Is the future in Ethanol?

Ethanol is part of Gov. Schweitzer’s “new day,” but the grain-based \ngas additive may raise more questions than it answers.


In 1981, after two years of laying groundwork, Gordon Doig unveiled his ethanol plant in Ringling, southeast of Helena. He was transforming wheat and barley that he and his brother grew into what Henry Ford had called, more than 50 years earlier, the “fuel of the future.” According to Doig, his motivation for getting into the ethanol business was simple: “We were looking for a market for our grains.”

For years, railroad tracks ran right through Doig’s farm and the train had stopped to pick up the wheat and barley he grew. But that rail line was about to stop running, and with the country in the midst of an energy crisis, he saw ethanol as a viable, value-added alternative to shipping his raw grain to market.

For a while he and his brother made a go of it. At the peak of production, they distilled more than three million gallons a year. Doig sold his ethanol to Cenex, Conoco and a couple of Sinclair stations, and he exported much of his product to Oregon and Washington.

There were several other operations around Montana at the time—all of them relatively small producers like Doig—but the ethanol economy in Montana never boomed. While there was a steady rise in the fuel’s market, encouraged by the energy crisis and government regulation calling for cleaner-burning fuels, there was also an eventual fall, brought on by ethanol’s relatively high production costs and intense competition from the oil industry.

“We didn’t foresee the resistance from the oil companies,” Doig says now.

By the early-’90s, Doig—along with all the other ethanol makers in the state—was out of business.

A new day

In 2005, Montana Gov. Brian Schweitzer likes to say this is a “new day” for Montana. Part of his vision for the state is to encourage, through legislation and incentives, another go at a Montana-made ethanol industry. By building ethanol plants in Montana, the governor hopes to generate higher grain prices for eastern Montana farmers, avoid the costs of shipping grain to export markets and spur economic investment and job growth in struggling small towns. As an added benefit, ethanol blended with gasoline raises the fuel’s oxygen content, resulting in more complete combustion. Ethanol has been used as a gas oxygenate for years, and it has helped lead to lower carbon monoxide (CO) emissions from auto tailpipes.

The governor’s enthusiasm, bordering on old-fashioned boosterism, has many people in the state rallying around his call for ethanol. Henry Ford’s fuel of the future is back, and it could be driven by homegrown grains.

A January 2005 Montana Department of Environmental Quality report on the potential economic effects of ethanol in Montana predicted that an ethanol plant in Montana could provide dozens of high-paying jobs, significant economic impacts at the local level and a one-time economic boost to a community during the construction phase. A 2001 study performed by Oregon State University for a plant in eastern Washington predicted similar positive economic impacts.

Ethanol’s fortunes have risen and fallen several times over the years. From a national perspective, ethanol is gaining momentum and is currently booming in the Midwest. This surge in ethanol production is largely in proportion to incentives and legislation that support the industry throughout the Corn Belt, and the demand for cleaner-burning gas on the coasts. More than 10 percent of the nation’s corn harvest goes toward ethanol production, and 90 percent of all ethanol in the country is derived from corn. More than three billion gallons were consumed last year, nearly all of it in the form of E10, a 10 percent blend of ethanol in gas.

Ethanol received another boost in recent years as people began noticing the stench of methyl tertiary butyl ether (MTBE) in their drinking water. MTBE is ethanol’s main competitor in the oxygenate market. The known carcinogen easily finds its way into the water table from leaky storage tanks, requiring costly clean-up to avoid ill effects on human health. Many states have banned MTBE or, like Montana, are considering such legislation.

Some members of Congress are looking to further boost the ethanol industry by pushing for a Renewable Fuels Standard provision that would set a five billion gallon a year goal for ethanol use by 2012.

Jerry Black, a Republican state senator from Shelby, would like to see Montana hop on the ethanol bandwagon. He’s sponsoring Senate Bill 293, The Ethanol Act, a pro-ethanol bill mandating that nearly all gas sold in Montana eventually contain 10 percent ethanol. The senate passed the bill Tuesday, Feb. 15. The E10 requirement wouldn’t go into effect until 55 million gallons of ethanol are produced using Montana-grown crops. After that benchmark is reached, the state’s filling stations and fuel distributors would have a year to begin supplying gas mixed with ethanol. The law would also ban the use of MTBE in the state. Montana would require about 50 million gallons of ethanol to meet the demand mandated by the law.

