Energy Alternatives Minnesota’s Ethanol Program National Governor’s Association National Governor’s Association State Best Practices April 29, 2004 Teri

Energy AlternativesEnergy Alternatives

Minnesota’s Ethanol ProgramMinnesota’s Ethanol Program

National Governor’s Association National Governor’s Association State Best Practices State Best Practices

April 29, 2004April 29, 2004

Teri VelnerTeri VelnerSenior Policy AdvisorSenior Policy Advisor

Office of Governor Tim PawlentyOffice of Governor Tim Pawlenty

Governor Pawlenty’s Energy VisionGovernor Pawlenty’s Energy Vision

Designed to minimize environmental Designed to minimize environmental impacts, reconciling two competing goals:impacts, reconciling two competing goals:• Maintain Minnesota’s current reliable, low-cost Maintain Minnesota’s current reliable, low-cost

energy and electricity in order to promote job energy and electricity in order to promote job growth and economic developmentgrowth and economic development

• Lower the environmental impacts of the Lower the environmental impacts of the generation and delivery of that energygeneration and delivery of that energy

Renewable Fuel BenefitsRenewable Fuel Benefits

Reduce pollutionReduce pollution Reduce dependence on foreign oilReduce dependence on foreign oil Renewable resourceRenewable resource Value-added agricultureValue-added agriculture

Significant Reductions in Significant Reductions in Greenhouse GasesGreenhouse Gases

““In 2003, ethanol use in the U.S. reduced In 2003, ethanol use in the U.S. reduced CO2-equivalent greenhouse gas CO2-equivalent greenhouse gas emissions by approximately 5.7 million emissions by approximately 5.7 million tons, equal to removing the annual tons, equal to removing the annual emissions of more than 853,000 cars from emissions of more than 853,000 cars from the road.”the road.”

——Argonne National Laboratory, GREET 1.6 Model BoostingArgonne National Laboratory, GREET 1.6 Model Boosting the Agricultural the Agricultural EconomyEconomy

Minnesota Ethanol Production, Minnesota Ethanol Production, 1987 - 20031987 - 2003

1.6 7 11 12 19 28 23 2345

75112

136

190

241277

335

379

0

50

100

150

200

250

300

350

40019

87

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Mil

lio

ns

of

Gal

lon

s


Historical program goals:Historical program goals:• Boost farm and rural economyBoost farm and rural economy• Reduce reliance on foreign energy sourcesReduce reliance on foreign energy sources• Clean up environment by reducing toxic auto Clean up environment by reducing toxic auto

emissionsemissions


Statutory Oxygenated Fuel RequirementStatutory Oxygenated Fuel Requirement• 1991, amended in 20031991, amended in 2003

Statutory Production GoalStatutory Production Goal 1995, amended 19981995, amended 1998

24

125112

177190 200

240 240

0

50

100

150

200

250

Mil

lion

Gal

lons

1994 1997 1999 2000

Estimated Ethanol Production vs. Market Penetration

Production Consumption

20%63%

95%

100%MN

ethanolproduced

here


““If I knew then…….” If I knew then…….” • Federal tax credit?Federal tax credit?• Ethanol prices?Ethanol prices?• Corn prices?Corn prices?• DDGs prices?DDGs prices?• Market forecast?Market forecast?• Economic impact?Economic impact?• ““Small” dry mill plant viability?Small” dry mill plant viability?


Bankers’ Worries in 1993 Bankers’ Worries in 1993 • Will the ethanol industry survive?Will the ethanol industry survive?• Can new farmer co-ops manage? Can new farmer co-ops manage?

(management, staff, equipment & capital)(management, staff, equipment & capital)• Will these small mills perform?Will these small mills perform?• Can small plants compete with wet mills? Can small plants compete with wet mills? • Will we get interest & principal payments?Will we get interest & principal payments?


State Producer Incentive PaymentsState Producer Incentive Payments • 20 cents per gallon20 cents per gallon• Limited to first 15 million gallons produced Limited to first 15 million gallons produced

each yeareach year• 10-year limit for payment eligibility10-year limit for payment eligibility

Minnesota Ethanol:Production, Producer Payments, and Economic Impacts

(Fiscal Year: July 1-June 30)

$42

$89 $91 $101 $115

$204

$276$254

$352

$511

$629$587

-$14 -$22 -$28 -$35 -$35 -$34

300

252220

190

124112

69514138351711

$29

-$11-$3 -$5 -$4 -$5 -$6-$2

-100

0

100

200

300

400

500

600

700

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Mill

ion

Ethanol Production (Million Gallons)

Total Economic Impacts (Million $)

Producer Payments (Million $)


Dire Predictions Dire Predictions • Burdensome enforcement responsibilityBurdensome enforcement responsibility• Damage to underground tanksDamage to underground tanks• Product shortagesProduct shortages• Increase in gasoline pricesIncrease in gasoline prices• Lack of consumer acceptanceLack of consumer acceptance• Mandate will force consumers to use product Mandate will force consumers to use product

against their willagainst their will


Results: Results: • Economic benefits to farmer-stockholdersEconomic benefits to farmer-stockholders

Corn prices boosted up to 30 cents per bushel Corn prices boosted up to 30 cents per bushel • Air quality improved in Twin CitiesAir quality improved in Twin Cities

Minneapolis/St. Paul are in compliance with EPAMinneapolis/St. Paul are in compliance with EPA• Millions of gallons of foreign oil no longer Millions of gallons of foreign oil no longer

neededneeded

What’s Next?What’s Next?

E85E85 BiodieselBiodiesel HydrogenHydrogen


Conclusions Conclusions • Key element of Governor’s energy visionKey element of Governor’s energy vision• One program with multiple benefitsOne program with multiple benefits• Grassroots investment + State support = Grassroots investment + State support =

SuccessSuccess

Documents

Energy Alternatives Minnesota’s Ethanol Program National Governor’s Association National Governor’s Association State Best Practices April 29, 2004 Teri