The big problem is what if oil goes $65, $65, $65, $100 and there is no ready replacement. Ethanol doesn't have a good enough EROEI to close the loop and become independent of oil. Maybe green diesel is a better bet combined with controls on negatives like deforestation. In a perfect world the day the last oil refineries close then green diesel plants would open up next door, all financed by private capital. Doesn't seem to work that way hence the need for handouts. I think maybe a subsidy phaseout period (say 5-10 years) could be a compromise.

That is why we need taxes announced now that guarantee prices in the future approaching $100 per barrel and beyond. This is why it is irresponsible to simply wait until the price goes up so that the full marginal cost go to the oil companies and, primarily, foreign sources of supply.

Further, a significant part of this oil should be replaced by absolutely nothing. A significant, if not the majority part of the so called replacement needs to consist of conservation of doing without or doing with less.

That is the problem. The prevailing paradigm feeds into the inability to imagine a world with a lot less liquid fuels to run our vehicles. Let's not only imagine that world but put in place policies that hasten it not try to avoid it with fantasies of abundant biofuels.

I use half the oil that I did a few years ago. My overall well being and financial well being has increased without any increase in income. This was not a difficult transition . The transition for society will be more difficult but it must be done.

Maybe biofuels will play some limited role once we have maximized our efficiency and conservation. I don't know. But relying on subsidies for biofuels as the strategy for the future is folly. Waiting for those higher prices, not just $100 but $200 is just like waiting around for a slap beside the head.

There is never going to be a ready replacement based on our consumption and lifestyle patterns existent now. Apparently, we will do everything imaginable under the sun to avoid that basic reality.

You think you are going to have biodisel with controls on deforestation? Ain't gonna happen. Your perfect world is not going to happen, with or without subsidies. A subsidy phasout plan would mean we continue our growth paradigm full speed ahead. When we hit the brick wall, the crash will be much greater than if we voluntarily cut consumption starting now.

The problem with "doing without" is selling it.  IMHO, parking your Volt and VentureOne at your Passivehaus is a much more attractive vision than wearing heavy sweaters indoors all winter.  And for the moment, at least, we can build the Passivehausen.

Part of doing with less is having a Prius, which cuts gas use by 60% over the average vehicle. This is hardly wearing sweaters indoors all winter. While visions of future technology may be a good selling point, they divert us from what should be done now with existing technology. GM will milk the ICE installed in the big SUV or truck as long as possible. We don't have time to wait for the Volt; besides I don't think it makes sense to trust Lutz as far as we can throw him. I am would like to throw him.

Part of doing with less is better and more insulation and building and retrofiting houses now to use less energy. This has nothing to do with heavy sweaters, in winter, either.

I didn't mean doing without energy; I meant doing with less.

BenjaminCole
The high price of oil is already encouraging or forcing conservation. World oil consumption will likely flatline in this price regime, or perhaps drop. There are huge amounts of heavy crude and tar out there, and bio is coming on. Any energy problem is political, not geological. (Saudi Arabia has heavy deposits which dwarf its light deposits)
And you are right: We can attain higher living standards while cutting fossil fuel consumption, The plug-in hybrid vehicle will likely break the back of the oil cartel, if we can just get behind it in the United States. In Europe, they will move to plug-in diesel and 20 percent bio within 12 years. That will radically curtail fossil fuel consumption. Sheesh, flourescent bulbs and hybrids alone could ra
dically alter the world oil picture. Toss in some solar and bio, and it's a brand new ballgame.
Taxing fossil fuel going forward is a great idea, so as to transfer revenues to the US Treasury rather than to oil importers. Check out new cattle-ethanol-corn plants. Ethanol can be way energy positive, and I suspect we will see soon pig-potato-ethanol plants (in Russia, that's called vodka).
The future is actually very bright. There is so much technology out there now, let alone coming on. If the United States even develops a mediocre energy program, we will be able to hand our children a better world.

World oil consumption will likely flatline in this price regime,...

World oil consumption will decline. That is the whole point of "Peak Oil". The world can't consume more than it produces. The price is just noise.

The problem will solve itself.
But not in a nice way.

While ethanol is highly questionable, there is indeed a future for biodiesel. There is a considerable installed base of heavy construction equipment, farm equipment, utility vehicles, etc. that all run on diesel. Many other service vehicles such as fire engines, ambulances, police cars, utility service vehicles, etc. could be feasibly be replaced with diesels. There is also shipping, almost entirely diesel powered. We are going to need all of these to keep running, no matter what, and electric is unlikely to be a good option. Biodiesel is not going to be the answer to all of our transport needs, but it will be part of the future mix.