The main driver for ethanol as an automotive fuel in the US is the EPA "CAFE standards" requiring US automakers to meet an average fleet fuel economy for their fleets. EPA made a loophole for automakers if they would produce E85 cars so they did. E85 compatible Escalades and Expeditions flowed from Detroit and there was less of a need to sell small cars. It was not about ethanol, it about the extra money that could be made on large cars. Ironically, the large cars ended up contributing to their nearly going bankrupt but that's another story.

EPA on the other hand was in it for the environment but the truth is that corn based fuel actually does the opposite of what it is supposed to on every count. Ethanol drives up food prices, leads to a net energy loss to produce, is expensive at the pump, it contributes to global warming, and has no redeeming positives other than it is somewhat renewable. I am not sure how EPA would have been influenced by the corn lobby but I have heard that lawmakers from corn states pushed for ethanol and got their way, as Rick said.