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Push for Biofuels Presents Its Own Problems: CNBC's Olick


President Bush signed an executive order Wednesday morning directing government agencies to increase the use of alternate fuels. But as CNBC's Diane Olick reports, the push for biofuels like ethanol will present its own problems.

The president himself admitted as much when he visited a Du Pont plant in Delaware Wednesday to push his alternative-fuels policy, which he proposed in Tuesday's State of the Union speech.

Corn Cartel?

"It's going to be a strain at some point in time on the capacity for us to have enough enthanol to make us less dependent on oil," he said, "because the corn which it is made from is in limited supply."

Still the president's call to raise consumption targets for ethanol and other alternative fuels to 35 billion gallons in the next decade is a clear boost to ethanol makers, Olick said.

"We see support from Congress, from the White House for increasing the production of renewable fuels," Verasun CEO Don Endres said in an interview with CNBC. "Obviously the country understands its need to reduce reliance on foreign oil, so we think we have support across the board and we're convinced we are going to see additional legislation that is going to make sure that we have a place in the fuel stream."

But all that political support is sending a rumble right through America's corn fields, Olick said. Could a corn cartel be in the making?

Kevin Book, FBR Oil Policy Analyst, told Olick: "In the near years we've got still plenty of headroom according to the USDA.  We can get to 10% of gasoline, apparently without a strain. What happens when farmers see high pricess?  The expected response is that they're going to move into corn from soy and peraps even retiring conservation land and bringing it back on stream."

Corn prices alone have jumped 87% in the past year, Olick said. And some argue that the president's proposal is all about those prices.

"This is really not based in energy politics--it's based in farm politics and 2008 politics," Philip Clapp, National Environmental Trust President, told Olick. "The reality is that this pumps more money into the farm states we're doing a farm bill this year which congress does every five years and it's a question of who can pump more money into farmers pockets."