South Dakota’s ethanol boon could fade

Source: Christopher Doering, USA Today • Posted: Monday, August 17, 2015

WASHINGTON – A decade-old congressional mandate to spur investment in renewable fuels has helped turn South Dakota into one of the country’s biggest ethanol producers. But growth is uncertain as opponents of the mandate push for overhaul or repeal of the Renewable Fuel Standard.

Ethanol and corn producers in South Dakota, which is No. 6 in ethanol production in the U.S., say the mandate has created hundreds of jobs and pumped millions of dollars into the state through higher corn prices for farmers, plus taxes and other revenue. The Renewable Fuel Standard, which requires increasing amounts of alternative fuels to be blended into cars, trucks and other vehicles, was signed into law in August 2005 and updated two years later.

“It is truly the greatest story in production agriculture specific to South Dakota. It’s transformed the way agriculture looks,” said Lisa Richardson, executive director with the South Dakota Corn Growers Association. “There is still a lot of life and a lot of opportunity out there” for ethanol.

Ethanol supporters are optimistic the industry can tap into fuels with higher percentages of ethanol — most fuel currently contains 10 percent ethanol — or renewable fuels made from plant residue, waste and other materials for growth.

The Environmental Protection Agency, which oversees the Renewable Fuel Standard, in May proposed lowering how much ethanol must be blended into the gasoline supply through next year. Oil, food and environmental groups, along with some lawmakers in Congress, have called for the mandate to be overhauled or repealed. Legislation proposed by lawmakers in Congress to overhaul the standard has languished.

“A lot has changed in the last decade, and the RFS is a relic of a bygone era of energy scarcity,” said Bob Greco, downstream director with the American Petroleum Institute, a trade group critical of the ethanol mandate.

API and other groups said lawmakers were too aggressive in setting the blending levels. They contend that because consumers are driving less and vehicles are more fuel-efficient, blenders are struggling to meet the increasingly higher targets put in place and mix in enough of the renewable fuel — an obstacle known as the blend wall.

Lisa Elliott, an assistant professor of economics at South Dakota State University, said the purpose of the RFS was to encourage investment in renewable fuels and give industry a reason to spend money to discover new technologies and build facilities to meet the targets set by Congress. By changing the mandate, the EPA risks discouraging new investments.

“It’s something that people who are in the industry, they are thinking about that and possibly adjusting some of their decisions going forward,” Elliott said. “The EPA, they are putting forward more uncertainty with the policy.”

Ethanol in S.D., by the numbers

•South Dakota has 15 ethanol plants producing more than 1 billion gallons of the largely corn-based fuel each year. The first ethanol plant in Scotland, owned by Sioux Falls-based Poet, started producing ethanol in 1988. A second plant opened in 1993, followed six years later by a facility in Huron.

•Each year, about 360 million bushels of corn grown in South Dakota help produce ethanol, compared to an estimated 70 million bushels for livestock feed. The state produced 787 million bushels of corn in 2014.

•Ethanol has created about 5,700 jobs, direct and indirect, in South Dakota. In addition to the effect on farmers, truckers and ethanol producers, the economic benefit also can be seen through taxes and money spent in local communities. A 2012 South Dakota State University study estimated the annual impact for the state from the ethanol industry was $3.8 billion annually.

•A separate SDSU study found that a new ethanol plant can initially increase corn prices by 3 cents to 8 cents, depending on the size of the facility. For a South Dakota farmer harvesting 2,000 acres at 167 bushels an acre, 8 cents per bushel would mean an extra $26,700.

•An estimated 8.6 billion gallons of ethanol were produced in South Dakota from 2005 to 2014. Nearly all of it is blended into motor fuel.