Are Minnesotans voting no on E-85?

E-85 can be political dynamite in Minnesota. The corn-heavy ethanol fuel is a big deal in corn heavy Minnesota. A trip-up on the subject might have swung the 2006 governor's race.

But data posted Tuesday on Twitter by the state Commerce Department show Minnesotans may be voting no on E85.

While use of the fuel (85 percent corn-based ethanol and 15 percent gasoline) is rising in government fleets, overall E-85 sales fell more than 25 percent from 2008 to 2009 following years of big increases. The department also counted 351 stations selling E-85 at the start of 2010, down from 362 in 2009, slipping after years of big increases.

Here's a look at the Commerce Department data:

(Click on the chart for a larger view).

The recession takes much of the blame. Overall gasoline consumption has fallen in the poor economic times and Americans are driving less in the downturn.

The problem is Minnesotans have invested a ton of money and political capital subsidizing ethanol and E-85. A legislative auditor report last year said Minnesota's paid about $314 million to ethanol producers since it began subsidizing the fuel in 1987. The audit called for an end to the subsidies.

Minnesota remains one of the nation's largest ethanol producing and consuming states. So I'm not suggesting it's going away soon. It has solid support from state lawmakers and officials are quick to highlight its economic benefits. Gov. Tim Pawlenty's E-85 Everywhere proposal in December 2006 called for 1,800 pumps by 2010, although that won't come close to happening.

The question is are Minnesotans voting with their dollars against E-85? If we're turning away from the fuel, should government still be trying to promote and subsidize it?

2/24 UPDATE: Here's a response from Mark Hamerlinck with the Minnesota Corn Growers Association.

You rightly point out the recession has had an impact on driving habits and fuel consumption, which factors in to total usage of E85. Another factor that contributed to the decrease was a significant and fairly rapid decrease in gas prices, which (at least for a time) didn't correspond to a similar decrease in ethanol prices. Since E85 is not as energy dense as gasoline, it is usually priced correspondingly lower at the pump. When that difference is larger, sales tend to go up. That wasn't the case for a period of time in 2009.

In addition, I don't have specific numbers (Dept of Commerce or Weights and measures could probably help), but I'm aware there were a significant number of gas stations (not necessarily carrying E85) that closed in the state - it might be worthwhile to compare the two figures.

Regarding the ethanol producer payments ("subsidies"), there are no producer payments being made to new ethanol plants - in fact the "regular" producer payments will end with ethanol produced on July 31, 2010. That would have meant the end of payments altogether, except in 2003 (I believe that date is correct, but would need to verify it) the legislature "pushed out" some plant payments to help balance the budget. In other words, the plants were built with the assistance of a promise of financial help by the state (lenders were hesitant to lend the money without it) - the state has slowed down these promised payments, so the program is still in effect.

Figures from MDA for 2007 (latest complete figures I could find) show the state paid $15.168 million to ethanol plant in the state. These plants provided $1.68 billion in direct economic benefit to the state (MDA study), so the return on investment would be $1 to $111. I'm not sure you could easily find an economic stimulus plan that has a better ROI than that.

2010 producer payments will be $12.169 million, of which all but $549,000 will be "deficiency payments," or payments that would have been already made, had not the legislature stepped in and slowed down the payment schedule. Given that employment in the ethanol industry is up in MN and more ethanol is being produced, it's safe to assume the direct economic benefit figure for 2010 will significantly surpass 2007, which will make the ROI of the producer payments even better this year than in 2007.

Finally, it's important to make a distinction between ethanol production in general and E85 specifically. Producer payments ("subsidies") are only made when ethanol is produced. The vast majority of it is blended into E-10 (what we pump into our vehicles every day), not E85. The 16.2 million gallons of E85 used in Minnesota last year represents about 13. 8 million gallons of ethanol, or less than two percent of the billion or so total gallons of ethanol produced in the state.

That's why it seems bit disingenuous to pose the question as to whether or not the government should continue to "promote and "subsidize" ethanol based on a dip in sales of E85.

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