The Energy Independence and Security Act, signed by President Bush in December, sought to encourage the production of biofuels such as ethanol. But it may be having some unintended consequences. 

As Fortune’s Jon Birger reports: “Spurred by the ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it’s become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.” 

Consequently, the “construction binge” may soon be over. “Plans for as many as 50 new ethanol plants have been shelved in recent months, as Wall Street pulls back from the sector, says Paul Ho, a Credit Suisse investment banker specializing in alternative energy. Financing for new ethanol plants, Ho says, ‘has been shut down.’”

This is only the latest bad news for ethanol boosters. American Enterprise Institute resident scholar Robert W. Hahn recently weighed the costs of ethanol production against its environmental and security benefits. He concluded that, by 2012, the costs will exceed the benefits by between $1 billion and $2 billion per year.