You don't need government standards on MPG. You don't need to require flex fuel (not even going into the debate on how much energy one really gains from the production of ethanol).
Tax. Tax something, you get less of it. Subsidize it, you get more of it.
Want higher MPG cars? Slap a $2 gallon tax on gasoline, all the money earmarked to pay down the national debt or to be directly rebated via Social Security payroll tax reductions or something. I assure you, you WILL get higher MPG cars very quickly. You will significantly reduce US consumption of gasoline simultaneously. Instead of the extra money from $2 gas going to the oil producers, it will come back to the US citizens. (Bonus is that illegals won't get the rebate. 
)
Also, by taxing gas and not ethanol or other flex fuels, you will drive the market to flex fuel vehicles.
Of course, you'll never ever get rid of the $2 added gas tax, even after the problems are improved or resolved. But hey.. that's big government for ya!
Increasing taxes on gas to force consumers to conserve is national suicide for the economy, I drive a 4 cylinder car, but we don't have subways or any real mass trans options here. I'm hurting big time already and I can't afford to replace my car with a hybrid, without even going into a debate on how the trickle down effects business such as tourism etc. If gas is too expensive we can't keep vacation industries in business.
Brazil runs on ethanol with leftover fuel they would like to import to us except we have protectionist tarriffs for big oil. Who else can grow sugar cane? Maybe Columbia and Peru would like a new, legal, cash crop. If most US cars can be converted to flex fuel, that market will rise. If you build it they will come. If we can use whichever fuel source is cheaper there will be stiff competition.
We need to get out of this "oil only" based economy. If we could get half our cars running on ethanol, things would dramatically improve.
