus on development of alternative energy sources undermines efforts to conserve and reduce the nations energy dependence. The Renewable Fuel Standard (RFS) is the most significant government intervention in the ethanol industry. The RFS mandates that increasing volumes of renewable fuels be blended with conventional fuels through 2022. In 2009, 11.1 billion gallons of biofuels must be used, of which 10.5 billion gallons may be corn ethanol. The RFS is discussed in detail below. This report examines the role of government intervention and economic, trade, and environmental issues related to ethanol that are likely to be discussed in the 111 th Congress. Ethanol will likely be central to discussions of renewable fuel issues during the 111 th Congress. This report's discussion of ethanol presupposes the continued dominance of the internal combustion engine and the current infrastructure for petroleum fuel extraction and refining and biofuels feedstock production and refining—as opposed to the major near-term market penetration of alternatives such as plug-in-electric automobiles. The following highlights major topics of potential legislative interest that are discussed in this report. In April 2008, Texas Governor Rick Perry applied to the U.S. Environmental Protection Agency (EPA) for a waiver of the renewable fuel standard, citing economic damage to the livestock and poultry industries in his state. EPA denied the request in August 2008 after determining that implementation of the RFS mandate during the time period at issue would not severely harm the economy of a state, region, or the United States. Around the same time, legislation ( S. 3031 ) was introduced to limit the RFS to 9 billion gallons annually, compared with 15 billion under the current law. Proponents cited the RFS and corn ethanol production as contributing to rising food prices and high input costs for livestock and poultry producers. Opponents of the reduction claimed it would set back efforts to increase national energy security and achieve environmental goals. They also argued that high fuel costs played a much larger role in food price increases than the higher price of corn attributable to the mandate. The bill was referred to the Committee on Environment and Public Works, but no action was taken. Statutory changes to the RFS might be considered in the 111 th Congress. Most ethanol imported into the United States is subject to a tariff of $0.54 per gallon. During the 110 th Congress, legislation was introduced to eliminate the import tariff on ethanol ( H.R. 6137 ), to reduce the tariff to parity with the blender's tax credit ( H.R. 6324 ), and to extend the tariff ( S. 1106 , H.R. 2419 ). The tariff was extended through 2010 in the 2008 farm bill ( P.L. 110-246 ). Several factors may generate debate on the tariff during the 111 th Congress: (1) beginning in 2009, the tariff is $0.09 per gallon higher than the blender's tax credit it was intended to offset, (2) as the RFS increases and becomes more difficult to fulfill, imports may play a greater role in reaching mandated volumes, and (3) if the price of imported ethanol was lower (without the tariff), blenders would be likely to blend more ethanol into gasoline, achieving one of the benefits of ethanol—reduced emissions. The tariff is discussed in more detail later in this report. The use of food crops to produce energy has altered the dynamics of agricultural markets. The U.S. Department of Agriculture (USDA) projects that nearly a third of the 2008/2009 corn crop will be refined into ethanol. Corn production has increased in recent years to accommodate higher demand, resulting in higher prices and shifts in acreage to corn from soybeans and other crops. High corn prices have boosted costs for the livestock industry. Congress may continue its debate and oversight in this area, possibly focusing on two areas: first, the role of speculation in increasing the magnitude and volatility of agricultural and food prices, and second, the response to higher food prices by domestic and international providers of food aid. Both are likely to be examined during the 111 th Congress as they were during the 110 th . For more information on the food versus fuel debate, see CRS Report R40155, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart. The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) requires that biofuels eligible under the RFS reduce greenhouse gas (GHG) emissions by certain levels compared with fossil fuels. EPA is charged with formulating rules for calculating GHG emissions using lifecycle analysis that includes both direct and significant indirect effects (see section below on GHG emissions for more detail). The methodology selected by EPA could potentially eliminate certain biofuels from the RFS—with major economic implications for segments of the renewable fuels industry. If EPA rules on GHG emissions are perceived as overly restrictive, some in Congress could introduce legislation to relax the rules. Ethanol industry proponents are concerned that, even as production of corn ethanol increases, limitations in distribution infrastructure and vehicle absorption capacity will create a bottleneck, known as the "blend wall," holding down potential consumption. The blend wall occurs when the maximum allowable percentage of ethanol in conventional gasoline (e.g., gasoline meant for all vehicles) does not absorb the volume of ethanol mandated by the RFS. For instance, current annual gasoline consumption of 140 billion gallons allows for theoretical ethanol consumption of 14 billion gallons at the current maximum blend of 10% (E10). Thus 14 billion gallons is the blend wall. However, it is not practical to blend every gallon of fuel consumed in the United States at the 10% level, so the actual amount of ethanol consumed is slightly less—closer to 12.5 billion gallons. The blend wall is reached when the volume of ethanol mandated under the RFS is greater than the volume which can be consumed as E10 plus the very small amount consumed as E85. Currently, the ability to consume E85 is very limited due to the lack of infrastructure and the small number of flexible fuel vehicles (FFVs)—annual E85 consumption is about 10 million gallons per year, accounting for less than 1% of total ethanol consumption. One solution to the blend wall is to increase the proportion of ethanol in gasoline consumed by conventional vehicles. Increasing the allowable blend to E12 could raise potential consumption to 17 billion gallons without any additional investment in infrastructure or vehicle modifications. This solution is very popular with corn and ethanol producers, who claim an increase in green jobs, benefits to rural economies, and the displacement of foreign-produced petroleum.