It has the unintended consequence of artificially inflating the cost of ethanol.
Possibly, but you could also get an offsetting improvement in the ethanol price from the increased volume. It's the "experience curve" effect.
However, I don't care much about the price of ethanol. My family's experience is that we've seen a 10% drop in MPG with gasoline that has 10% ethanol. So we aren't burning any less gasoline, we just have to fill up more often.
If we aren't reducing the country's oil imports, then why are we doing this? It makes no sense.