The USA would also like to do this, but continues to import most of its oil from OPEC countries. As for oil being relatively cheap as Rotax said, that's probably true in part because not enough flex-fuel/ethanol is being produced to realise economies of scale. And, I read today that the price of oil is nudging $78/bbl. As long as demand stays high, so will the price. But the rising price will stimulate the development of alternative fuels.
That is accurate in spirit, but the limiter still comes down to current ethanol production technologies, climate/crop choices and raw land. There is a current ethanol mandate for an increase in ethanol in gasoline to 7.5 billion gallons per year by 2012 with a current consumption of 140 billion gallons of gasoline per year. The ethanol folk folk are comfortable with meeting this quantity. This should, I believe, allow for national e-10 or thereabouts and patches of e-85 like today, primarily in the Midwest.
The Bush proposal to up that to 35 billion gallons (still well short of total gasoline demand) by 2017 is seen by most parties, even folk in the ethanol lobby, as being unobtainable without cellulosic ethanol. At best this would displace about 5 percent of fossil motor fuels which would not significantly impact our dependence on foreign oil. Also, for cars equipped with oxygen sensor technology (virtually all today) ethanol is an environment wash -- reducing some emissions while making gasoline more volatile leading to vapor pollution issues. Even California has backed off of the environmental angle.
The real choice to both reduce our dependence on foreign oil and our greenhouse gas emissions is to radically change our living, working and commuting infrastructure model. Not easy, and at this point (and likely for many decades) not absolutely necessary. Gas prices at $3 per gallon seem to be manageable and in line with the inflation adjusted prices of 1981. Not pleasant by any means, and adding inflationary costs but manageable. I don't see a will for that kind of change.
Charon