Lawmakers should consider ending the state's decade-old ethanol producer payment program, a Legislative Auditor's report on biofuel policies and programs issued Friday, April 17 recommended.

A Legislative Auditor's report on state biofuel polices issued Friday, April 17 recommended that lawmakers consider ending ethanol producer payment subsidies, arguing that in general the ethanol industry in the state is in good shape. Such a move would save $44 million over the next three years in ethanol subsidy payments, deficiency payments relating to cuts in payment levels in the past. Sen. Claire Robling, R-Jordan, checked ethanol-related data during the commission hearing. (Photo by T.W. Budig, ECM Capitol Reporter)

by T.W. Budig
ECM Capitol reporter

Lawmakers should consider ending the state's decade-old ethanol producer payment program, a Legislative Auditor's report on biofuel policies and programs issued Friday, April 17 recommended.

In general, Minnesota's ethanol industry is thriving — $619 million in profits over the last five years while receiving $92 million in state subsidies, the report notes.

A strong case can be made for redirecting subsidy dollars to reduce petroleum use, greenhouse gas emissions, or study cellulosic ethanol, John Yunkers, Legislative Auditor study manager, told the Legislative Audit Commission.

Ending the payments would save about $44 million over the next three years.

Some 11 ethanol plants in the state are still receiving mostly "deficiency payments” or a backfilling of subsidy dollars lost during the last state budget crisis, the report notes.

Rep. Rick Hansen, DFL-South St. Paul, questioned whether the state had a commitment, if not a contract, to finish making the payments.

All told, some 20 Minnesota ethanol plants have received some $329 million in state subsidies through this year through the payment program.

Ethanol industry breaking even

Economic conditions currently has the ethanol industry breaking even, explained Yunkers, but he down played the importance of continuing the subsidy.

There was nothing legally binding in the subsidy payments, Yunkers opined. "I don't believe it's a contract,” he said. It could "send a signal” to other businesses, Yunkers conceded of ending the subsidy.

Yunkers, who did not visit any ethanol plants in conducting his research, opined that the environmental impacts of corn-based ethanol are unclear.

For instance, greenhouse gas reductions achieved through the use of ethanol could be offset by land use considerations, he explained.

Rep Mary Liz Holberg, R-Lakeville, questioned the state's E10 ethanol fuel mandate, which will increase to E20 in 2013 if federally approved, arguing that the poorer mileage motorist experience using ethanol-blended gas amounts to another subsidy for the ethanol industry.

"She can speak for herself,” said Holberg after the hearing of a comment by Commission Chairwoman Ann Rest, DFL-New Hope, that many lawmakers have a "very thin knowledge” of biofuels policies and politics.

Some lawmakers have indeed studied the issue, Holberg said.

Backers of the ethanol industry spoke out.

Rep. Ron Shimanski, R-Silver Lake, auditor commission member, questioned the report's recommendations.

Billions pumped into economy

"We're trying to have our cake and eat it too,” he said, arguing that the growth of the state's  ethanol industry has translated into billions of dollars being pumped into the Greater Minnesota economy.

Beyond this, ethanol subsidies will end in 2012,  he said.

Minnesota Department of Agriculture Commissioner Gene Hugoson noted that the producer payment program was a response to the farm crisis of the 1980s.

The original intent of the program has been "wildly successful,” he opined. Some 4300 jobs, many high-paying jobs, have been created, Hugoson said.

Hugoson opined that the state's ethanol fuel mandate has been a key element. "I think it would not have been successful,” he said of attempting to grow the industry without a state fuel mandate.

Hugoson, like Yunkers, opined that the state's ethanol subsidy program did not constitute a contract between the industry and taxpayers.

The current ethanol industry, he opined, is not seen as a replacement for petroleum-based fuels but rather a "bridge” to the next generation of alternative fuels.

(Photos by T.W. Budig, ECM Capitol Reporter)