All Clean Fuel Producers Could Be Winners with Minnesota’s Future Fuels Act

The Future Fuels Act introduced in the Minnesota State Legislature during the 2021 legislative session set a goal of reducing transportation fuel carbon intensity by 20 percent by 2035 and promised to boost the state’s economy and prove a host of co-benefits. As we talked to Minnesota legislators about the proposed clean fuels policy for the state, the question always arose—what impact will this have in my community?

We now have economic analysis and sector-specific case studies, discussed below, to answer that question. Here are a few key takeaways:

• A Midwestern Clean Fuels Policy would offer large net benefits to clean fuel sectors (electricity and biofuels including ethanol, biodiesel, renewable diesel, and renewable natural gas), and farmers throughout the state
• Reducing emissions throughout a fuel’s supply chain increases the opportunity to get higher payments through a clean fuels policy
• A clean fuels policy could open new markets for industries that are currently hurting, like the forest products industry, helping to retain jobs and keep dollars in local economies

We asked the question about impact early on in the Midwestern Clean Fuels Policy Initiative that began three years ago to examine how a clean fuels policy for the Midwest should look. The Great Plains Institute, partnering with the American Coalition for Ethanol, brought together a broad stakeholder group representing automakers, biofuel producers, the electric vehicle sector, farm groups, environmental and conservation advocates, and government agencies, and published their consensus via a white paper on a policy framework for the Midwest.

Under a clean fuels policy, all fuels are scored for their carbon intensity (CI) using a lifecycle analysis tool such as the Argonne National Laboratory’s GREET model (Greenhouse Gases, Regulated Emissions and Energy Use in Technologies). The policy establishes a baseline and sets a CI reduction goal. The technology-neutral, market-based program increases consumer access to fuels with lower lifecycle emissions, stimulating new private investment, economic impact, increased choice for consumers and vehicle fleet operators, and jobs in the clean fuels sector.

To see how that might look in the Midwest, GPI and the American Coalition for Ethanol commissioned an economic analysis for the Midwestern Clean Fuels Policy Initiative. ICF conducted the analysis using the IMPLAN model, an economic input-output model that combines a set of databases related to economic factors, economic multipliers, and demographic statistics.

The study found large net benefits to clean fuel sectors (electricity and biofuels including ethanol, biodiesel, renewable diesel, and renewable natural gas), and farmers—benefits affecting sectors throughout the state. In addition, the study looked at several greenhouse gas (GHG) reduction targets and the potential for CI reduction by different clean fuels under multiple scenarios. Notably, fuel consumers were found to benefit, with net-positive economic impacts for gasoline consumers (households) and diesel consumers (trucking sector).

Informed by the economic analysis and modeling, GPI has developed case studies (soon-to-be published) for Minnesota’s clean fuel sectors that will benefit from the Future Fuels Act. In the following, we look at those case studies and talk with representatives from the various sectors.

Ethanol

Tim Rudnicki, executive director of the Minnesota Bio-Fuels Association, sat at the table where a broad range of stakeholders spent nearly two years developing the consensus-driven clean fuels vision that led to the white paper, “A Clean Fuels Policy for the Midwest.”

“It’s good we all came together and had a chance to hash through the challenges and opportunities,” Rudnicki says. “When we can acknowledge the problem that exists and ask what can we do with our product to contribute to part of the solution, we all win from that. This whole process gave us the chance, and now we have to seize the opportunity.”

The challenge in bringing all the fuel interests together, he says, “is to make sure we have a level playing field, so the metrics used to figure out the scoring for the fuels properly represents the best facts and best science that’s available to identify opportunities to drive down GHG emissions in the transportation sector.”

The role for ethanol, he suggests, is to provide an immediate reduction in transportation GHG emissions by using more renewable ethanol. “Looking at the whole production process from planting seed to cultivating to harvesting to doing the refining in ethanol plant[s], to the wholesaler, retailer, and the actual use. If we look at all those points, and based on the Argonne National Laboratory GREET model, ethanol has significantly lower lifecycle GHG emissions compared to petroleum.”

