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Home > Renewable Energy > Ethanol Program > About the Minnesota Ethanol Program

About the Minnesota Ethanol Program


History of Minnesota’s Ethanol Program

Beginning in the 1980s, Minnesota’s 20-cent ethanol producer payment legislation provided the security required by lenders to invest in small, farmer-owned ethanol facilities. In addition to opposition from the petroleum industry, bankers were concerned that these plants could not compete in the market with large agribusiness processors. At the time, most ethanol production occurred in large mills outside the state. Minnesota corn prices were among the lowest in the country, which was an advantage for local processing.

Although these ventures have been successful to date, margins have been squeezed by periods of high corn prices and low ethanol prices. The Minnesota Ethanol Program began with the hope that ten years of payments would allow plants to retire debt, increase efficiency and develop new products and markets so they could survive the competition and price fluctuations in agricultural and petroleum markets. Unique aspects of the ethanol industry made these initial incentive payments necessary, but no new plants were enrolled in the program after 1999 and our ethanol industry is now projected to contribute more than $2 billion in net annual benefit to the state.

Since low farm commodity prices were common, these corn ethanol plants represented a new strategy for the long-range profitability of farmers and farm communities. Vertical integration from the bottom up could allow farmers to participate in the more profitable end of agriculture. Today, promoting farmer investments in the processing and marketing of other crop or livestock enterprises may not require the high level of state funding as did ethanol. Such initiatives can reduce the need for continual funding of farm financial crisis measures allowing farmers to be more independent.

Main program components:

  1. Oxygenated fuel statute that still requires statewide oxy-fuel (ethanol blend) use,
  2. The 20 cent per gallon ethanol producer incentive provided payment for ethanol produced, plus
  3. $550 million was spent for total corn/ethanol plant construction and startup costs.
  4. $370 million in private sector financing was contingent on local equity capital.
  5. $180 million in local equity capital was raised by over 8,000 farmer and business members.
  6. Over $200 million worth of corn was committed for processing annually by local farmers.

Program goals:

  1. To build a new market for the state's largest crop (corn).
  2. To develop corn processing/ethanol production facilities in Minnesota.
  3. To increase the number of New Generation Farmer Coops (NGCs**). These businesses were designed to provide farmer members greater direct cash return for their crops.
  4. To replace 10 percent of imported petroleum we use for gasoline. (over $100 million annual savings)
  5. To help the Twin City Area meet U.S. EPA standards for carbon monoxide.

Results to date:

  1. 230 million bu. of corn (20 percent of Minnesota crop) is made into ethanol, livestock feed and other products.
  2. Minnesota's 21 plants can produce over 1 billion gallons of ethanol/yr.
  3. Twelve of Minnesota's ethanol plants were originally organized as NGCs*.
  4. Nearly 10 percent of our gasoline is being replaced by ethanol each year.
  5. The Twin Cities Area met EPA's carbon monoxide standard and has achieved "attainment" status. The continued use of ethanol helps to keep emissions low.
  6. Minnesota has more than 350 commercial E85 stations.

Ethanol Production -vs- Market Penetration

Year

Production (mm = million)

Estimated Consumption

% Minnesota Ethanol Produced Here

1986

1 mm gal.

25 mm gal.

4% of total

1994

24 mm gal.

125 mm gal.

20% of total

2006

550 mm gal.

260 mm gal.

210% of total

2008

850 mm gal.

259 mm gal.

329% of total

2013**

1,120+ mm gal.

533 mm gal.

210% of total

Ethanol Plants & Capacities (Updated January 2010)

* Plants organized as New Generation Farmer Co-ops (NGC) may be combined with, converted to or organized as limited liability companies or business structures that are generally designed to:

  1. be built by farmers and local businessmen to process member crops,
  2. return more cash to farmers than conventional markets would provide,
  3. be controlled by farmer/local board members so that member profits remain a top priority, and
  4. create a stable source of local jobs and economic development.

** 2013: Estimated consumption based on 2005 legislation of 20%-blend-ethanol requirement in all motor gasoline by 2013.

Legislative History

In 1980, Minnesota passed legislation offering a 4 cent per gallon pump tax credit for 10% ethanol blends.

By 1986, forty percent of the state’s gasoline was blended with 10% ethanol, but little ethanol was produced in Minnesota. Legislation reduced the pump tax credit to 2 cents and initiated a 20 cent per gallon cash incentive payment for ethanol produced in the state.

In 1987, legislation provided $100,000 annually for an ethanol promotion program to be administered by the MN Department of Agriculture. The Minnesota Ethanol Commission was established to promote the production and use of ethanol in Minnesota.

In 1989, the mandatory pump labeling requirement for ethanol blends was discontinued in favor of voluntary labeling that was more consistent with other retail norms.

In 1992, a minimum 2.7% oxygen content requirement was established for gasoline. It was made effective year round in the Twin Cities in 1995 and then statewide in 1997. A federal program previously required 2.7% oxygen in the Twin Cities only during the winter months.

In 1993, funding was provided for $500,000 loans to assist ethanol plant developers.

In 1994, 1) a phase out of the pump tax credit was made to coincide with phasing in the statewide oxygen requirement; 2) a stock loan program would participate with banks loaning money to qualified farmers who wished to buy cooperative stock in ethanol plants.

In 1995, a statutory goal to develop 220 million gallons of Minnesota ethanol production was established.

In 1998, the production goal was increased to 240 million gallons, and approval for producer payments to the 15th ethanol plant (last plant authorized to receive payment).

In 2000, the content of non-ethanol oxygenates such as MTBE in gasoline sold in Minnesota was restricted to 1/3%. Zero percent allowed for sale after July 2005.

In 2003, fourteen plants remained with a production capacity of 360 million gallons. Of the $70 million allotted for 2002-2003 biennial ethanol producer payments, $20 million was un-allotted by the governor. Producer payments were reduced to 13 cents per gallon for fiscal years 2004 through 2007. Ethanol production goal was to increase to 480 million gallons by 2008. The 2.7% oxygenate requirement for gasoline was replaced by 10% ethanol requirement.

In 2004, Gopher State Ethanol closed; 13 plants remained with 400 million gallons of ethanol production capacity.

In 2005, law required 20% ethanol content in all gasoline by 8/30/2013. This requirement would expire on 12/31/2010 if by that date: 20% of gasoline volume is ethanol, or if EPA has not granted a waiver for E20 under 211(4)(f) of the Clean Air Act. It was also a goal of the state that 20% of liquid fuel (gasoline and diesel) is derived from renewable sources by 2015. Three new plants opened increasing the state’s production capacity to 550 million gallons per year.