Is this in the States? I've always been under the impression that this has more to do with the corn lobby than anything else, with a nod towards the environment in that it's a biofuel so it's renewable. That's offset by using a potential food source for fuel.
Here's a quote from Wikipedia that indicates ethanol (E85) actually worsens pollution:
A study by atmospheric scientists at Stanford University found that E85 fuel would increase the risk of air pollution deaths relative to gasoline by 9% in Los Angeles, US: a very large, urban, car-based metropolis that is a worst-case scenario. Ozone levels are significantly increased, thereby increasing photochemical smog and aggravating medical problems such as asthma.