Ethanol Blog

An Economic Case for Ethanol

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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With the U.S. EPA announcing last week it intends to get the Renewable Fuel Standard program back on track by the end of this year through a consent decree reached with oil industry groups, two of the largest ethanol-producing states in the country in Nebraska and Iowa have highlighted the economic importance of the industry and on what its continued growth will have on the states' economies.

With rumblings of potential RFS reform in Congress, states where ethanol production is a significant portion of their economies are in a familiar defensive posture in having to make an economic case for keeping the RFS intact. Whether or not there is political will to reform the RFS remains to be seen.

Industry growth is likely to come as higher blends such as E15 and E85 become more widely available and more widely used.

A recent analysis by the Iowa Renewable Fuels Association this week makes the connection between the wider availability of E15 and consumer savings at the pump. Based on an analysis of a recent Iowa Department of Revenue motor fuel report, the IRFA said if E15 was widely available across the state drivers could save more than $50 million a year in fuel costs.

Iowa Department of Revenue data shows Iowa motorists purchased more than 1.2 billion gallons of E10 last year. The EPA already approved the use of E15 in model year 2001 and newer passenger vehicles and flex-fuel vehicles. That represents more than 80% of the fuel consumed in the U.S. On average, E15 is typically sold at a 5-cent discount to E10 in Iowa, according to IRFA.

Even though gasoline prices are low, the group said in a news release Thursday that if only 20% of Iowa motorists used E15, Iowans could save $12.7 million per year.

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If a modest 50% of Iowa motorists used E15, Iowans could save $31.7 million per year, IRFA said. If 80% of Iowa motorists used E15, Iowans would save $50.7 million per year.

"The economics are simple: the more Iowa motorists that have access to and are able to take advantage of low-cost E15, the more money consumers save," IRFA Executive Director Monte Shaw said in a news release.

Iowa leads the country with 43 ethanol plants capable of producing more than 3.8 billion gallons annually, including 22 million gallons of annual cellulosic ethanol production capacity and one cellulosic ethanol facility currently under construction. In addition, Iowa has 12 biodiesel plants with the capacity to produce nearly 315 million gallons annually.

In Nebraska, the University of Nebraska-Lincoln's Department of Agricultural Economics released a report, http://tinyurl.com/…, outlining the growth of the nation's second-largest ethanol industry.

In 2014 there were 1,301 full-time equivalent employees for Nebraska's 24 plants. "The prevailing wages, salary and benefit information indicates there was $71 million associated with those jobs," the study said. "The estimated proprietor's income for the facilities was $34 million for a combined total of $106 million. Indirect business taxes are another component and they were estimated at $13 million based on data from the Nebraska Department of Revenue from property taxes paid by each facility."

For 2010 to 2014 the total employment effects varied between 3,900 and 4,900 jobs. "The effects for labor income, output and indirect business taxes demonstrate the significant economic impact of the ethanol industry in Nebraska. The overall impact was $4,994 million in 2014. The cumulative impact over the five years was $26,155 million. The results confirm that the ethanol industry provides ongoing employment and a sustained economic impact for the state of Nebraska."

The report outlines a number of interesting aspects of the dried distillers grains market in the state. Most notably, "The ethanol industry produces a value that averages 67% of the value of all corn produced and 57% when compared to cattle sales. Over the past five years ethanol and distillers' grain production exceeded the value of soybean production."

The study found the state's value of production for ethanol and DDGS "ranged from slightly under $4 billion to over $6.6 billion with the last three years averaging close to $5 billion per year.

Read the Iowa Department of Revenue's 2014 retailers motor fuel gallons annual report at http://tinyurl.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow Todd on Twitter @toddneeleyDTN

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