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IMA Energy & Environment Blog

Ethanol Industry Impact Tops $5.5 Billion in Illinois

by Dave Loos

ILRFA is an IMA Member

The Illinois ethanol industry is a tremendous economic engine for Illinois agriculture and the state’s economy. With a capacity of 2 billion gallons, ethanol production from Illinois’ 13 ethanol plants equals 42 percent of the gasoline consumed in the state. Adding up the value of the corn purchased, direct jobs, ethanol and feed products, plus state and local taxes, the Illinois Renewable Fuels Association estimates $5.5 billion in total economic impact. A 2012 study by the Illinois Institute for Rural Affairs at Western Illinois estimated the industry contributes 4,000 direct and indirect jobs.

“Ethanol has a positive effect on corn prices,” says Ray Defenbaugh, President of the Illinois Renewable Fuels Association (RFA) and CEO of Big River Resources, Galva. “Ethanol provides demand for Illinois farmers’ corn, and provides a source of protein and energy for the livestock and poultry industries, plus corn oil for animal feed or biodiesel.”  With its distillers grains coproduct being a cost-effective feed source, the state’s ethanol industry is helping support a resurgence of poultry and livestock feeding in the state. Ethanol plants’ corn oil coproduct is also used for feed, as well as biodiesel production.

Leading the Nation

Illinois has been a leader in the nation’s ethanol industry since the early ‘70s when Archer Daniels Midland Company (ADM) became the first ethanol producer at its Decatur wet mill. Pekin Energy soon followed, then owned by Texaco and Corn Products. Midwest Grain Company, also in Pekin, Illinois, was one of the first plants producing industrial and beverage alcohol and fuel ethanol. (Pacific Ethanol now owns both plants in Pekin.)

These three companies produced the lion’s share of U.S. ethanol in those early years and were pioneers in opening new markets for fuel ethanol. In 1977 and 1978, the Illinois ethanol plants organized an effort to create the first federal tax incentive for ethanol in response to the oil embargo, giving birth to the modern-day ethanol industry.

Huge crop surpluses and low prices in the 1980s not only fueled a farm crisis, but sparked a farmer-led movement to develop a new market for corn through ethanol. Adkins Energy in Lena was the first farmer owned ethanol plant in the state. Lincolnland Agri-Energy in Palestine was second. Throughout the 1990s, Illinois led the nation in ethanol production.

The turn of the century brought a boom to ethanol. The banning of MTBE (methy tertiary butyl ether), due to ground water contamination, created instant demand for ethanol as an oxygenate in fuel, where it acts as an anti-knock agent and reduces smog-inducing pollutants. The resulting boost in ethanol prices stimulated an ethanol build-out across the Corn Belt, with Illinois adding eight more plants.

The build out was aided by the Energy Policy Act, first passed in 2005 and strengthened in 2007. Titled the Energy Independence and Security Act of 2007, the legislation echoed the fuel supply concerns from the ‘70s oil embargo. It also sought to counterbalance the monopolistic tendencies in the nation’s fueling infrastructure dominated by a handful of oil companies, by establishing renewable blending quotas. And, it addressed the growing concerns about greenhouse gas (GHG) emissions by building in GHG-reduction thresholds and creating carveouts for the blending of advanced fuels.

The policy battles over the tax incentives first passed in the late ‘70s and ending in 2010 have been replaced by industry efforts to uphold the RFS and eliminate other regulatory barriers. Defenbaugh is deeply involved in those efforts, both through the Illinois RFA and the multiple industry organizations he is active in.  “The consumer would buy more ethanol if it were available through retailers, both because of the price, which today is 90 cents a gallon less than gasoline, and the octane,” he said. “As an industry we invested in infrastructure and worked directly with retailers to sell higher blends such as E15 and E85.”

The industry also works hard to dispel several myths about ethanol, he added. “We’ve got test after test that show the fuel is good. The octane is needed. The benefits for air quality and health are there.” Defenbaugh recalled a recent meeting the Illinois Renewable Fuels Association had with automakers, who say if they could be assured of fuel availability, they could tap into ethanol’s octane benefits with blends like E20 or E30 to build higher compression, turbocharged engines—smaller engines with the same power, better fuel economy and improved fuel efficiency than today’s engines built for gasoline.

