Minnesota's ethanol industry faces uncertain future

Corn cob ethanol
A modified John Deere combine collects a mix of corn kernels and cobs on a farm near Hurley, S.D. in a file photo.
AP Photo/Dirk Lammers

Not only has ethanol production stalled out in the United States and taken at least a symbolic blow in Congress, what once was billed as the next generation in making ethanol has been slower to build than expected.

The uncertainty for ethanol, a $3 billion industry in Minnesota, was signaled this month when the U.S. Senate voted to end two major subsidies. The practical effect of the Senate vote was virtually nil, but the symbolic impact was huge.

The vote was the first time either house of Congress had taken such a strong anti-ethanol stance.

Ultimately, the provision ending the two major ethanol subsidies failed. But for ethanol opponents like William Yeatman, the vote was exhilarating.

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"I was thrilled to see that the lobbying juggernaut that is king corn and Archers Daniels Midland suffered a setback in the Congress. This is unprecedented," said Yeatman, who works for the Competitive Enterprise Institute in Washington, D.C.

He opposes ethanol subsidies as wasteful corporate welfare. Others oppose them because they say ethanol raises food prices, or is bad for the environment.

"It was deficit concerns," said Yeatman. "I mean that is the one factor that has changed from times' past."

Yeatman said the Senate vote was the clearest signal yet that the yearly $5 billion ethanol subsidies are on their way out. The Senate action raised concern for Minnesota's 21 ethanol plants.

Tracey Olson manages a southwestern Minnesota ethanol plant, Granite Falls Energy, which turns out about 60 million gallons of fuel a year. He said if the subsidy goes away, demand for what his plant produces will drop and profit margins will get squeezed.

"Ethanol has gone a long way in creating jobs and economic development and tax revenue for many local rural areas," said Olson.

The state Department of Agriculture reports the industry generates more than 8,000 jobs in Minnesota. With a third of the corn harvest going into ethanol, the industry also has helped boost the price of that grain. That in turn has given state farmers billions of dollars in extra income in recent years.

The main ethanol subsidy pays gasoline companies 45 cents a gallon to mix ethanol into their fuel. Sen. Amy Klobuchar and others are trying to find other ways to support ethanol if the subsidies go away. Olson said the main idea is to provide federal money to install more ethanol pumps at gasoline stations.

The idea is to install pumps that would provide fuel blends containing more ethanol. Right now most gasoline contains 10 percent ethanol. The so-called blender pumps could go as high as 85 percent. If those pumps are installed and if motorists use them, it could boost demand for ethanol.

As it is, annual ethanol production has stalled out at about 13 billion gallons a year. In addition, another sector of expected growth has failed to perform, said David Morris with the Minneapolis based Institute for Local Self-Reliance.

That's the cellulosic family, ethanol made from things like grass, crop waste and wood chips. Morris said despite optimistic projections, so far there is not a single commercial scale cellulosic plant operating in the U.S.

"Cellulosic ethanol has been extremely disappointing," Morris said.

Cellulosic plants have had trouble finding financing. That problem could grow this fall when a major federal loan guarantee program for cellulosic and other renewable energy facilities ends. The Environmental Protection Agency last week provided a measure of cellulosic's disappointment. The EPA expects at most 13 million gallons of U.S. cellulosic production in 2012. A few years ago the EPA projection was nearly 40 times greater, some 500 million gallons.