Energy Alternatives Minnesota’s Ethanol Program National Governor’s Association National Governor’s Association State Best Practices April 29, 2004 Teri Velner Senior Policy Advisor Office of Governor Tim Pawlenty

Governor Pawlenty’s Energy Vision  Designed to minimize environmental impacts, reconciling two competing goals: Maintain Minnesota’s current reliable, low- cost energy and electricity in order to promote job growth and economic developmentMaintain Minnesota’s current reliable, low- cost energy and electricity in order to promote job growth and economic development Lower the environmental impacts of the generation and delivery of that energyLower the environmental impacts of the generation and delivery of that energy

Renewable Fuel Benefits  Reduce pollution  Reduce dependence on foreign oil  Renewable resource  Value-added agriculture

Significant Reductions in Greenhouse Gases  “In 2003, ethanol use in the U.S. reduced CO2-equivalent greenhouse gas emissions by approximately 5.7 million tons, equal to removing the annual emissions of more than 853,000 cars from the road.”  —Argonne National Laboratory, GREET 1.6 Model Boosting the Agricultural Economy

Minnesota Ethanol Production,

Minnesota’s Ethanol Program  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 emissionsClean up environment by reducing toxic auto emissions

Minnesota’s Ethanol Program  Statutory Oxygenated Fuel Requirement 1991, amended in , amended in 2003  Statutory Production Goal 1995, amended , amended 1998

20% 63% 95% 100% MN ethanol produced here

Minnesota’s Ethanol Program  “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?

Minnesota’s Ethanol Program  Bankers’ Worries in 1993 Will the ethanol industry survive?Will the ethanol industry survive? Can new farmer co-ops manage? (management, staff, equipment & capital)Can new farmer co-ops manage? (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?

Minnesota’s Ethanol Program  State Producer Incentive Payments 20 cents per gallon20 cents per gallon Limited to first 15 million gallons produced each yearLimited to first 15 million gallons produced each 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)

Minnesota’s Ethanol Program  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 against their willMandate will force consumers to use product against their will

Minnesota’s Ethanol Program  Results: Economic benefits to farmer-stockholdersEconomic benefits to farmer-stockholders 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 EPA Millions of gallons of foreign oil no longer neededMillions of gallons of foreign oil no longer needed

What’s Next?  E85  Biodiesel  Hydrogen

Minnesota’s Ethanol Program  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 = SuccessGrassroots investment + State support = Success