Ethanol Program – Minnesota Model

To meet its goal of replacing 10 percent of its fuel needs with ethanol, in the late 1980s Minnesota instituted a producer payment program of 20¢/gallon on up to 15 million gallons of ethanol per year for a maximum of 10 years. The payment is limited to in-state producers, and the small scale requirement has resulted in the formation of nearly a dozen farmer-owned ethanol processing cooperatives. Minnesota-based ethanol plants, especially coops, benefit the state economy by spending more of their money on raw materials inside the state, and by keeping more of their profits and dividends inside the state.

During the 2001 session of the Minnesota Legislature, total payments from the ethanol development account to all renewable fuel producers is set at $70,892,000 for the biennium ending June 30, 2003. The total payments over two years will cover more than 350 million gallons of homegrown renewable fuel production.

In the late summer of 2002 the 5500 farmer-owners of the Minnesota Corn Processors, the second largest ethanol producer in the country, voted to sell their shares to Archer Daniels Midland. Many farmers believed that the Board of Directors had engaged in deceptive information campaigns and were involved in conflict of interest situations. MN House File 1460 was introduced into the Minnesota House of Representatives in 2003 to ensure that members of agricultural cooperatives would have access to more information and have more direct influence over their coop’s policies.

Another result of the sale of MCP to ADM was an effort to strengthen the Minnesota ethanol producer payment program. MN House File 994 was introduced in 2003 to restrict producer payments to farmer-owned plants and to require repayment of the payments if the ethanol plant is sold to another corporation.

Ethanol payments were reduced to $0.13 per gallon for up to 3 million gallons by the 2003 Legislature in the face of large budget deficits. The 2003 legislature also enacted new requirements to ensure that payments are only made to ethanol facilities that are majority owned by farmers.

The Winter 1998 issue of ILSR’s Carbohydrate Economy Newsletter had a nice summary of the Minnesota ethanol model (see excerpt below).

Update May 2005:
On May 10th, Minnesota’s Governor signed a bill into law that could result in a requirement that the state’s gasoline supplies contain 20 percent ethanol (E-20). If the rules go into effect, it would double the current 10 percent ethanol blends that are now standard throughout the state. Under the legislation, a new E-20 mandate would take effect in 2013 unless ethanol has already replaced 20 percent of the state’s motor vehicle fuel by 2010. The rule would expire at the end of 2010 if Minnesota is not granted federal approval to use E-20 gasoline blends.


More Resources:

Ethanol’s Epic Journey – excerpt

The following is an excerpt from an article titled "Ethanol’s Epic Journey" from the Winter 1998 issue of The Carbohydrate Economy, available via the Carbohydrate Economy Clearinghouse.

The Minnesota Model

In1980 Minnesota, like many other states, provided a state gas-tax exemption for ethanol. This stimulated a market but did nothing to spur in-state manufacturing. To build a homegrown fuel industry, Minnesota lawmakers converted half the tax exemption into a direct payment of 20 cents for each gallon of ethanol produced within the state. They also limited the payment to the first 15 million gallons produced. The result was to encourage numerous small plants.

Tostimulate demand Minnesota extended the oxygenate provisions of the Clean Air Act to the entire state, beginning in October 1997. The oxygen mandate can be satisfied by either ethanol or MTBE. MTBE, a product derived from natural gas and petroleum, claims two-thirds of the national oxygenate market. In Minnesota, however, ethanol satisfies 100 percent of the oxygenate demand and the state’s goal is that 100 percent of the ethanol consumed by Minnesotans will be made by Minnesotans. In September 1994, Governor Arne Carlson announced, "Our goal has to be that we will no longer import any ethanol. We’ll produce everything we need here in Minnesota." In 1995 the state legislature formally established an in-state production goal of 220 million gallons. By the end of 1998 in-state production should be at about 90 percent of that goal.

Minnesota is encouraging not only in-state production, but local ownership. Its ownership model of choice is the cooperative. By the end of this year 14 ethanol plants should be operational in the state, 10 of which will be cooperatively owned. More than 7500 farm families, about 10 percent of the entire farm population, are owners of ethanol plants. Keeping Money Local Minnesota’s program may be paying economic dividends. A 1997 Minnesota legislative auditor’s report concluded that the state incentives had created about 1400 jobs that pay $9-14 per hour, making it a cost-effective job creation program. In addition, ethanol plants keep local as much as $80 million a year that otherwise would leave to pay for imported oil. Ethanol plants also allow farmers to receive a higher net price for their corn because they can sell to nearby processors rather than distant customers.

In the longer term Minnesota wants to make ethanol a fuel, not simply a 10 percent fuel additive. To this end it has launched a program to encourage the introduction of flexible fueled vehicles that run on 85 percent ethanol. Several hundred cars capable of using ethanol as their primary fuel are already on Minnesota’s roads and a statewide fueling network is emerging.

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