Biofuels' Economic Case

OMAHA (DTN) -- There remain many other unknowns as to what will become of the Renewable Fuel Standard with the U.S. Senate yet to confirm Scott Pruitt to head the U.S. Environmental Protection Agency.

Pruitt's confirmation vote is expected to come sometime likely Thursday or Friday.

Ethanol interest groups continue expressing confidence President Donald Trump will stand behind the RFS. Trump declared his support for biofuels during the presidential campaign and Pruitt has told various Midwestern lawmakers he would continue to implement the law as written.

"As written" is the key phrase. There has been a fair amount of rumbling in Congress about a need for RFS reform. The proposals range from limiting ethanol content in gasoline to 9.7%, to outright repeal.

Considering Trump's penchant for keeping jobs in America and the electoral support he saw from rural America, perhaps the biofuels industry's best tact is to continue to stress the economic importance of the policy.

Long-time ethanol industry consultant John Urbanchuk, managing partner, Agriculture and BioFuels Consulting, LLP, outlined in a recent study how the industry has driven the economy of the nation's largest ethanol-producing state, Iowa.

Even with industry uncertainty generated by inconsistencies in how the EPA implemented the RFS, Urbanchuk said Iowa biofuels in 2016 continued to be one of the state's most important economic engines.

The biofuels industry in Iowa accounts for about $4.7 billion, or about 3.5% of Iowa gross domestic product. It generates $2.3 billion of income for Iowa residents and supports more than 42,000 jobs -- or about 3% of total employment in the state.

"The ethanol industry provides a significant contribution to the Iowa economy, spending $6.5 billion on raw materials, other inputs, goods and services to produce more than 4 billion gallons of ethanol," the report said.

The majority of that spending is for corn and other grains used as feedstocks for ethanol, distillers' grains and refiners' corn oil. The report said the Iowa ethanol industry currently uses more than 1.4 billion bushels of corn, or 53% of the state's corn crop.

"At 2016 Iowa farm gate prices this amounts to $4.8 billion of revenue to Iowa corn farmers," the report said. "Reflecting lower prices, expenditures for feedstocks (corn) by Iowa ethanol producers fell 13.5% from 2015 levels."

In addition, the study found Iowa ethanol plants in 2016 produced an estimated 13 million tons of dried distillers' grains and 913 million pounds of industrial corn distillers' oil at a market value of about $1.8 billion.

JOBS SUPPORTED

The report said the ethanol and biodiesel industries have the "largest impact on agriculture" through the use of feedstocks produced by Iowa farmers, supporting more than 6,500 direct farm and farm-related jobs.

"Most of the agriculture jobs supported by the ethanol industry are farm workers and laborers associated with grain production," the report said.

"However, a wide range of jobs in support activities related to crop production ranging from farm managers and bookkeepers to farm equipment operators are supported by ethanol production ... The indirect and induced jobs supported by the agriculture output used by renewable fuels amount to an additional 14,500 jobs throughout the entire Iowa economy for a total impact from agriculture of 21,100 jobs."

The U.S. ethanol industry generated record production in 2016, expanding beyond 2015 production by 3.5%. The study said last year's record corn crop "pushed feedstock prices lower throughout the year to the benefit of ethanol producers."

Iowa State University reported that after a slow start to 2016, Iowa dry mill ethanol plant profits recovered in the second half of the year to post small increases above 2015.

"Iowa's ethanol industry posted a 1.5% increase in output during 2016, with the state's 43 operating ethanol plants producing at an annual rate of nearly 4.1 billion gallons," the report said.

"Iowa continued to lead the nation in ethanol production accounting for 27% of U.S. output. Iowa also is the nation's leading biodiesel producer. According to the Iowa Renewable Fuels Association, Iowa's nine operating biodiesel plants produced 297 million gallons of biodiesel in 2016, up 22.7% over 2015 levels."

IOWA EXPANSION DOWN

Iowa did not see the normal economic expansion from the construction of ethanol and biodiesel plants because EPA dropped the renewable volume obligation for 2016 below statute, the analysis noted.

"Farmers have continued their historic trend of producing more output with fewer inputs on fewer acres. Between 2005 and 2013, increases in ethanol production utilized much of the increased corn production, resulting in robust farm gate prices and record farm income. However subsequent increases in corn production outstripped modest growth in ethanol production and declines in feed and export demand so that ending stocks of corn grew and pushed prices down significantly."

When it comes to corn ethanol, the current RFS provides little support for future expansion. The law caps corn ethanol production at 15 billion gallons.

Talk of reform to the law could focus on providing a spark for the development of commercial cellulosic ethanol and advanced biofuels production. The RFS as originally written calls for 36 billion gallons of total biofuels produced by 2022 -- a level unlikely to be achieved in the next five years.

On a global scale, a recent study by Lux Research points to a likely expansion of advanced biofuels production in the next five years.

Lux Research used a database of about 2,000 facilities from nearly 1,500 companies in 90 countries with nameplate capacity data through 2022.

Based on that information the biofuels industry at about a 2.2% clip worldwide by 2022.

First-generation biofuels, which hold a 91.5% market share, will continue to carry the day but is expected to lose nearly 6% of its market share, "as advanced biofuels see rapid growth, nearly doubling capacity to 9.6 billion gallons," the report said.

Lux also said first-generation biodiesel production worldwide would begin to fade as second-generation biodiesel production increases.

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

Follow me on Twitter @toddneeleyDTN

(ES/TN)

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