The ethanol question


When William Lee sat down to testify in support of a bill that would establish a low-carbon fuel standard in Minnesota on April 15, he might have been forgiven for not expecting such a lively response to his testimony.

Lee, the general manager of the Chippewa Valley Ethanol Company, told the assembled members of six House and Senate committees that HF2527, sponsored by Rep. Frank Moe (DFL-Bemidji), would create a win-win situation for the state’s energy economy: not only would the bill reduce greenhouse gas emissions from transportation fuels 10 percent by 2020, he said, but it would also be a boon to the state’s ethanol producers.

It’s the kind of scenario politicians dream of: legislation that would create a cleaner environment while also giving a boost to an industry that infuses millions of dollars annually into rural Minnesota. But instead of soothing committee members, Lee’s comments ignited a debate that has been simmering all session — an emerging dispute between those who think ethanol helps the environment and those who think it hurts.

“We are not taking into account the secondary environmental impacts of biofuel development,” said Rep. Ken Tschumper (DFL-La Crescent). He alluded to myriad environmental problems created by new land use practices brought on by the demand for corn ethanol.

“Everywhere I go, I always hear criticism of ethanol,” said Sen. Ellen Anderson (DFL-St. Paul), who went on to describe the political pressure being placed on some metro-area legislators to end ethanol subsidies.

“Literally, that’s what they tell me when I go to district meetings: they say, ‘Stop it. Take the money away. Don’t give them any more support. It’s bad for us,’” she said.

Other members raised even more concerns, running the gamut from rising food prices caused in part by the increasing demand for corn to the excessive consumption of water required by the ethanol production process.

The question of whether ethanol is good for the environment is an important one. Since the state first starting pumping millions of dollars into ethanol subsidies more than 20 years ago, one of the industry’s main selling points for its product has been its perceived environmental advantage over fossil fuels. Moreover, as the state pursues new measures to reduce greenhouse gas emissions, ethanol’s future may hinge on whether it can perform as well as petroleum in meeting any rigorous new air pollution standards imposed by the state.

The public relations war

According to the Department of Agriculture, approximately 1 billion gallons of ethanol are expected to be produced in the state this year, creating an economic impact of nearly $5 billion and employing some 18,000 Minnesotans. For many, the sheer economic impact of ethanol is reason enough not to hinder its future development, but Rep. Al Juhnke (DFL-Willmar) said there are environmental reasons to support ethanol as well.

According to Juhnke, ethanol burns cleaner than gas, and that mid-grade ethanol blends like E10 and E20 have been shown to increase vehicles’ fuel-efficiency. He also said next-generation biofuels like cellulosic ethanol, once they become commercially viable, will be much better for the environment and could be produced at the same ethanol plants producing corn-based biofuel right now.

Juhnke alluded to a recent report from the University of Minnesota stating that the production of ethanol actually creates more greenhouse gas emissions than conventional gasoline. He said such studies don’t take into account advancements such as improved conservation practices and increased crop yields. He also added that much of the negative press coverage of ethanol stems from a public relations war between environmentalists and biofuel producers.

“We’re just not as good at promoting, I guess, as the other side is at this point in time. And we’re not funding the studies on food vs. fuel and water use and other things like the other side is,” Juhnke said.

Along those lines, Mike Bull, deputy director for the Office of Energy Security, said Minnesota’s ethanol production processes are already more environmentally friendly than other states and countries.

“We have a number of producers in the state who are working hard to reduce the fossil inputs to their current ethanol production,” Bull said. “We’re making some of the most renewable ethanol in the world here in Minnesota.”

True costs

Meanwhile, Rep. Melissa Hortman (DFL-Brooklyn Park) raised a different perspective on the issue, asking whether serious comparisons between the relative costs of petroleum fuels vs. biofuels should factor in things like the cost of sending troops to wage war in oil-rich nations with politically unfriendly regimes.

“If we’re going to include externalities like fertilizer in corn production, are we including externalities like weapons manufacturing for petroleum?” Hortman asked. “I think there was probably a lot of carbon emitted when the wells were on fire in Kuwait, and at various times when the wells have been on fire in Iraq, so I think it is definitely a carbon-intensity question.”

No action was taken on the bill, which Moe said raised “significant unanswered questions” that would have to be addressed before the legislation could move forward. A companion bill, SF3830, sponsored by Sen. Kathy Sheran (DFL-Mankato), awaits action by the Senate Environment and Natural Resources Committee.

Economics of ethanol

By Lee Ann Schutz

In an effort to grow the state’s ethanol industry, the sector has benefited, over the years, from various tax credits, start-up loan initiatives and producer payments.

A controversial state subsidy, known as the producer incentive payment was enacted in 1986 to boost the budding industry, and is now under scrutiny.

Under the plan, any plant online before 2000 receives payments set at typically 20 cents per gallon, and limited to the first 15 million gallons of annual production. The payments are not to exceed $3 million in any fiscal year, for no more than 10 years.

During Fiscal Years 1986-87, three plants received payments. Soon though, the producer payments gave banks the confidence to offer loans to new entrepreneurs and more plants went on line. Critics now say that subsidies should be stopped because the industry is profitable, and the money could instead be used to kick-start a biofuel industry that would have more overall sustainability.

Currently, there are 17 ethanol plants in the state and four more are under construction, according to a Department of Agriculture report. Eleven of those are receiving producer payments. By 2010, these payments will be suspended, but for the 2007-08 biennium, the payments are expected to total $30.3 million.

Because of the law’s language, one ethanol plant, Gopher State Ethanol, continues to receive a subsidy even though it filed bankruptcy and closed in 2005. There is language in HF1812, the Omnibus Supplemental Budget Bill, which would discontinue a $310,000 producer payment in Fiscal Year 2009, and reduce the amount of the payment in 2010 and 2011.

Facts of Note:

• Minnesota produced 500 million gallons of ethanol from 16 plants in 2006.

• The state’s net ethanol export was 290 million gallons, or 53 percent of the state’s total annual ethanol output.

• At the 2006 production level, the state’s ethanol industry generated an estimated $2.77 billion in economic impact and was responsible for 10,321 jobs.

• The 1 billion gallon production output projected in 2008 could generate a $4.95 billion economic impact and 18,461 jobs. The production would consume approximately 25 percent of the state corn crop.

• In 2006, Minnesota processed 196 million bushels of corn into ethanol.

• To meet the requirement of 20 percent blend of ethanol in Minnesota’s gasoline by 2013, the state would need to produce 564 million gallons of the product.