Abstract We examine the social desirability of ethanol production from agricultural crops when the greenhouse gas balance, land competition and crop price determination are taken into account. We focus on the whole production chain and examine how the life cycle CO 2 -equivalent (CO 2 -eq) emissions and the endogenous crop prices impact social benefits from ethanol production. Ethanol production is desirable under current ethanol price only if the side products, grain residue for animal feed and the straw for energy, are produced. If either these cannot be produced or emissions from soil are high, social returns to ethanol production either vanish or become small.