That strong wind you might have felt earlier this week was just more air rushing out of the biofuel bubble. Monday's statistics from the U.S. Department of Agriculture--that farmers expect to plant 8 percent fewer acres of corn in 2008, compared with 2007--is very bad news for the already struggling ethanol industry. It takes a lot of corn to make ethanol, and the feedstock is a major cost of creating the biofuel. U.S. farmers' plan to plant less corn this year means that record-high corn prices, which are already above $5 a bushel, will likely stay high. It doesn't take an economist to figure out what the grim numbers portend for ethanol manufacturers. Higher feedstock costs, at the same time that yet more ethanol production capacity is coming online, could mean another very tough year for the ethanol market.

Beyond being a pain for ethanol producers, the high corn prices will further exasperate the tensions between using the crop for fuel rather than for food. In a New York Times article, one expert issues a frightening warning:

"We're hoping for good yields," said David Orden, a senior research fellow at the International Food Policy Research Institute in Washington. "If we get bad yields and tight commodity markets are pushed even tighter, we'll get food prices skyrocketing, inflationary pressures and food riots in developing countries, and countries cutting off their exports."

No one knows, of course, whether it will be a good year or not for growing corn in the United States. If it is a bad year, look for even more criticism of ethanol biofuel and, in particular, the Renewable Fuel Standards that mandate that petroleum suppliers use nine billion gallons of ethanol this year. But even if it's a good year for growing corn, expect the poor profit margins for ethanol producers to continue and more grumbling about the economics of biofuels.

There's some more good news about cellulosic ethanol, a fuel derived from grasses and other nonfood sources. It's long been estimated that the amount of energy in such fuels will be much more than the energy required to make them--which is not the case with corn-grain-based ethanol. Now experimental results are in, and the ratio of energy produced to energy used is even better than expected. The renewable energy produced was 540 percent more than the nonrenewable energy used to make it. Previous studies estimated that the number would be more like 340 percent. The improvement comes, basically, from farmers using less energy than researchers thought they would to grow switchgrass, one of the proposed cellulosic sources.

The better ratio means that cellulosic ethanol could do more to reduce greenhouse-gas emissions than previously thought. That's particularly good news, since new legislation will require that some 21 billion gallons of fuel be made from such non-corn-grain sources. The trick now is to improve methods for converting switchgrass into ethanol--making the processes cheaper--and to get farmers to start growing switchgrass in large amounts.

Although biofuels continue to have strong political support, they may not be a smart way to address global warming or wean countries off of oil. A new report from the Organisation for Economic Co-operation and Development (OECD), a respected international group with 30 member countries, including the United States, warns that increased use of biofuels will cause high food prices, won't do much to offset petroleum consumption, and is an extremely expensive way to reduce carbon-dioxide emissions.

The idea that as farmers grow more crops destined to become fuel, rather than food, food prices will increase, isn't new. The report adds that biofuels aren't worth the cost. For various reasons, biofuels will only account for 13 percent of liquid fuels by 2050, doing little to offset petroleum consumption. What's more, there are cheaper ways to reduce carbon-dioxide emissions. To achieve one ton of carbon-dioxide reductions costs more than $500 in subsidies in the Unites States. In contrast, a businessperson wishing to offset carbon emissions from airline flights can do so for less than $15 a ton. (Such offsets use efficiency measures, reforestation, and various renewable sources of energy to reduce carbon emissions.)

What, then, should be done about carbon-dioxide emissions from vehicles? Private offset programs will probably only take us so far. More-efficient gasoline and diesel cars, as well as electric vehicles and plug-in hybrids, can help. (See "Electric Vehicles 2.0.") Biofuels can still play a role, but government investment should focus on research on second-generation biofuels (for example, ethanol from grass and agricultural waste), since these could have a far greater impact on carbon emissions than, say, the ethanol from corn grain produced today. Ultimately, instead of mandating the use of biofuels--or any particular technology, for that matter--the government should instead put a price on carbon-dioxide emissions, and let the market sort out the best strategy.