LOS ANGELES (Reuters) - California Gov. Arnold Schwarzenegger said on Friday he wants markets to set policies on low carbon fuels, and called for eliminating subsidies and tariffs related to ethanol.

“We need to take down the barriers we have created,” Schwarzenegger said at a symposium on low carbon fuels at the Lawrence Berkeley National Lab in Berkeley, California.

The United States, he said, subsidizes domestic corn-based ethanol and imposes a 54-cents-per-gallon tariff to limit cheap ethanol imports from Brazil.

“It makes absolutely no sense. It’s crazy, and it’s definitely not in the best interest of the customers,” said Schwarzenegger.

Brazil, which uses sugar-based ethanol, is the No. 2 producer of the biofuel after the United States and its corn-based fuel.

He did not offer specific alternatives to the tariffs and subsidies, but said the market should be allowed to come up with the best solutions after targets are set by governments like California’s.

“We set the targets. The market decides how best to get there,” Schwarzenegger said.

The booming U.S. ethanol production has increased corn costs and in turn feed costs for chickens, hogs and cattle. The result is a $47-per-person increase since last July in the average U.S. grocery bill, a study issued last week by Iowa State University found.

U.S. fuel ethanol gets a 51-cents-per-gallon tax subsidy.

The low carbon fuel symposium held Friday is a method to allow the markets to decide the best way forward on alternative fuels, the governor said. The governor in January called for California to set a “low carbon fuel standard” meant to cut carbon emissions in transportation fuels by 10 percent by 2020.

Schwarzenegger on Friday said the federal government’s help is essential in establishing standards that stakeholders -- from industry to scientists to environmentalists -- can then strive to meet.

He called on the U.S. Congress “to adopt a fuel policy that works.”

Transportation accounts for about 40 percent of the climate changing carbon emissions in California, and the state now relies on petroleum-based fuels for 96 percent of its transportation fuels.

Record gasoline prices can also be helped by less reliance on oil-based fuels and more on alternatives that cut carbon emissions, Schwarzenegger said.

Travel and motor club AAA on Friday said the U.S. average for regular gasoline was $3.13 per gallon, and $3.46 per gallon in California.

“The low carbon fuel standard is our best weapon against rising oil prices and gas prices,” Schwarzenegger said.

“A vibrant market in alternative fuels and alternative vehicles and alternative engines give customers a great choice, and that empowers the customers to say, ‘No,’ to these high fuel prices. To say, ‘Hasta la vista, baby,’ “