Minnesota auditor: shift funds from corn to cellulose

By Ryan C. Christiansen
The Office of the Legislative Auditor for the Minnesota state legislature has released a report titled "Biofuel Policies and Programs" that recommends the state eliminate the producer payment program for corn-based ethanol and redirect those funds to other programs designed to reduce fossil fuel energy use and greenhouse gas emissions, including to programs to develop cellulosic ethanol.

Meanwhile, the Minnesota Department of Agriculture recommends the producer payment program should remain because "margins have been squeezed by periods of record high corn prices and low ethanol prices," the MDA said. "It is hoped that 10 years of payments will allow plants to retire debt, increase efficiency and develop new products and markets so they can survive the competition and price fluctuations in agricultural and petroleum markets." The MDA said the ethanol industry is projected to contribute more than $1.3 billion in net annual benefit to the state.

As noted by the auditor, Minnesota has been a leader in requiring the use of ethanol in gasoline. The state currently requires nearly all gasoline sold in the state to be an E10 blend with ethanol and state law calls for using E20 in 2013, provided the U.S. EPA approves its use in motor vehicles. While Minnesota could achieve these higher levels on its own using corn-based ethanol, to achieve nationwide use of E20 by 2020 would require about two-thirds of all of the land planted with corn in 2008, the auditor said, and so recommends funding cellulosic ethanol production, instead.

Therefore, the auditor is recommending the state should end the producer payment program, which began in 1987. "The producer payment program, while very helpful in stimulating corn-based ethanol production in the 1980s and 1990s, has continued to provide subsidies even when producers made large profits," the auditor said, noting that the producer payment program has paid $93 million over the past five years to companies that have earned profits of $619 million over the same period. "While financial conditions for ethanol producers have deteriorated in the past year, it is unlikely that maintaining these payments will influence production decisions. The subsidies are only a little more than 1 percent of sales." Approximately $44 million is scheduled to be spent on the producer payment program from fiscal year 2010 through 2012, the auditor said.

In addition to halting producer payments, the auditor recommends the Minnesota Department of Employment and Economic Development should stop using the state's Job Opportunity Building Zones program to provide tax breaks for building ethanol plants.

In its recommendation to shift funding to cellulosic ethanol programs, the auditor said the Minnesota Environmental Quality Board and its member agencies should examine what land could be used to grow biomass for cellulosic ethanol production and how the biomass could be grown and harvested with minimal environmental impact.

Source: Ethanol Producer Magazine