There’s just one problem with corn-based ethanol: It takes 29% more fossil energy to produce a gallon of ethanol than the ethanol release when burned as fuel.

The disparity between energy input and output makes ethanol the triumph of politics over logic.

Uncle Sam mandates the use of ethanol as a fuel additive and pushes it as an alternative of imported oil. Politicians of both parties have long promoted ethanol as a way to reduce the nation’s dependence on imported oil.

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“First of all, I'm guilty on promoting ethanol. And the reason is, is because I think it's in our interests to diversify away from oil. And the reason why it's -- I know that's hard for a Texan to say. But the reason why we've got to diversify away from oil is that we end up with dependency on oil from certain parts of the world where people don't particularly like us...

And so, I promoted ethanol, and still believe it's important for the future.”

Last March, California Democratic House Speaker Nancy Pelosi said she supported increasing the ethanol-to-gasoline blend rate to 15% from 10% in an effort to reduce dependence on oil imports. “It seems to me we should be able to do that,” Pelosi told reporters after addressing the National Farmers Union in Washington.

What seemed like a foolproof business plan fell flat with investors, who did the math and concluded that corn-based ethanol makes no long-term sense.

VeraSun and Pacific Ethanol (PEIX) have been pounded. Cascade Investment, a firm owned by Microsoft (MSFT) chairman Bill Gates, sold its 21% stake in Pacific Ethanol in 2007.

Ethanol isn’t fancy or magical. It’s an alcohol produced by a distilling process similar to that used to make hard liquor. Blending ethanol with gasoline allows oil companies to boost octane more cheaply than additional refining.

Despite the hype, ethanol doesn’t produce a net energy gain because corn production requires large amounts of fertilizer, herbicides, and pesticides. The manufacture and application of these chemicals consumes large amounts of energy. The corn must be harvested and hauled to production plants to be distilled into alcohol, which requires more energy. Then the ethanol must be distributed to users by rail and truck. After all that, it’s time to think about the air pollution and wastewater created by ethanol production plus the potential problem of chemical-laden runoff from the cornfields.

Increasing acreage devoted to corn won’t tip the balance in ethanol’s favor because the new land is likely to be less productive than land already cultivated, increasing the cost of production -- especially fertilization. The use of additional energy needed to make marginal land productive would be so great that a study by the Massachusetts Institute of Technology concludes that ethanol production expansion would boost greenhouse gas emissions above current levels.

Using alcohol as a fuel isn’t new. Nicholas Otto, the German inventor best known for developing the internal combustion engine, used ethanol as the fuel for one of his engines in 1876.

What’s new is the unintended consequence of a federal energy program. The Clean Air Act of 1990, designed to reduce air pollution by replacing MTBE with ethanol, instead shovels money to favored companies such as Archer Daniels Midland (ADM), a diversified agricultural company.

“The Archer Daniels Midland Corporation has been the most prominent recipient of corporate welfare in recent US history,” James Bovard wrote in a report for the Cato Institute, a libertarian think tank based in Washington, DC. “ADM [has] lavishly fertilized both political parties with millions of dollars in handouts and in return [has] reaped billion-dollar windfalls from taxpayers and consumers.”

Ethanol made from cellulose, the fibrous material found in plants, contains less energy than fuel derived from corn. If forest or grassland is cleared to plant crops used to make ethanol, it’s usually done by burning off existing vegetation. This releases large amounts of carbon dioxide.

Some say the problem could be resolved, at least in part, by using agricultural waste as the feedstock for ethanol or by growing grass on marginal land that won’t support commercial crops. But that will require new technology because only sugars and seeds can now be distilled efficiently into alcohol. Chevron (CVX) is working with major universities in an effort to develop plants that make better feedstock for cellulosic ethanol and to improve processing methods.

Oil now provides about 40% of the world’s total energy and from 2000 to 2007, the developing world accounted for 85% of the growth in world demand, the Wall Street Journal reports. Oil will be increasingly important in China and India. This means money will continue to flow to some unsavory characters and manic price swings will persist. Last year, the price of a barrel of oil ranged from $147.27 in July to $32.40 in December. Such fluctuations make it difficult to plan and invest in alternative fuels.

Ethanol supporters say subsidies are needed to level the playing field. But US oil subsidies total about $1 billion a year, or six to eight times less than ethanol subsidies.

For now, politics trumps the market. In March 2008, the US Energy Information Administration estimated that US ethanol production capacity was 7.2 billion gallons per year with an additional 6.2 billion gallons of capacity under construction.

In 2007, the US consumed 6.8 billion gallons of ethanol and 500 million gallons of biodiesel. The Energy Independence and Security Act of 2007 expanded the Renewable Fuels Standard to require that 36 billion gallons of ethanol and other biofuels be blended into gasoline, diesel, and jet fuel by 2022.

So, don’t expect an outbreak of rationality in Washington anytime soon -- especially as long as the Iowa caucus comes first in the presidential nomination process and farm states can swing the election or determine which party holds the majority in Congress.