Published on Sunday, April 17, 2005 by the Star Tribune (Minneapolis, MN)
The Future of Ethanol
by David Morris
Want to see the potential of biofuels? Visit Brazil, as I did a few weeks ago.
In Brazil, by law, all gasoline contains a minimum of 25 percent alcohol. Yet ethanol is so popular it actually accounts for 40 percent of all vehicle fuel.
By 2007, 100 percent of all new Brazilian cars may be able to run on 100 percent ethanol. Brazilian sugar-cane-fed biorefineries will be capable of producing sufficient ethanol to allow the entire fleet, new and old cars alike, to do so.
In Brazil, ethanol is now being used in aviation. Small planes, like crop dusters, are switching to ethanol because it is a superior fuel and is more widely available, even in remote parts of the country, than conventional aviation fuel.
Its stunning success with ethanol has encouraged Brazil to begin displacing diesel fuel with vegetable oils from its vast soybean crop. Within 15 years it expects to substitute biodiesel for 20 percent of its conventional diesel.
One more detail. Back in the mid 1990s, Brazil ended its ethanol subsidies. Nevertheless, with world oil prices hovering around $55 a barrel, the price of ethanol today is only half that of gasoline. Since its inception, Brazil's ethanol program has displaced imported oil worth $120 billion. This is comparable to a savings of almost $2 trillion for a U.S.-sized economy.
Back in Minnesota, our vehicles remain stuck at the 10 percent ethanol level first achieved almost a decade ago. Yet today, ethanol produced within the state could displace 25 percent of gasoline consumed within the state. Without increasing crop acreage, Minnesota could become self-sufficient in passenger-vehicle fuel and significantly displace diesel fuels.
Minnesota arrived at this enviable situation as a result of farsighted state policies. In the early 1980s the state ethanol incentive mirrored the federal incentive -- a partial exemption from the gasoline tax. That incentive increased demand, but every drop of ethanol was imported into the state.
In the mid 1980s, Minnesota's farmers successfully petitioned the Legislature to restructure the state incentive to encourage in-state production of ethanol.
The incentive became a direct payment of 20 cents per gallon. There were limits: The ethanol had to be produced in Minnesota. The incentive was available only for the first 15 million gallons produced each year. The incentive lasted only for 10 years per plant.
The restructured incentive has made Minnesota home to 15 small- and medium-sized ethanol plants (18 by the end of 2005). The biorefineries' relatively small size has enabled a significant proportion of the state's full-time grain farmers to become owners. This dramatically boosts the local economic benefit of such facilities.
Because of the incentive's time limit, within the next year or two, more than half of all state ethanol production will receive no incentive. Several new plants are being built without a state incentive.
Brazil has shown us that biofuels can be a primary fuel rather than simply a gasoline additive. Here are seven policies Minnesota should adopt to imitate Brazil's success.
1. Immediately request a waiver from the federal government to allow a 20 percent ethanol blend in all vehicles. Gov. Tim Pawlenty has indicated his desire to do so. The request should come from many states, not just one, and the cost of all the required testing should be shared by these states. If all 29 states whose governors have joined the Governors Ethanol Coalition chipped in, the cost would be a trivial $100,000 per state.
2. Aggressively expand the number of Minnesota gas stations that offer ethanol as a primary fuel (E85). Adding $15 million to the state bonding bill would enable every gas station in Minnesota to have at least one E85 pump.
3. Require all governments in Minnesota to purchase flexible-fueled vehicles. Several dozen popular models are already available and on the roads.
4. Develop a 20 percent renewable transportation fuels mandate that mirrors the 20 percent renewable electricity portfolio mandate that many states have passed.
5. Inspire a public discussion about redesigning the federal biofuels incentives so that they are tied to the price of oil. If oil rises above a certain level (say, $60 per barrel) the incentive would completely disappear. If it drops below a certain level (say, $35 per barrel) it would be equal to the current incentive.
6. Focus on converting the state's abundant cellulosic materials into energy. Brazilian biorefineries are virtually energy self-sufficient because they burn bagasse to power and heat the mill and refineries. Bagasse, the fiber fraction of cane, is brought to the mill along with the sugar cane. In Minnesota the corn stover (stalk, etc.) is not transported to the mill along with the corn kernels. The Chippewa Valley Ethanol Cooperative (CVEC) is developing innovative ways to economically transport the stover to the mill. Given the high price of natural gas, and the resulting pressure on ethanol plants to shift to coal, Minnesota should immediately provide the funds to accelerate the use of cellulose in the ethanol plants (first for heating and later for making ethanol itself).
7. Make farmer ownership the state's ownership preference. New ethanol plants are very large and absentee-owned. The ethanol they produce is welcome, but they do not generate the local and regional economic and social benefits that farmer-owned plants do.
David Morris is vice president of the Minneapolis-based Institute for Local Self-Reliance.
© 2005 Star Tribune