Demonstrating the opportunity for ethanol in a clean fuels market, GPI analyzed a series of ethanol pathways as part of the soon-to-be-published Ethanol in a Midwestern Clean Fuels Policy. A pathway comprises a fuel’s feedstock, production process, and fuel type.

A series of pathways reflecting current practices were modeled alongside multiple scenarios projecting GHG reductions if a policy incentivized innovation. The scenario with the greatest relative reduction—which shows ethanol as a carbon sink—included currently available technologies that are not yet widely used, including renewable natural gas for process heat, soil carbon management by the feedstock supplier, and carbon capture and storage. The chart below shows the ethanol pathways explored and shows how their CI scores differ from the gasoline baseline.

Ethanol pathways: Carbon intensity reduction from gas baseline

Assuming a carbon credit value of $100 per ton, efforts to drive down the CI of ethanol would be rewarded with credits worth 40 to 70 cents per gallon, with the most ambitious set of technologies (100 percent renewable natural gas, soil carbon management, and carbon capture and storage) earning $1 per gallon, with some of that credit value going back to consumers in savings at the pump. The modeling that combined plug-in hybrid electric vehicles with E85 projected credit generation worth one to two cents per mile.

Farm incentives

The lower projected CI scores for ethanol include a proposed feature in the Future Fuels Act that would reward farmers who reduce their CI by allowing them to share in the economic benefits of the program for implementing climate-smart farming practices—a first in the nation for a clean fuels policy.

For Ron Alverson, it’s about time. A board member of his local ethanol plant in northeast South Dakota and past president of the American Coalition for Ethanol, Alverson has spent the past decade digging into how farming is handled in the modeling that determines CI.

The models used by California, Argonne National Laboratory in GREET, and the US EPA all use US Midwest averages for corn’s GHG emissions, plus an outdated average national corn yield of 166 bushels per acre, Alverson explains. Minnesota’s average yield is 190 bushels of corn per acre, which lowers the CI score per bushel of feedstock supplied to the ethanol plant.

“The states really efficient at growing corn get ripped off,” Alverson says. “By doing a state, regional, or even an individual CI, just about everybody has a lower CI than the average.” He estimates that most corn farmers in Minnesota would have a CI score that’s half the average now used in the California market. “That’s worth $100 an acre at California’s $200 a ton carbon credit,” he says, adding that a lot of no tillers who manage their carbon well would do even better.

Some farm groups are skeptical about regulation, Alverson adds, but he stresses the programs like California’s and the one Minnesota is considering are voluntary. “They don’t force any ethanol plant to reduce CI. But all the western ethanol plants that ship to California are carbon counters now,” he says. Policies that rewarded farmers for reducing their CI would turn farmers into carbon counters as well. “Then we’ll really make progress.” Furthermore, a Midwestern program will be designed with farmers and agriculture in mind.

Biobased diesel

Though technically different fuels produced with different technologies, biodiesel and renewable diesel are collectively known as biobased diesel. Both displace petroleum diesel with lower carbon footprints. However, biodiesel must be blended with diesel, whereas renewable diesel is a direct replacement.

Biodiesel’s CI reduction potential in a clean fuels policy is feedstock dependent. Using the GREET model to assess CI, biodiesel scores a CI of 36 g/MJ when made from soybean oil and a CI just under 20 when made from used cooking oil (UCO). If carbon credits were valued at $100 a ton, the modeling projects that soy biodiesel producers would earn 61 cents per gallon in carbon credits and UCO biodiesel, 82 cents per gallon.

Though Minnesota has no renewable diesel production, the Midwestern Clean Fuels Policy Initiative modeling on woody feedstocks found carbon credits in a range of 72 to 87 cents per gallon of renewable diesel could be generated when carbon is valued at $100 per ton.

