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Ethanol plants receive big subsidy checks

BISMARCK -- North Dakota's two newest ethanol factories have collected $1.78 million in state subsidies during the past six months, in part because high corn prices have made it difficult to profit from selling the alternative fuel.

BISMARCK -- North Dakota's two newest ethanol factories have collected $1.78 million in state subsidies during the past six months, in part because high corn prices have made it difficult to profit from selling the alternative fuel.

From October through March, Blue Flint Ethanol, of Underwood, N.D., has received $901,521 in subsidies, state Department of Commerce records show. Red Trail Energy LLC, of Richardton, got $877,725 during the same six-month period.

Both factories, which are capable of producing about 50 million gallons of ethanol annually, have been operating for less than 18 months. Red Trail began making fuel in January 2007 while Blue Flint started manufacturing ethanol the following month.

Neither the Red Trail nor the Blue Flint factory began drawing state support until late last year, but both are on pace to reach an annual limit of $1.6 million. The subsidy fund is financed by a share of state registration fees on farm vehicles and a portion of North Dakota's tax on agricultural fuel.

The subsidy demand is prompting state officials to consider whether North Dakota's ethanol support program needs to grow, and whether public opinion would tolerate that step.

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"It gets to the point of asking, how deep is the support for the ethanol industry, and I'm not sure we know the answer to that," said Lt. Gov. Jack Dalrymple, who helped craft the subsidy formula the North Dakota Legislature approved five years ago.

"A year or two ago, ethanol was considered a great, green alternative fuel," Dalrymple said. "But today, it's under attack by other industries who have had some success in bringing down the image of ethanol."

Ethanol has been blamed for rising food prices, although advocates on both sides dispute its impact.

Samuel Bodman, the U.S. energy secretary, and Agriculture Secretary Ed Schafer estimated last month that increased demand for corn for ethanol production was responsible for less than 5 percent of food-price inflation this year.

Bodman and Schafer, in a letter to New Mexico Sen. Jeff Bingaman, also estimated that increased ethanol blending in gasoline has dampened gasoline price increases by 20 cents to 35 cents a gallon.

North Dakota's ethanol subsidy payments are calculated by balancing the price of corn, which is used to make the fuel, with the price of ethanol itself. They are triggered during any quarter when North Dakota's ethanol price is below $1.30 a gallon and corn prices average more than $1.80 a bushel.

In recent months, prices for both ethanol and corn have been well above those benchmarks, state data shows. However, ethanol prices have been weaker than the price of corn and the imbalance has triggered subsidy payments.

For example, from January through March, North Dakota ethanol prices averaged $2.26 a gallon, or 96 cents above the benchmark. Corn prices averaged $4.21 a bushel, which was $2.41 greater than the threshold that activates subsidy payments.

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Price trends suggest the imbalance will continue. Corn prices surged above $7 a bushel this month.

New North Dakota ethanol factories planned at Hankinson and Spiritwood have recently been put on hold. When completed, their developers say, both factories will be capable of producing 100 million gallons of ethanol annually.

Another plant, a 110-million-gallon factory near Casselton, is still on track to open in December, project developers say.

Dalrymple and Gov. John Hoeven said they plan to consult soon with ethanol interests about possible changes to the subsidy program.

"We'll know a lot more as we get into the fall and can see how many plants we have got operating, and the (production) volumes," Dalrymple said. "We will have a better idea of what we're working with."

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