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Ethanol is being extensively lobbied by the U.S. farming industry.  The vision is to generate transportation fuel domestically for national security.  However, depending on the feedstock, ethanol can be one the most detrimental transportation alternative.

Ethanol is processed from crops (e.g. sugar cane, corn, and switch grass) that requires  land, fertilizer and water.  Transportation, fertilizers, farming, and processing all require energy to generate ethanol.  For example the energy balance of ethanol from corn  is barely positive.  For 100 units of ethanol energy about 70 to 110 units of energy were used in the process of making the 100 units of ethanol energy. 

The farming industry is strongly lobbying for ethanol, because of the potential to make huge amount of money.  It is important to be critical of ethanol and not to be fooled by the lobbying power of the farming industry.  Ethanol supplements into gasoline can be advantageous to decrease pollutant emissions.  However, this is much different than the implementation of high ethanol gasoline (E85). 

The implementation of large amount high ethanol gasoline (E85) is rather concerning.  Energy crops can have adverse affects on water and food water supplies around the world.  Spurred by the increasing use of corn for ethanol, tortilla prices in Mexico increased by more that 50 percent (2007) in many regions
http://www.zmag.org/content/showarticle.cfm?SectionID=59&ItemID=1203

For another good article see-
http://www.technologyreview.com/read_article.aspx?ch=specialsections&sc=biofuels&id=18173&a=

Ethanol can be a viable alternative depending on the feedstock of ethanol.  However, one must be aware that the net energy balance of ethanol is small (i.e. a  lot of fossil fuel energy goes into the generation of ethanol) and depending on how ethanol is made, ethanol can have adverse affects on food supply and prices.