Glad to see you backing away from the crack pipe to talk some real stuff here...
1) Ethanol (the American version of of the solution that is) is definitely the wrong solution, but since there is no public backlash against supporting "struggling" American farmers; there is no incentive for politicians to back away from the policy of supporting an inefficient technology. The problem really is not with ethanol, but with basing our entire ethanol network on corn and then propping corn up with subsidies on the finished product (ethanol) and import tariffs. The effects, as we've rehashed several times on this board, extend beyond the fuels industry. Sadly, even as it continues to elevate food prices more and more, I doubt the public outcry will ever come. It is easier for people to just assume taxing oil companies more is the solution, when it only perpetuates the problem.
2) 13 years isn't that long of a time to make the kind of changes that will be required in the auto industry to hit 35 mpg. They could shorten the time required, but the result of that would not be more efficient engines, it would just mean the halt of production of the current less efficient ones while the current efficient ones are increased. I can understand someone making an argument for this case and I wouldn't necessarily fault them for it. It's a valid approach in my eyes.
However, I would prefer the approach of giving them time to improve technology and raise the level of efficiency accross the board rather than just shift the mix of current technology available. We won't have a 70 mpg Tahoe in 13 years, but we may see a 25-30 mpg one that can be offset by a 45 mpg Toyota Camry (or whatever a Chevy version is).
The point is, trying to rush things isn't as effective in achieving a technological breakthrough. Eventually they will happen either way (after 10 years of the Corvette coming standard with a 35 mpg 1.8L 4cly engine, they'd have the incentive to produce and charge major bucks for a 35mpg V8) - but rushing it will take longer.
3) I think there are two issues of point in the CA case. The first is whether or not the CA proposal was a good one (I don't think it was, for the combustion physics already noted), but more importantly is whether the EPA should be stepping in to state's business.
States should most certainly be allowed to pursue their own programs and it is really a shame to see their initiatives shut down because they don't coincide with initiatives at the federal level. While I think the CA proposal in this instance was no good, I think they should have the right to make their own mistakes.
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