Ethanol's Impact

FROM THE JANUARY ISSUE: Iowa’s status as the largest ethanol-producing state means its ethanol economy affects the entire industry.
By Matt Thompson | December 26, 2018

In Iowa, the economy is tied so tightly to the ethanol industry that almost everybody knows the importance of President Donald Trump’s year-round E15 announcement, says Monte Shaw, executive director of the Iowa Renewable Fuels Association.

A waiter in a Cedar Rapids restaurant, for instance, recently asked Shaw about Trump’s E15 waiver, upon hearing that Shaw advocates for biofuels and ethanol through the IRFA. “So here’s a waiter in the Cedar Rapids Marriot restaurant that knew that Donald Trump had done a good thing for the ethanol industry and was excited because he just kind of inherently knew that would be good for Iowa.”

And what’s good for Iowa is the ethanol industry. In 2017, the state’s 44 plants produced 4.2 billion gallons of ethanol. This accounts for more than 25 percent of the 15.8 billion gallons produced nationwide that year. The production rate has grown faster in Iowa than it has in the rest of the country since 1980. Iowa produced 25 million gallons of ethanol in 1980, while the national total was 175 million. That’s a growth of 168-fold for Iowa and 90-fold for the nation.

While an abundant corn supply and the ability of Iowa ethanol producers to ship easily to East, West and Gulf coast markets are significant factors in the state’s success, more factors are at play, Shaw says.

One is the entrepreneurial spirit of Iowans. “I give a lot of credit to just the folks who reached into their savings and plopped $20,000 or $30,000 or $50,000 down at a local equity drive saying, ‘I want my kids to have a better experience in rural Iowa farming than I did.’ You know, those are the people who built this industry, and they did a great job and it worked,” Shaw says.

And the state isn’t content to just watch its ethanol industry grow. It hopes to build on the success of its renewable fuel industry and help foster innovation in renewable chemicals. Iowa’s Economic Development Association recently introduced the Renewable Chemicals Production Tax Credit, which allows producers to claim a tax credit for creating certain building block chemicals from biomass.

Producers that convert biomass feedstock into any of the 30 chemicals approved by the IEDA can apply for the credit. Startup companies are eligible to receive up to $1 million, while established companies can receive up to $500,000. The goal of the program, according to Mark Laurenzo, business development manager for the IEDA, is to take advantage of Iowa’s place as a leading biofuels producer and encourage other uses for biomass, such as renewable chemicals for plastics, paints and other petroleum-based products.

“We looked around and said, ‘How can we help the … industries potentially at a blend wall?’” Laurenzo says. “‘How can we make sure that very competitively produced chemicals can be further used?’” The solution was the tax credit. Laurenzo says Iowa has had success in using tax credits in the past to incentivize ethanol and biofuels, and decided to use that approach again.

2018 was the first year producers were able to take advantage of the credit, and so far, Laurenzo says, it’s been successful. “What we’ve seen, and what we consider a very big success, is the inquiries we’ve had into the program and how companies could utilize it. …The No. 1 goal of the program is to get the attention of the industry, and those potential users are very targeted. And that we have done.”

Advocating for the Industry
The IRFA is a state-level trade group, unaffiliated with the national Renewable Fuels Association. Shaw says the IRFA works on policy, legislation and regulation. “Sometimes we get involved with research and development. We work on market development and consumer education. We also help facilitate some activities around plant operations in terms of environmental compliance and safety best practices, things of that nature, where we bring plants together.”

Recently, much of the association’s focus has been on E15. The IRFA’s strategy for marketing E15 to retailers hasn’t changed, Shaw says, but the association is following the rule-making process closely. “On the policy side, we are not taking our foot off the gas. This has not been put in the federal register and we are very interested in ensuring that the EPA puts its most defensible legal arguments forward when they actually do publish a proposed rule in the federal register.”

While more work needs to be done before that rule is in place, Shaw says Iowa’s political leaders were instrumental in getting it this far. “No governor did more to make President Trump’s E15 announcement happen than Gov. [Kim] Reynolds,” he says, adding that Sens. Chuck Grassley and Joni Ernst played important roles as well. “Other senators were great, but Iowa led the way in that. And so we’re proud of that and we also want to say thank you for that.”

Shaw says the state’s political power is a benefit for the ethanol industry. “It’s nice to be one of the 10 swing states because they can’t really ignore you. And so we’re going to use that. While the truth is on our side, the resources are on the other side, so we need to use every resource and every potential point of leverage that we have just to get the truth out there.”

Shaw says IRFA helped prove the value of higher ethanol blends. “What we’ve really tried to do is use Iowa as a place where consumers will buy these higher blends. Iowa’s not the world’s largest gasoline market, … so we were never going to solve the world’s ethanol demand problems by leading the way in gallons in Iowa,” Shaw says. But the goal IRFA did help accomplish, he adds, is getting retailers to offer E15 and E85, and install blender pumps. “What it showed was, ‘Hey, this works,’” he says. According to Growth Energy, 171 retailers in Iowa offer E15.

Ethanol’s Expansive Reach
Ethanol’s reach in Iowa goes beyond just corn growers and production facilities. According to a study commissioned by the IRFA, ethanol manufacturing accounted for more than 6,000 indirect jobs in Iowa in 2017.

Two of those indirect employers are Stover Controls, based in Marshalltown, and Hydro-Klean, based in Des Moines. Stover provides valves, regulators, actuators and Emmerson products and services to ethanol plants, while Hydro-Klean specializes in industrial cleaning. Both companies’ territories extend beyond the state’s borders. Stover has customers in Nebraska, South Dakota and Illinois and Hydro-Klean has locations in South Dakota, Minnesota and Kansas.

Paul Wagner, ethanol industry lead at Stover Controls, says his company is focused on problem solving and customer service. Highly beneficial to Stover’s ethanol customers is the company’s availability during emergency situations. “The fact that we answer our phone 24/7/365 has been huge,” he says. “Myself, personally, I’ve actually delivered valves at 2 a.m. to these customers, and they are absolutely overjoyed with the fact that we operate on the same hours that they operate.”

Hydro-Klean has similar availability for its customers. “Our policy is you’ll get a call back within 10 minutes and our guys will be at the shop and on the road within an hour,” says Brian Rinehart, Hydro-Klean’s director of industrial services. Rinehart says Hydro-Klean’s emergency response for industrial spills has been huge for ethanol producers. “A lot of them have sulfuric acid spills. … They built containment around the tanks, but they’ll have leaks or spills and they need to get rid of it,” he says, adding that the company also assists with syrup, DDG and 200-proof ethanol spills, among others.

Keeping ethanol plants running is important work for both companies, as the industry is an appreciable part of the state’s economy. Shaw says the IRFA commissions a study every year on ethanol’s economic impact for Iowa. In 2017, ethanol contributed $4.5 billion to the state’s gross domestic product, $2.1 billion to household earnings, and was responsible for 43,079 jobs. “Some of that’s in ag, and some of that’s in the supporting industries and just the economic opportunity that comes from the operation of these plants—the incomes, the household earnings, all that stuff—rolls over into your local economy,” Shaw says. “So everything from the boost in agriculture to research and development at our state universities. It’s a big driver.”

That’s apparent looking at renewable fuels’ effect on Iowa’s gross domestic product. Between ethanol and biodiesel, renewable fuels contribute nearly $5 billion to the state’s GDP. “If you waved your magic wand and they [renewable fuels] went away, and nothing else popped up magically to replace them, that would cut 3 percent of Iowa’s economy, which is a big deal,” Shaw says.

Author: Matt Thompson
Associate Editor, Ethanol Producer Magazine