The key driver behind the frantic expansion in biofuel south of the border is the U.S. government’s willingness to back the fledgling industry, says Gene Sandager, a board member of the Minnesota Corn Growers Association.
According to the latest figures from the U.S. Renewable Fuels Association, ethanol production stands at 5.2 billion gallons per year. An additional 53 new refineries and seven expansions are set to join the 109 existing operations. That will increase the United States’s ethanol capacity by more than 4.2 billion gallons per year.
Ethanol blends now account for more than 40 percent of U.S. fuel.
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But it wasn’t always that way. It took years of lobbying and promotion to get the ball rolling.
“In 1992, Minneapolis-St. Paul decided to replace MTBE (a fuel additive) with ethanol. In order to use ethanol, they had to have the production. So the state came in with an incentive of 20 cents a gallon to build the plants. Once they had the incentive, the bankers knew that the state government was going to back them,” Sandager said. “That’s how we got started.”
But before that, in the late 1980s, the state’s corn growers held an awareness campaign to promote ethanol at state and federal levels with the message that the fuel was abundant, healthy, and good for vehicles, communities and children.
“You need to change the political environment and you need to change the public perception,” he said. “We didn’t have enough money to go to every person and change the way they think about ethanol. So we targeted the people we wanted to get the message to, basically, the soccer moms.”
The state of Minnesota’s requirement in 1997 that all gasoline contain 10 percent ethanol sparked an ethanol boom that spread to Iowa, North and South Dakota and Missouri. The U.S. federal government jumped in with the Renewable Fuels Standard of 2005, which requires that a percentage of the fuel used in the country come from renewable sources, and the industry has taken off.
“Once we had the demand, and the manufacturing ability to produce it, then we had a profitable industry,” Sandager said.
Perhaps the greatest benefit of biofuels is the value-added effect, which comes from processing grains locally within rural communities and creating jobs.
“It’s not spending, it’s an investment. For the 20 cents a gallon that the state put in, it got 17 times more back in tax dollars. Get your political people to understand that,” he said.
Sandager, who is involved in five ethanol plants, two biodiesel plants and a wind generation facility, gave a presentation on the U.S. biofuel industry at a Keystone Agricultural Producers workshop on alternative energy held in Portage la Prairie, Man., on Dec. 5.
The corn and soybean producer from Hills, Minn., said opposition to the 10 percent ethanol blend requirement was initially fierce.
“Government is in charge of setting rules to protect the people it represents,” Sandager said. “Your legislators should be jumping up and down to support your initiatives.”
Oil companies and automakers tried to block the proposal, citing studies that ethanol production was inefficient and would damage engines.
“Hogwash,” said Sandager.
The data, which said ethanol production didn’t produce energy, came from a 1987 study by Cornell University that used low yielding, irrigation corn grown during a dry summer that was trucked 240 kilometres to an inefficient ethanol plant.
“You still hear it today. But the USDA has shown that for every fuel unit put in, you get 1.7 to two out.”
Once 85 percent ethanol appeared on the scene, largely due to a federal blender’s credit subsidy of 50 cents per gallon, the oil companies wasted no time in reaping huge profits.
“They were buying ethanol for $1.50 and selling it for $3, and getting a 51 cent federal credit, and selling it to the consumer at their gas station for the same price as gasoline,” he said. “Talk about the rights to highway robbery.”
To get more of their share of the blender’s credit, the ethanol distillers brought gasoline to the plant and mixed it themselves.
“Then we took it straight to independent gas stations, put up an E85 pump, and shared the blender’s credit with them,” he said. “They sold it to the consumer for up to 60 cents a gallon cheaper. The subsidy now went to the consumer.”
He urged Canada’s ethanol industry to be careful what it asks the government for.
“When you build a model in Canada, look at the whole system. You need distribution. If it’s a federal blending credit, who is blending it and who gets the money?”
Smaller plants can compete in the biofuel business against larger rivals simply because they buy grain and ship fuel within a shorter radius.
And synergies can help. In Hereford, Texas, Panda Ethanol plans to combine a huge feedlot operation with an ethanol plant.
Beginning in mid-2007, some 40 million bushels of corn will be used to produce 100 million gallons of ethanol per year, with the 900,000 tons of spent corn used to feed some of the 3.5 million cattle in the area.
The manure will in turn be used to generate methane, which will provide heat needed for ethanol production.
