Biofuel subsidies targeted in report

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ST. PAUL — State payments to Minnesota ethanol producers have little impact on the industry anymore, so could be eliminated, an independent audit concluded.

But lawmakers said corn-based ethanol producers, recipients of millions of dollars in taxpayer funds over the past two decades, have been good for Minnesota's economy and were pledged the payments, so should not be cut off.

The suggestion that Minnesota end its annual payments to ethanol producers came in a report on biofuels released Friday by the Minnesota legislative auditor.

The auditor's analysis also concluded that traditional biofuels — ethanol and soybean-based biodiesel — serve a purpose by reducing fossil fuel use, but they have limitations and offer only modest environmental benefits, said John Yunker, who conducted the audit.

A key recommendation from the audit is to end the ethanol subsidy program, which provides older ethanol plants a per-gallon payment. Newer ethanol plants receive tax breaks through the state's Job Opportunity Building Zones program. That is another benefit the audit suggested lawmakers end, unless producers can prove they are needed and offer energy and environmental benefits.

State payments to ethanol producers reflect a tiny percentage of the industry's sales. The biggest economic considerations facing producers are the price they pay for corn and the price they can charge for ethanol fuel, Yunker said.

"They're not likely to be a major factor in future business decisions," he said of government payments.

Producer payments, which started in 1987, were successful in getting the industry started, but they continued during boom times for the ethanol industry.

In the past five years, ethanol producers recorded $619 million in profits while collecting $93 million in state payments, auditors found.

An estimated $44 remains to be paid to ethanol producers over the next three years. Legislative budget proposals taking shape would stretch that schedule beyond three years, however, because they propose reducing the payments planned for the next two-year budget period.

Agriculture Commissioner Gene Hugoson defended the industry and the state payments. He said 18 ethanol plants have provided some 4,300 jobs in Minnesota, and biofuels is a $3 billion-per-year industry.

"That's a huge economic factor," Hugoson said.

Legislative Auditor Jim Nobles said there is a "compelling case" for ethanol, but its environmental and economic impacts are complex and will need to be explored further as lawmakers look to build upon the first generation of biofuels.

Tags: northland, agriculture, agribusiness