Economic Competitiveness and Net Social Benefits.Because fossilenergy use imposes environmental costs not captured in marketprices, whether a biofuel provides net benefits to society dependsnot only on whether it is cost competitive but also on itsenvironmental costs and benefits vis-a`-vis its fossil fuel alterna-tives. Subsidies for otherwise economically uncompetitive bio-fuels are justified if their life-cycle environmental impacts aresufficiently less than for alternatives. In 2005, neither biofuel wascost competitive with petroleum-based fuels without subsidy,given then-current prices and technology. In 2005, ethanol netproduction cost was $0.46 per energy equivalent liter (EEL) ofgasoline (14–16), while wholesale gasoline prices averaged$0.44liter (17). Estimated soybean biodiesel production costwas $0.55 per diesel EEL (16, 18), whereas diesel wholesaleprices averaged $0.46liter (17). Further increases in petroleumprices above 2005 average prices improve the cost competitive-ness for biofuels. Even when not cost competitive, however,biofuel production may be profitable because of large subsidies.In the U.S., the federal government provides subsidies of $0.20per EEL for ethanol and $0.29 per EEL for biodiesel (19).Demand, especially for ethanol, also comes from laws andregulations mandating blending biofuels in at least some spec-ified proportion with petroleum. Ethanol and biodiesel produc-ers also benefit from federal crop subsidies that lower corn prices(which are approximately half of ethanol production’s operatingcosts) and soybean prices