Always looking for new markets for wood residues, Rick Horton, director of forest policy for Minnesota Forest Industries, says the organization is closely following the Future Fuels Act legislation.

“There’s plenty of raw material available to use different wood streams to make biomass for energy or liquid fuels,” Horton says. “Within 75 miles of Grand Rapids it’s been estimated there are over 400,000 tons per year of waste wood per year.”

Finding markets for waste residues from paper mills and sawmills is important to the business’s bottom line as well as forest management, he says. Treetops and culls left after logging operations and salvage wood following blowdowns or infestations need to be managed. While the material is left to protect and build soil, too much inhibits new growth and interferes with replanting efforts, Horton says.

Attracting a renewable diesel facility to northern Minnesota to utilize more wood waste would benefit forest health, Horton says. He points to the Finnish company that owns Grand Rapid’s paper mill, UPM-Kymmen. “They’d be an example of a company that might be interested. They have the technology and operate a renewable diesel plant using wood in Finland,” he says. Attracting such investments often comes down to economics, he adds, “and incentives can play a big role in that.”

The potential to earn carbon credits from renewable diesel production is significant. In British Columbia, wood to renewable diesel from pyrolysis scored 18 g/MJ in the Canadian province’s low-carbon fuel standard calculations. The average CI for renewable diesel in the GREET model is 28.9 g/MJ.

Electric vehicles

Electricity used in electric vehicles (EVs) is considered a clean fuel and is eligible for credit generation based on CI reductions.

Credits for EV charging are generated on a per-kilowatt-hour basis and vary based on the CI of the electricity generation mix. Electric grids with lower CI scores result in greater credit generation. GPI’s soon-to-be published case study explored three electricity generation mix scenarios for five types of EVs: a passenger light-duty EV, a heavy-duty utility forklift, a school bus, a delivery truck, and a transit bus.

GPI analyzed the credit generation potential for various EVs depending on how much of the electricity grid is renewable. The analysis uses a 15 percent reduction policy and a credit value of $100 per ton of carbon reduction, which generates the following credits over ten years:

• A passenger light-duty EV could generate between $2,000 and $3,000 in credits.
• A heavy-duty utility forklift could generate between $8,000 and $12,000 in credits.
• An electric transit bus could generate up to nearly $100,000 in credits.

Just how the credits would be allocated along the value chain to the vehicle operator, the electric utility, the charging station operator, the automaker, and others is determined by both market forces and the policies to administer the program.

An EV committee formed as part of the Midwestern Clean Fuels Policy Initiative and facilitated by GPI is working on a set of guiding principles and recommendations to use in determining how EV credits are calculated and distributed, and how they can be used to achieve stakeholder objectives.

The national EV consumer organization, Plug In America, supported Minnesota’s Future Fuels Act in a letter to the Minnesota House Commerce Finance and Policy Committee, writing: “The bill includes EVs as part of its broader, fuel-neutral, performance-based framework that fairly rewards all the various low-carbon fuels. When implemented, the regulatory framework created within the bill provides a new, substantial revenue source that can help address the many barriers that light, medium, and heavy duty EVs, and the other low-carbon fuels, face.”

For EV manufacturers, increasing consumer demand is the goal. “Time and time again, studies show that purchase incentives and available charging and refueling infrastructure are key to increasing customer demand,” said John Bozzella, CEO of the Alliance for Automotive Innovation, in a recent letter. “Properly structured, a low carbon fuel program reduces the carbon intensity of gasoline and diesel fuel either directly, or by funding low CI alternatives, such as plug-in and fuel cell electric vehicles and the required infrastructure to support the use of these vehicles.”

Renewable natural gas

Transforming methane sources into renewable energy removes a powerful GHG from the atmosphere—methane is more than 25 times as potent as carbon dioxide in trapping heat. Biogas captured from a landfill or generated through anaerobic digestion of organic material can be used directly as a substitute for fossil natural gas but is most often cleaned up to pipeline quality. Once purified, renewable natural gas (RNG) can also be compressed or liquified for transportation fuel.

