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In the early 1990s, the federal government began ordering "summer blends" of gasoline additives to curb carbon monoxide pollution in urban areas, including the Twin Cities. Later, Minnesota expanded the blend requirement to year-round.
In 2003, Minnesota required that gasoline sold in the state contain 10 percent ethanol. If all goes according to plan, Minnesota will increase the requirement to 20 percent in 2013, if the federal government approves.
A 50-cent-a-gallon federal tax credit for ethanol is due to expire in 2010, but Congress is considering national mandates requiring alternative fuels. The Senate this year passed a requirement for 36 billion gallons of renewable fuel use by 2022. Much of that is expected to come from growth in ethanol production, which currently has an annual capacity of about 6.5 billion gallons nationwide. The proposal is before a Senate/House conference committee.
Arguments pro and con
Alan Roebke, who farmed for 30 years and now runs a government watchdog website called Truepolicy.com, said deficiency payments restore money to a subsidy program that should have been phased out years ago. The deficiency money, he said, is on top of more than $280 million in ethanol subsidies the state made from 1988 to 2006.
Jim Nichols, who as state agriculture commissioner helped design early ethanol subsidy programs in the 1980s, said the payments seem wrong-headed. "This program already has accomplished its goal," he said. "I don't see the point."
But advocates of the payments say the money is available only because standard 20 cent-per-gallon payments are phasing out. The standard payments end after 10 years and as ethanol plants reach their limit, the state has more money earmarked for the program than it will use. That surplus is what pays for the deficiency payments.
The ethanol subsidy program, closed to new entries years ago, ends in 2010, but the ag agency expects to continue "deficiency" payments for years after that.
Doug Tiffany, research fellow at the University of Minnesota's Department of Applied Economics, said the ethanol subsidies could be seen less as money for plant owners than as a way to ensure that their lenders are repaid for providing cash for what once was considered a risky business.
"That was a commitment to the banking community, in particular," he said of the ethanol subsidy program.
It worked out that way for lenders to Gopher State, an ethanol plant in St. Paul that went bankrupt in 2004. Any checks the state sends for past ethanol subsidies won't go to past owners, said David Kreitzer, former president of Gopher State.
"It's going to secured lenders," he said, adding that the deal was worked out in bankruptcy court and approved by the state attorney general's office during the tenure of Mike Hatch.
"We went through all the proper channels to make sure it's payable," he said.
Gopher State's creditors received a 2007 deficiency payment of $73,490, according to an accounting obtained by the Star Tribune.
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