By Timothy J. Rudnicki, Esq

A tax credit being proposed in the Minnesota legislature to help ethanol producers improve energy efficiency could boost Minnesota’s economy by $189 million.

To qualify for the tax credit, ethanol producers in Minnesota would have to make significant capital investments to install and operate combined heat and power (CHP) and expander generators (EG) systems.

These systems improve energy efficiency because they can generate process steam and electricity with a lower carbon fuel, like natural gas, without losing electricity over many miles of transmission lines.

While this technology is relatively common in Europe, it is still in its infancy in Minnesota. A properly crafted tax credit would provide the necessary push for a diverse mix of ethanol producers and other eligible businesses to make the commitment to install these energy systems.

Some have asked why a tax credit is needed if such technology is so great? They argue against the proposed incentive because they believe the market provides all the necessary price signals. And if the price signal is negative, businesses can either heed that finding or disregard it and build the systems at their expense.

While there might be some merit to the traditional economic market argument with respect to some capital investments, it fails to recognize that economic signals from the marketplace can be inadequate or incomplete. 

For the CHP and EG systems, the current price signals for electricity fail to fully incorporate the environmental externalities associated with generating electricity from fossil fuels such as lignite or coal. And almost half of the electricity generated and used in Minnesota is derived from these carbon-intensive finite fossil fuels.

Furthermore, the positive economic impact from the adoption of CHP and EG systems cannot be overlooked.

Minnesota’s 19 ethanol plants currently use 178.3 megawatts of electricity annually. To produce 50 percent of that electricity through CHP and EG systems, Minnesota’s ethanol plants would have to invest $260 million to install the aforementioned systems.

And according to an analysis by ABF Economics, those investments would add $189 million to Minnesota’s gross domestic product (GDP).

It would also support 1,458 full-time equivalent jobs in all sectors of the state economy, add $17 million in tax revenue and contribute $147 million in household income  

In addition, ethanol producers and other eligible business would benefit directly with lower operating costs as energy would be used more efficiently. 

Minnesota residents would benefit too.

Ethanol already emits 44 to 57 percent fewer greenhouse gas (GHG) emissions than gasoline. With CHP and EG systems, lower carbon fuels such as natural gas would replace electricity from coal and lignite in the ethanol production process, thereby making ethanol an even greener fuel.

Minnesota lawmakers should consider supporting the tax credit for CHP and EG systems because of its benefits to Minnesota’s environment and economy.