“This bill grows Montana’s economy and tax base and it’s also good for the environment,” Black says. “But most importantly, it’s good for Montana’s farmers.”

A similar bill, sponsored by Rep. Bob Bergren, D-Havre, is working its way through the House.

Black introduced his bill to the Senate Transportation Committee as an “economic development bill.” The proposals have some newspaper editorial boards around the state and other boosters labeling ethanol a “win-win-win” situation.

The new chief of the Montana Department of Environmental Quality, Richard Oppel, “strongly supports” Sen. Black’s bill. Oppel, a longtime ethanol supporter, was involved in trying to convert a shuttered sugar beet mill in Hardin into a small ethanol plant back in the 1980s.

At a Feb. 1 hearing in Helena, farmers packed a room to show their support for Black’s bill. Keith Schott, with the Montana Grain Growers Association, said ethanol is a “chicken and egg” story that requires a show of government support to get the industry up and running. Farmers testified that an ethanol plant would bring higher prices for their grain, especially low-quality grain they currently sell for feed.

If Montana’s ethanol prospects relied on the production capabilities of Gordon Doig’s ethanol distillery in the ’80s and ’90s, it would be quite a while before 30 million gallons were produced, triggering the E10 mandate in the current bills. But the industry proposed for Montana is substantially grander than a couple of barley- and wheat-farming brothers working on a shoestring.

One of the ethanol plants on the drawing board, proposed for Great Falls by Helena-based Agri-Technology Corp., would produce 100 million gallons per year. Another proposed for Hardin would churn out 60 million gallons a year. If either of these plants were to go on-line, and if current legislation gets Gov. Schweitzer’s signature, it’s conceivable that E10 could be a reality for all Montana gas tanks in just a few years.

According to Tim Babcock, a former Montana governor now with Agri-Technology, the keystone for the proposed Great Falls ethanol plant is financing. “We’re far along in the process of getting financed,” Babcock says, “but we’ve been close before.” In fact, Agri-Technology has been pursuing financing for the Great Falls plant for 11 years.

Babcock hopes state legislation passes this year to help convince financiers to provide the money they need. The Agri-Technology plant would cost $300 million, and luring that kind of capital to Montana isn’t easy. Babcock won’t reveal the identity of the potential investor, saying only that they’re out of state and “very substantial.”

Pat Joyce, program manager for Billings-based Rocky Mountain Ethanol, faces a similar financing hurdle. Rocky Mountain Ethanol wants to build a Hardin plant that would get its power from a 131-megawatt coal-burning power plant currently under construction. She agrees that for projects of this scale, out-of-state financing is necessary.

“This is a $100 million project,” Joyce says. “It’s hard to raise that kind of long-term debt in Montana.”

What these potential ethanol producers have that the earlier Montana distillers didn’t, aside from a tremendous increase in scale, is a more recognizable product with better-organized marketing. Montana producers hope to export any ethanol not used in Montana to Washington and California. Babcock and Joyce both claim a Montana advantage over the corn states, because transporting ethanol by rail from Montana to the West Coast costs less than shipping from the Midwest.

“The acceptance of ethanol has skyrocketed in the last few years,” Babcock says, noting that President Bush supported development of the ethanol industry in his State of the Union speech. “We were pleased about that.”

“Ghost stories”

Mike Volesky, Gov. Schweitzer’s natural resource policy adviser, endorsed Black’s bill at a recent hearing, saying that it would create much-needed jobs in eastern Montana. He warned the members of the transportation committee about the “ghost stories” they might hear about ethanol. But at the hearing, there was little serious discussion about ethanol’s main phantoms—persistent questions about its environmental and energy benefits.

Instead, half of the people who stood to oppose the bill were antique car collectors, pilots or aviation industry representatives who argue that ethanol could harm the specialty engines they use. In the case of airplanes that run on automobile fuel, there are serious safety issues with ethanol. None opposed ethanol per se, but all asked for amendments to the bill that would exclude the addition of ethanol in high-octane gas.

