Farmers eager to jump into ethanol industry

The Associated Press
Wednesday June 27, 2001

GRIDLEY — A handful of rice farmers are poised to capture part of California’s expectedly huge ethanol market now that the state must comply with a Bush Administration order to continue using gasoline additives to reduce air pollution. 

Since 1997, eight Butte County farmers have been quietly working with local government officials and a New England company to build a plant that would refine into ethanol the straw stalks left over after rice is harvested. 

If the project is successful, its backers say thousands of the state’s farmers, who have been struggling with disastrously low crop prices, will likely follow suit. Those farmers will have to race to get into the ethanol business before the well-established Midwestern processors divvy up California’s market among themselves. 

“It’s a new industry, and if California doesn’t get off its butt and get going with it, the Midwest is going to have the market,” said Butte County rice farmer Ken Collin, president of the Rice Straw Cooperative. 

The coop’s members will sell agricultural waste to the $100 million ethanol refinery near the small farm town of Gridley after its planned opening in early 2003. The city has agreed to help buy the land and build the refinery. It will also form a partnership with BC International Corp. of Dedham, Mass., to help run the facility, which will produce about 30 million gallons of ethanol a year, said Gridley energy commissioner Tom Sanford. 

Along with producing ethanol, the plant will generate about 20 megawatts of electricity, half of which will be used by the refinery and half sold to Gridley residents through the city-owned utility company, Sanford said. 

It’s not clear how much farmers will be paid for their rice straw, but they hope at least to cover the cost of bailing and trucking it to the Gridley plant. Because of a 1993 state law that bans the traditional method of rice straw disposal – field burning – farmers have paid about $40 an acre to plow the stubble under every fall. 

“It’s a chance for us to get back to revenue-neutral. About 35 to 40 percent of our profits every year are invested in getting rid of rice straw,” Collin said. 

Also, prices paid to rice farmers have been hovering at break-even or below for the last couple of years, and any money farmers can earn beyond their production costs for ethanol is welcome relief, Collin said. Gov. Gray Davis and the Legislature laid the foundation for California’s fledgling ethanol industry when they banned the use of the suspected carcinogenic water pollutant MTBE as a fuel additive by the end of 2002. MTBE and ethanol are oxygenates that help gas burn cleaner. Federal law requires that areas with severe smog problems use the additives to help keep pollution in check. 

Unless California delays its MTBE ban or the U.S. Environmental Protection Agency reverses itself and grants an exemption under the Clean Air Act, the state will have to add 580 million gallons of ethanol to its gas every year, said California Air Resources Board spokesman William Rukeyser. 

That will account for about a 20 percent increase in ethanol demand nationwide – a huge market expansion that may require more than a dozen new refineries, many of which California farm leaders hope to see built inside the state. 

“There’s a potential for producing 200 million gallons of ethanol in California,” said Bob Krauter, a spokesman with the California Farm Bureau Federation. While Midwestern ethanol is produced from corn, the West Coast product will likely be made from agricultural waste including orchard clippings, wood chips from lumber mills and lawn and garden trimmings from urban areas, Krauter said. 

“We think the EPA’s order is a good move. We do have a small ethanol industry in California, and we think with this decision, there is potential to more fully develop the industry within our borders,” Krauter said. 

There are two Southern California plants making ethanol, one using whey left over from cheese manufacturing and the other using waste from breweries and soft drink factories. Together they churn out between 5 million and 7 million gallons annually, Krauter said. 

There are other California projects in the works, including a plan to convert a bankrupt beet sugar refinery in Woodland into ethanol production and a plan to build a plant along side a lumber mill in Chester. 

But state energy officials are still considering ways to get around the EPA order to continue using oxygenates in its gas. Using Midwestern ethanzol could raise gas prices by 5 cents to as much as 50 cents a gallon, Rukeyser said. 

“Ethanol is traded on the spot market. If there are shortages or contaminated batches or logistical problems, that could translate into price spikes,” he said. 

To encourage California’s infant ethanol industry, a bill currently being debated in the Legislature would allow producers and local air quality districts to apply for state grants. Moreover, pending state legislation would provide a roughly 20-cent-per-gallon tax credit to ethanol producers, said Charles Lombard, president and CEO of Waste Energy Integrated Systems, a Palo Alto company working on the Woodland project. 

Also, a federal tax break cuts 5.4 cents from the sale of each gallon of gasoline containing the alcohol-based fuel additive. U.S. Department of Agriculture grants are available to help ethanol producers buy crops or farm waste, with the condition that the fuel is used to expand existing production capacity. 

“It’s possible that in the short term the traditional ethanol industry (in the Midwest) will supply California. But there’s also a great opportunity for California to develop its own ethanol industry,” said Roger Conway, director of the USDA Office of Energy Policy and New Uses.