Because natural gas is primarily used in heavier-duty vehicles, RNG was modeled against a diesel CI of 87.7 g/MJ in GPI’s soon-to-be published case study on RNG in a clean fuels market. While the default RNG score is 15 under GREET modeling, roughly one-fourth the intensity of natural gas, RNG CI scores vary greatly with the feedstock source:

• landfill gas: 51 g/MJ
• yard trimmings: 0.34 g/MJ
• food waste: -22.9 g/MJ
• animal manure: -275 g/MJ

If carbon credits are worth $100 per ton, the RNG from landfill gas earns just under $3 per MCF (million cubic feet), RNG from food waste $12 per MCF, and RNG from animal manure $41 per MCF. (About 144 standard cubic feet of natural gas equals one gallon of diesel fuel, and one MCF equals 1,000 standard cubic feet.) Doing the math, RNG from food waste could earn carbon credits of $1.73 per gallon of diesel equivalent and $5.90 per gallon of diesel equivalent for RNG from manure.

In California, where carbon credits are valued at around $200 per ton of carbon, multiple RNG projects are in development, but there are only a handful in Minnesota, primarily due to economics.

“It’s really hard for AD (anaerobic digestion) facilities to pencil out financially in Minnesota,” says Leigh Behrens, planning specialist with Ramsey/Washington Recycling & Energy. The metro area waste and energy partnership with Ramsey, Washington, and Hennepin counties is supporting the Future Fuels Act as a policy that would make biogas production financially feasible in Minnesota.

Ramsey and Washington counties have completed Phase 1 of a solicitation for management of waste products, Behrens reports, and Hennepin County is working on a similar project. About 30 percent of all garbage is organic material, she says, comprised of food waste and other compostable waste. Together, Ramsey, Washington, and Hennepin counties estimate managing about 100,000 tons per year of organic waste with AD if facilities were developed in the region.

There is interest from vendors, Behrens says. The Future Fuels Act would create a strong, stable, and reliable market for biogas, creating a reliable revenue stream for AD facilities.

“It has a really fantastic ripple effect,” she says. “That revenue allows those facilities to pencil out, and helps our counties, and other sectors, manage our organic waste, and turn waste products into value streams.”

“It’s great to see how one policy could have an outsized benefit for our solid waste and recycling sector. And have all these other benefits for the local economy, the environment, reducing greenhouse gases. We really see it as a multifaceted and foundational improvement,” Behrens says.

Economic development with carbon benefits

In talking with representatives from the different fuel pathways, we’re struck by how every sector sees itself benefiting from a clean fuels policy like the Future Fuels Act. But it isn’t just about benefiting renewable fuel producers or EVs—the policy would also aid economic development efforts.

GPI and the American Coalition for Ethanol commissioned ICF to explore the economic impacts of a clean fuels policy in Minnesota and Iowa using the IMPLAN model. Modeling showed that a clean fuels policy in the two representative Midwestern states calling for a 15 percent CI reduction by 2030 would have large net-positive economic impacts for the region:

• Support nearly 15,000 jobs and $946 million in employment income.
• Contribute $1.98 billion in regional gross domestic product and $10.3 billion in economic output.
• Offer large net benefits to clean fuel sectors (electricity and biofuels including ethanol, biodiesel, renewable diesel, and RNG) and farmers.
• Provide net benefits to gasoline consumers and the trucking sector (a primary user of diesel fuel) over the ten-year period.

Under Minnesota’s Future Fuels Act, existing clean fuel producers would have clear incentives to invest in carbon-reducing technologies. The policy also provides a competitive advantage in attracting clean fuel businesses to all regions of the state, from EVs in the metro area and elsewhere, to RNG in urban and rural areas, to the possibility of a renewable diesel plant in northern Minnesota. These investments would produce transportation fuels to be used in the state, keeping the economic benefits local while reducing GHG emissions—an economic development program with carbon benefits.

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