The other half of the opponents of the bill represented different segments of the oil and gas industry. Groups including the Montana Petroleum Association and the Montana Petroleum Marketers and Convenience Store Association said that consumer demand, not government mandates, should determine ethanol’s future. The costs of the mandate, they warned, would be passed on to consumers and taxpayers. Requiring E10, they said, could cause gas shortages in rural areas due to shipping difficulties.

Mike Hraban, pipeline manager for Conoco Phillips in Billings, argued that it would cost his company millions to upgrade its systems to handle ethanol. He called ethanol “a good long-term solution,” but said its “time has not yet come in Montana.”

However, one of Conoco’s retail competitors, Cenex, has already updated its distribution system to handle ethanol. Cenex is owned by Minnesota-based CHS, an agricultural corporation with more than $10 billion in sales last year. There is no doubt that tax incentives, direct payments and supportive legislation are necessary to boost ethanol’s fortunes—and not just in Montana. As Pat Joyce of Rocky Mountain Ethanol said, “Producers are going to go where the incentives are.” Minnesota passed aggressive pro-ethanol legislation in the early 1990s and the state now has 14 operating plants with another three under construction. Other corn-producing states have done the same.

State and federal subsidies are already in place to help grain growers, ethanol producers and distributors. Depending on the legislative decisions this year in Helena, and the ability of people like Babcock and Joyce to attract financing, the future could see millions of Montana dollars paid in incentives and tax credits. One federal Farm Services Agency commodity incentive program saw its ethanol-related payments rise to nearly $150 million last year from about $30 million in 2001. Last year’s payments represented a nationwide increase of nearly 600 million gallons of ethanol. Montana has a “state producers credit” that would pay producers to make ethanol from Montana grains. Currently that subsidy is capped at $6 million annually.

A Congressional Research Service report from 2003 paints a picture of an industry with potential, but points out it currently has an uncertain future and a heavy reliance on federal and state support. According to the report, a 1998 study found that the market for ethanol would dwindle from 1.5 billion gallons a year to 290 million gallons per year without a 5.2 cents exemption from the federal excise tax on gasoline. For a 10 percent ethanol blend, that amounts to a subsidy of 52 cents a gallon. (Since then, with continued support, the market has grown to more than three billion gallons a year.)

Here in Montana, nearly 18 million gallons of ethanol were consumed in 2003, most of that in Missoula and all of it imported. Just as the production of ethanol faded from Montana in the ’90s, the additive became a seasonal fixture in Missoula’s gas supply. In 1992-93, the Environmental Protection Agency demanded that Missoula add oxygenate to the gas sold during the winter months in order to combat high carbon monoxide (CO) levels.

That first year, MTBE was used as an oxygenate. The public complained about the odor and health effects, and the following winter ethanol replaced MTBE. The addition of the oxygenate had an immediate impact on what came out of Missoula-area tailpipes.

“You can go to Malfunction Junction and look at our strip charts,” says Ben Schmidt, an air quality expert for Missoula County. A CO monitoring station sits at the corner by the fairgrounds creating a chart of CO emissions as vehicles pass. “The levels go up and down as cars pass by,” says Schmidt, who says that during the first November oxygenate was added you could visually see the baseline levels go down, and the fluctuations all but disappeared.

But that impact has grown less dramatic over the years.

Schmidt says there remains some benefit to the continued use of oxygenates, but as newer cars replace older ones, the gains in air quality diminish. Modern catalytic converters and computerized fuel oxygen sensors help reduce emissions. However, blends with more ethanol, such as E85, an 85 percent ethanol mix, do result in dramatic CO reductions. This blend is available at two Montana filling stations, but it can’t be used in all engines.

On the other hand, ethanol use can lead to slight increases in other pollutants. Schmidt says studies have shown an increase in some acetaldehydes—irritants and a suspected carcinogen—but levels in Missoula are still relatively low compared to other areas. Elsewhere, ethanol has been blamed for increases in ground-level smog, but such data is conflicting and Montana doesn’t typically generate the heat and sunlight conditions required for summertime smog.

“I still say continue research on ethanol,” says Schmidt. But he pointed toward conservation efforts such as walking and biking and driving cars that get good gas mileage as viable alternatives. From a clean-air perspective, he says, investment in proven clean-energy sources such as wind power could also produce strong results.

