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Monday, March 15, 2010

Ethanol Pipeline Needs Federal Loan Guarantee... and Eminent Domain?

The market and I remain open to a debate on the merits of ethanol as a good alternative fuel. Ethanol creates jobs and market opportunities for local farmers. We're less likely to go to war to protect South Dakota farm fields than to secure oil shipments from the Persian Gulf. Ethanol profits are less likely to fund Hugo Chavez, al-Qaida, and Russian oligarchs.

But the ethanol industry still depends on government for its growth and existence. Consider Poet & Magellan's proposed 1800-mile, $4-billion ethanol pipeline. It sounds like a heck of a project, pumping South Dakota ethanol all the way to New York City with less carbon footprint than trucks or trains. But it also won't happen without Uncle Sam:

This is a big pipe... and it won't happen without an equally big boost from taxpayers. On Feb. 25, corn-state congressman Leonard Boswell (D-Iowa) reintroduced the Renewable Fuel Pipeline Act [HR 4674]. (Similar legislation is pending in the Senate.)

The bill's key provision is an 80% government loan guarantee. Without it, says Magellan CEO Don Wellendorf, there won't be a pipeline: "We're not willing to spend the kind of money it would take on a project that's viable only as long as the government continues its interest in ethanol" [David Whitford, "Building the World's Longest Ethanol Pipeline," Fortune via CNN Money, 2010.03.12].

Whitford further notes that this pipeline probably wouldn't have made the drawing board the government's biofuels mandates, enacted by big-government President George W. Bush in 2005 and expanded by the similarly minded President Obama.

Mentioned just briefly in the article is eminent domain. Poet and Magellan aren't there yet, but I wonder: how much right of way will they have to acquire? Will they deal more fairly with landowners along this route through much more populated territory than foreign TransCanada did when plowing through our prairie? And if they do, how will we feel about that?

Poet may find landowners more willing to play ball if they can demonstrate that local producers will be able to directly use and benefit from the pipeline, as TransCanada is now saying oil producers in Montana, North Dakota, and even South Dakota may be able to do with "on-ramps" into the Keystone XL pipeline. (If TransCanada would have offered a deal like that on Keystone I, I might have bought their "common carrier" justification for stealing our land.)

But remember: when Poet comes a knocking with its offer for your land, the only reason they can afford to be there is government help.

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