Illinois Innovation

Illinois’ 13 ethanol plants comprise a diverse and innovative industry. The state boasts two of the largest dry mill plants in the world (ADM at Peoria and Marquis Energy in Hennepin) and one of the world’s largest wet mills (ADM at Decatur). ADM and Pacific Ethanol’s wet mills presoak the corn kernels, facilitating clean separation of kernel components that can be manufactured into well over a hundred items, from essential amino acids and food ingredients to high protein animal feed and totally biodegradable plastics. The starch, by far the largest component in corn, becomes corn syrup, high fructose corn syrup or fuel ethanol.

Most of the fuel ethanol industry, however, is comprised of dry grind facilities where ground corn is mixed with water before yeast fermentation. A third of the corn kernel becomes ethanol to be distilled and dehydrated to 99 percent purity before being denatured. A third becomes carbon dioxide, which is collected and condensed wherever economically feasible, the biggest use being beverage carbonation. With the starch converted to ethanol, the remaining third is comprised of high protein, high fiber solids  called distillers grains that become high quality feed for beef, dairy, swine and poultry.

The ethanol industry is unique in that its profitability is very dependent upon successfully managing commodities. Corn is the biggest input cost by far with plants receiving daily deliveries year round. The second largest input is natural gas, also a fluctuating commodity. And, the industry’s products—ethanol, distillers grains and corn oil—are all commodities as well. Managing the market risk and uncertainty is a challenge for all and reoccurring tight margin environment underlies the industry’s continued investment in efficiency improvement.

Innovation is ongoing in the ethanol industry. ADM collaborated with federal researchers to develop a new carbon capture and sequestration technology at Decatur. In recent years, virtually all plants added corn oil separation. Adkins Energy has taken its corn oil coproduct, which is often sold as feed, to the next step to produce biodiesel. CHS-Annawan has also invested in biodiesel production.

Other plants are looking at new technologies to produce higher-protein distillers grains.  New enzymes and yeast technologies offer higher ethanol yields and process improvements, and all plants continually work to improve water and energy efficiency.  Seven Illinois dry grind plants have achieved efficient producer pathway approvals from the U.S. Environmental Protection Agency (EPA) for achieving a greenhouse gas reduction threshold greater than 20 percent when compared to gasoline. Marquis Energy was among the first plants in the nation to be recognized for its efficiency, opening the door to expanding its capacity at Hennepin.

Over the years, Illinois farmers have invested in ethanol to add value to their corn crop, building seven of the dry mill plants constructed in Illinois since 2002. “Farmers planned the facility, conducted the feasibility assessments, contracted the engineering, raised the funds and invested in the plant themselves,” said Eric Mosbey, General Manger of Lincolnland Agri-Energy LLC and Vice-President of the Illinois Renewable Fuels Association. “Being farmer owned brings a great deal of pride to the Palestine and Robinson communities. Since the farmers are both owners and citizens, much of the economic impact generated from the plant stays in the community, whether it is local jobs, the sale of corn to the plant, dividends paid back to farmer investors, or multiple local services.”

Indeed, a 2017 economic impact analysis of Big River Resources’ Galva plant done by Western Illinois University found the 126 million gallon per year plant supported more than 1,400 direct and indirect jobs around Galva and generated more than $21 million in public tax revenues with annual sales over $500 million.

“Ethanol has done more to revitalize rural America than any other government program to date,” said Paul Jesche, past Chairman of the Illinois Corn Marketing Board,  past Chairman of the Ethanol Action Team for the National Corn Growers Association and an investor in ethanol plants. Besides bringing jobs and tax revenues to rural communities, ethanol increased demand for corn which helped increase farm profitability. “From 2002 through 2013, profitability for farmers was the highest it had been in history,” he said. “This allowed farmers to invest in new equipment, new seed technologies, grain storage and other agronomic improvements. Through these investments, corn yields increased to levels that allowed corn production to keep pace with increased corn demand from increased ethanol production. Now, corn production is outpacing the growth in ethanol demand, which proves that corn farmers can produce enough corn to satisfy the demand for food, feed, fuel and fiber.”

 

This is an original article written for the IMA. For more information, contact Dave Loos at dloos@ilcorn.org, or (309) 557-3257.

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