We developed an integrated model of U.S agricultural and transportation sectors to examine the impacts of corn ethanol production on the reduction in CRP enrollment and grassland conversion during the period 2007-2012. We also examine the extent to which ethanol production raised the budgetary cost of maintaining the CRP program at the 2007 level. Our simulation analysis shows that by raising crop prices and increasing opportunity costs of marginal lands, corn ethanol production led to additional 1.6 million acres reduction in CRP enrollment and grassland conversion relative to a no-biofuel policy baseline scenario. In order to maintain the CRP enrollment at the 2007 levels, a net present value of government expenditure of $1.85 billion on reenrollment would be needed under the baseline scenario for the period 2007-2012. Government expenditure will increase to $2.07 billion with the booming of corn ethanol industry.