EDITORIAL: Ethanol subsidies

The honeymoon could soon be over for producers of corn-based ethanol, who have been benefiting from taxpayer subsidies since 1987.

During those 21-plus years, they have received more than $314 million in payments from Minnesotans’ wallets. That’s an average of more than $15 million for each of our state’s 21 ethanol producers.

Now, the Legislature is considering whether those subsidies should continue through 2012 — at an additional taxpayer expense of $44 million — or if it should spend that money on other efforts to reduce energy use and benefit the environment.

It’s a tough call, but we think it would be in the best interest of our state’s agriculture industry to allow the program to run its cour
se for three more years. After that, the spigot should be turned off.

In 2012, after 25 years of research and subsidies, our state needs to redirect its efforts to cellulosic ethanol. Cellulosic ethanol — made from switchgrass, prairie grasses, willow or poplar trees and the like — has the potential to free our nation from its energy dependence with less harm to the land and air than corn-based ethanol.

Whose studies do you believe?
Ethanol production is a complicated subject. Every side of this issue has done its own studies, and no two studies seem to agree. Some contend that corn-based ethanol produces fewer greenhouse gases than gasoline. Newer studies question this perception because biofuel requires more emissions from land conversion. Knowing whose findings to believe is difficult.

The legislative auditor’s office supports its arguments with these findings:

< Corn-based ethanol and soy biodiesel help reduce the consumption of petroleum and other fossil fuels, but their overall ability to reduce dependence on fossil fuels is constrained by land resources and other considerations.

< The environmental impacts of corn-based ethanol and soy biodiesel are unclear in some respects and more complicated than is often acknowledged by both supporters and detractors of these biofuels.

< The environmental impacts of corn-based ethanol and soy biodiesel are relatively modest at the production levels that are achievable nationwide without a large increase in the land devoted to their production.

< Cellulosic ethanol appears capable of greater energy savings and better environmental impacts than corn-based ethanol, but it is just beginning to be produced at pilot and demonstration facilities. Algae-based biodiesel is believed to have promise, but it is still in the research and development stage.

< The state’s subsidy programs are not generally designed to maximize the energy and environmental benefits of biofuels, although some corn ethanol producers in the state have implemented technology that significantly reduces fossil fuel use and greenhouse gas emissions.

< 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.

< Although the financial condition of the ethanol industry has deteriorated during the past year, maintaining the producer payment program may have little or no effect on future ethanol production.
Why not stop subsidies now?

Assuming these findings are true, one might ask: Why not end the subsidies now? Frankly, we’re concerned about the impact that a total, immediate subsidy withdrawal might have on area corn growers who derive a sizable portion of their income from the ethanol industry. Biofuels production has added crop value and income for farmers.

Local ethanol producers, such as those in Buffalo Lake, Winthrop and Atwater, would also feel the pinch, though the legislative auditor contends the end of subsidies would not affect ethanol production. Minnesota Agriculture Commissioner Gene Hugoson, on the other hand, maintains that the current generation of biofuel needs help from the state to create a bridge to the next generation of products.

We agree with the auditor’s recommendations but believe the subsidies should end on schedule in 2012. During the past five years, ethanol producers in the producer payment program have raked in after-tax profits of $619 million. These producers should prepare for the end of taxpayer help.

The legislative auditor’s report makes it clear that Minnesota’s existing subsidy programs are not designed to maximize the energy and environmental benefits of biofuels. It recommends:

< The Department of Employment and Economic Development should not use the JOBZ program for biofuel plants unless they need subsidies and offer significant energy and environmental benefits.

< Biofuel subsidies should only be provided when they are needed and, unlike the producer payment program, should stop when producers reach a certain level of profitability.

< The 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.

Minnesota — in particular, the 18 counties of southwestern Minnesota — is fortunate to be at the center of the fast-changing renewable energy industry. Taxpayer support for this transition has produced many benefits to our businesses and residents. Our state’s taxpayers have helped meet the changing energy needs of America and the world.

Now it’s time to let corn growers know subsidies will end on schedule and move onto to newer renewable energy solutions.

(Editorials are written by Publisher Matt McMillan and Editor Doug Hanneman. They can be reached at mcmillan@hutchinsonleader.com, or hanneman@hutchinsonleader.com.)