Several researchers have looked at the overall life cycle of ethanol production to see if it really should be considered a source of clean energy. An early ’90s report by Cornell University researcher David Pimental sheds doubt on ethanol’s clean credentials. Pimental’s report, and several since, questioned whether ethanol—with all the pesticides, water and fuel needed to grow an energy-intensive corn crop, and the transportation of ethanol from producing regions to far-flung markets on the coasts—consumes more energy than it produces.

The reports and studies offer conflicting evidence on the environmental benefits of current ethanol production. But as the technology improves, most recent reports lean toward a marginally positive energy budget for ethanol, and modest reductions in greenhouse gasses.

Is the future now?

The current ethanol industry, and the technology proposed for Montana, is based on ethanol made from starch. Grains of wheat and barley must be cooked to release sugars, then fermented and distilled into minimum 180-proof grain alcohol—essentially moonshine. A future industry based on ethanol made of plant cellulose could tilt the cost-benefit equation much further toward ethanol. Cellulose—found in wheat and barley stubble, corn stover, brush cleared from forests or even household waste—can be broken down by enzymes into sugars, resulting in more ethanol from a given amount of input, but the cellulose process for creating ethanol is more expensive than the starch-based technology currently in wide use. Ethanol advocates look at this vision for future ethanol production, and other biomass research currently underway, and see a revolution in energy and products gleaned from plants.

It’s hard not to get caught up in such a vision, but that particular revolution has yet to arrive. And the immediate future for Montana ethanol remains largely in the hands of lawmakers and potential investors. Out-of-state decisions beyond Montana’s control could also affect the viability of an export market. Oregon recently decided to drop its ethanol requirement by 2007, the Idaho Legislature recently tabled a bill to require ethanol in that state’s gasoline and there is no telling what the long-term future holds for a Montana-made ethanol market in California or Washington.

Sen. Vicki Cocchiarella, D-Missoula, has voiced concerns about Black’s bill in Helena, saying she supports the concept but is “very leery.”

“People have been promised great success,” Cocchiarella says. “But we’ve always seen great pressure from out of state. I don’t want to take another leap of faith until you can guarantee we’re not going off the deep end.”

Ask Gordon Doig if the time is right for ethanol in Montana and he’ll reply, “The time has always been right, since 1978, when we had our first energy crisis.”

“What price do we pay for our incentives for oil?” Doig asks. He mentions tax breaks for oil companies and the troops that secure faraway resources. “We don’t have an energy resource in this country that is viable without incentives,” Doig says. “Ethanol won’t solve those problems, but it would help.”

It’s too late for that help to come to Doig’s aid. Soon after his ethanol business fizzled out, he lost his farm. But he’s hoping a renewed ethanol industry in Montana would help current grain farmers in the eastern part of the state. Doig is now a foreman on a road construction crew, often traveling from his home in White Sulfur Springs around the state on different projects.

“I go work on the Hi-line or around eastern Montana from time to time,” Doig says. He drives through the depressed small towns and notices the loss of farms and the businesses they helped support. “I see the boarded-up buildings and it’s kind of sad.”

“I’ve worked in Kalispell too,” he says. “There are things going on over there, on this side it’s much different.”

That long-term decline in Montana’s grain-growing regions is essentially why a hearing on ethanol will pack a room in Helena with grain farmers. Ethanol is widely seen as a welcome ray of hope among Montana grain growers. Indeed, encouraging value-added agriculture and bringing economic stability to eastern Montana towns is ethanol’s best-case scenario.

But Montana would be competing for a slice of a market with an uncertain future. The model currently proposed for a Montana ethanol industry would rely heavily on fickle out-of-state investors and markets, as well as government support. And while promising research forges ahead to improve the prospects for renewable, homegrown fuels, critics and advocates continue to argue over such basic questions as whether ethanol is marginally positive or negative for the environment.

Ethanol may indeed be part of Montana’s future, but if the industry is going to deliver on its promises—increased economic self-reliance, decreased imports, an improved environment—it’s going to take more than a few sunny words from Gov. Schweitzer. It’s going to take a Legislature willing to go out on a limb and a fair amount of luck.


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