Iowa Losing Ethanol Edge to Cornhuskers

OMAHA (DTN) -- Iowa biofuel and farm leaders are warning that the state could lose its long-held competitive edge in ethanol production without access to infrastructure to capture carbon dioxide and ship it to a sequestration site.

That lack of carbon-capture infrastructure in Iowa -- the country's largest ethanol-producing state -- also adds greater risks to a weakened farm economy.

IOWA LOSES GROUND ON CARBON CAPTURE

Monte Shaw, executive director of the Iowa Renewable Fuels Association (IRFA), said Iowa ethanol producers are now losing ground as Nebraska's Tallgrass Trailblazer Pipeline begins operations.

"Carbon capture and sequestration is real -- it's happening to our east, west and north, and it has enormous economic consequences for Iowa," Shaw said during a Wednesday press call. "Since 2000, Iowa has worn the crown as the world's best place to turn corn into ethanol. Last week, we got knocked off."

The $1.5 billion Tallgrass Trailblazer pipeline -- a converted natural gas pipeline -- went live last week. Mid America Agri Products/Wheatland (MAAPW) started carbon capture at its ethanol plant in Madrid, Nebraska, on the western edge of the state, using the Tallgrass pipeline. The carbon dioxide will be sent to a carbon sequestration site in Wyoming. MAAPW became the first ethanol plant to use the Tallgrass pipeline, which is expected to connect at least 11 ethanol plants in Nebraska.

That opens up MAAPW to not only sell ethanol with a lower carbon intensity into states such as California but also to tap into the federal 45Z Clean Fuel Production Credit.

ECONOMIC STAKES FOR FARMERS AND PLANTS

Shaw said the issue is not a competition between Nebraska and Iowa, noting that ethanol plants in North Dakota and Illinois are also sinking carbon in the ground. But the competitive gap will have real financial consequences.

"Quite frankly, I'm jealous. They got it done first, and that is, for the plants that are hooked up there and doing that, it's a great advantage."

Carbon capture and sequestration (CCS) can reduce an ethanol plant's carbon intensity score by roughly 33 points. The 45Z Clean Fuel Production Credit could add about 66 cents a gallon in value to ethanol. Given that a bushel of corn produces roughly three gallons of ethanol, that's the potential of $1.98 a bushel in added value.

If Iowa's ethanol plants were sequestering carbon, that would translate into more than $3 billion in added value to the state's ethanol production each year, Shaw said.

"There are very real economic consequences from that," he said.

David Miller, chief economist at Decision Innovation Solutions, said his modeling looked at CCS with the 45Z tax credit adding about 48 cents per gallon for Iowa ethanol plants. It would also open the door for another 10 points in lower carbon intensity scores through farm-level conservation practices. That would generate about $2.1 billion per year for Iowa plants. "But unless a plant is under a 50 CI score, those opportunities don't exist."

FARM ECONOMY IS ALREADY UNDER STRESS

The consequences are felt by corn farmers whose financial struggles continue to gain attention.

"Right now, the Iowa agriculture economy is in tough shape," said Steve Kuiper, vice president of Iowa Corn Growers Association. "Farmers are farming at a loss. Lenders are very, very anxious right now."

Kuiper noted that agricultural lenders are paying close attention to farmers' balance sheets and liquidity. "There are some folks that potentially could be having to liquidate some land or equipment ... at the end of the year, and this affects the whole state."

PIPELINE POLITICS DIVIDE IOWA

Corn may be king in Iowa, but carbon pipelines have become a politically charged issue across the state. Just this past weekend, Republican candidates running for governor spoke at an event in a rural county that included state lawmakers who have been actively opposing the Summit Carbon Solutions pipeline project, the Iowa Capital Dispatch reported. Republicans in Iowa have been split on the issue. Gov. Kim Reynolds in June vetoed a bill that would have limited the use of eminent domain for carbon pipelines.

Summit's plans have been to build a pipeline across Iowa that would also extend across South Dakota to reach a sequestration site in North Dakota. That has become increasingly more complicated because South Dakota Gov. Larry Rhoden signed a bill into law last March that bans the use of eminent domain for carbon pipeline projects.

Nebraska, by contrast, has no regulatory commission overseeing carbon pipelines.

Despite the rural resistance in some areas and debate over landowner rights, Kuiper said landowners already must deal with natural gas and oil pipelines along with other infrastructure. Kuiper defended the safety and compensation structure of carbon pipelines. "A carbon pipeline doesn't scare me as much as a 36-inch natural-gas line," he said. Kuiper added, "Farmers who allow these projects are compensated very well, and it strengthens their financial position."

NEBRASKA POISED FOR EXPANSION

Seth Harder, CEO of Husker Ag in Plainview, Nebraska, and Lincolnway Energy in Nevada, Iowa, said carbon sequestration adds about $60 million a year in income to a typical 100-million-gallon ethanol plant. The ethanol industry in Nebraska sees the potential to grow right now.

"We see the opportunity for things to, maybe not really an opportunity but a paradigm shift, if you will, as Nebraska sees this influx of funds. We hear plants are talking about not only expanding but doubling (capacity)."

Harder also spotlighted California Gov. Gavin Newsom signing E15 legislation last month, creating a potential 700 million gallons more in domestic ethanol sales.

Shaw also emphasized the need to press Congress to pass legislation to permanently allow year-round E15 nationwide.

The overall message, Shaw said, is that Iowa's ethanol plants need the ability to do CCS, but he's concerned about the increasing push to take away that option.

"There are economic realities if Iowa is permanently shut out of the CCS ability."

Miller also said CCS in Nebraska opens the door for that state to move forward on producing sustainable aviation fuel as well.

"For the Nebraska plants on the pipeline, that door has now been open," Miller said. He added, "We think Nebraska is going to move forward and be a mover on ethanol-to-jet."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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