Clearly you have been indulging in pyro-flatulence here for some time.
Nutrient runoff into streams and groundwater is indeed a significant environmental problem. Too soon to tell how great a contribution biofuels might make to this. If the propaganda is true ethanol can be efficiently made from some very hearty and competitive plants.
I agree the oil producers will not remain static in such a process. However, given the accelerating demand for petroleum, and the excess market power the producers seek (but rarely obtain), I believe the addition of significant biofuels to the consumption inventory will have large net beneficial effects. I don't for a minute believe that petroleum will be fully displaced. Instead a host of improvements in the availablity of alternate fuels and demand-reducing improvements in the efficiency of powered systems will together create a new quasi-equilibrium.
The proper role of government here is simply to get out of the way. However the ever-present crowd of authoritarian reformers and criers of doom will n o doubt demand some government action. Our task is to induce them to scurry about while doing as little harm as possible.
Malthus was wrong on every count.