As this article in Wired notes, the U.S. has effectively hit the “blend wall” for domestic ethanol production in the short term. Given current levels of fuel consumption in the United States (about ?140 billion gallons/year), current economic and policy realities limit consumption of domestically produced ethanol. There is no present economic reason for consumers to purchase E85, its price is similar to regular gasoline and it requires an expensive investment into a flex-fuel vehicle. E15 is marred with problems and is unlikely to allow for a large increase in ethanol production.
The next few years will be critical for the future of biofuels in the United States. A number of potential things could happen: the VEETC, etc. will expire and corn ethanol will be limited to its current market share with a number of groups competing for market share in alternative biofuels. The RFS2 could be strapped: consumers are increasingly aware that ethanol has provided little at a significant cost to taxpayers and companies have been unable to meet cellulosic or advanced biofuel requirements. The ethanol lobby could potentially get its way and have ethanol infrastructure built all over the United States, in that scenario ethanol would be here to stay.
One thing the article gets right is that the status quo is unsustainable. Either the RFS will begin to be ignored or the ethanol industry will get its way and have money spent to guarantee increased usage of E85 or mid-level blends. It notes that building out ethanol infrastructure would be a “radical and expensive” change to our infrastructure. It mentions the potential for biomass to be converted into gasoline — this would solve the infrastructure problem as this fuel would be compatible with current engines, pipelines, etc. though my understanding is that this technology is still in its infancy as well.
If you accept the premise that oil prices are to increase in the future, it is likely that cars will begin to be built with alternative means of fueling — through electricity, biofuels, etc. But given the uncertainty over future oil prices, the successes or failures of different technologies, and the inability for politics to interfere with decision making, it is very clear that this experiment should be conducted through the market process rather than decreed by bureaucrats at the Department of Energy. The DoE has already signaled its support for biofuels (one wonders if political pressure from Iowa plays a role here, like it did for Al Gore), throwing its credibility out the window.