Legal issues involving ethanol production in South Dakota.

• Author: Broin, Jeff

INTRODUCTION

Ethanol is a clear, odorless liquid fermented from the sugars bound up in plants. Ethanol is derived from the energy of the sun captured by plant life.

Every form of plant life contains carbohydrates and starches that break down into simple sugars. Once converted to sugar, yeast digests the sugar and converts it to ethanol. Ethanol can be produced with varying degrees of efficiency from every form of plant life. Known to man for all of recorded history, ethanol is usually produced from cereal grains, wheat, rice, barley, rye, and corn. The process is fairly simple: grind the grain, mix the ground grain with water, and add amylase enzymes, heat, and yeast. The starches in the slurry of ground grain and water are converted by the amylase enzymes to sugar. With the addition of heat and yeast, and the passage of time, the yeast metabolizes the sugar into alcohol. Next, grain particles are separated from the liquid. Finally, alcohol is separated from the water, leaving a clear, odorless, tasteless liquid-ethanol.

For the vast majority of man's history, ethanol has been used as food. At roughly 163 calories per fluid ounce, ethanol can supply life-sustaining energy to the human body, albeit with mind-altering and potentially fatal side effects. In the modern era, the most common alcohol-based food products are beer, wine, and all variants of hard liquor.

Long aware of its propensity to burn, mankind has used ethanol as a fuel in one form or another. Ethanol has a high BTU (1) content relative to its volume. One gallon of ethanol contains about 76,000 BTUs, almost the same as a gallon of liquefied natural gas. (2) There are about 114,000 BTUs in the equivalent volume of gasoline. (3) Ethanol has an octane rating of about 113 as opposed to about eighty-nine octane for common gasoline formulations.

With the advent of the internal combustion engine at the beginning of the twentieth century, ethanol was an early fuel choice. Henry Ford's 1908 Model T could be adapted to run on ethanol. Ethanol faded in popularity in favor of petroleum for several reasons. First, ethanol mixes easily with water which reduces its efficiency. Second, petroleum refined to gasoline has approximately one-third higher BTUs than the equivalent volume of alcohol. Third, the feedstock for petroleum was "free"--crude oil could be pumped through a hole in the earth in abundant quantities, worldwide.

In times of petroleum shortage, the use of alcohol-based fuel has bourgeoned. Towards the end of World War 11 as the Germans were deprived of access to their eastern European oil supplies, production of alcohol-based fuel became an important part of their war effort.

In the 1970s, the United States experienced a major petroleum crisis. First was the 1973 Arab oil embargo, which was followed by the 1979 Iranian hostage crisis, both of which drove up crude oil prices worldwide, and accordingly drove up the price of gasoline. In response, American entrepreneurs began designing and building plants to produce ethanol for fuel. Corn is the most abundant grain raised in the United States and is the easiest to ferment into ethanol. The technology for converting com to ethanol was refined, and the development of ethanol plants in the corn-belt began. Fuel excise tax exemptions and rebates were enacted, thus spurring growth of the industry.

Unfortunately, the early motor fuel ethanol industry had difficulty producing a product that met "fuel grade" standards. Distilling the last tiny percentages of water out of the alcohol proved daunting. Production issues, leveling of imported oil prices, and improved domestic oil supplies reduced petroleum prices. Ethanol plants failed causing ethanol to fade into the background as an insignificant source of motor fuel.

In the 1980s, Archers-Daniel-Midland (ADM), an agricultural processing giant, developed wet mill com processing plants that could produce ethanol during favorable market conditions and other corn products during less favorable periods. By the mid 1980s, ADM was the principal ethanol producer in the United States.

Brazil followed a different course. Based on an early 1980s political decision to become foreign oil independent, Brazil cultivated an ethanol industry based on sugarcane. In the span of about twenty years, Brazil became entirely independent of foreign petroleum imports. It now produces about forty percent of its motor fuel in the form of sugarcane-based ethanol. (4)

In the United States, a 1980s technological breakthrough made high-volume ethanol manufacture much more economical. Molecular sieve technology substantially reduced distillation costs and provided a more efficient means of extracting virtually all water from ethanol, assuring that fuel-grade standards could be easily and uniformly met. Advances in enzyme technology and com genetics, and refinements in fermenting, increased the efficiency of production.

The 1990 federal requirement for smog-reducing, high-oxygenate gasoline in metropolitan areas with poor air quality gave the ethanol industry a boost. Ethanol contains thirty-five percent oxygen by weight and produces fewer smog-inducing emissions than gasoline, thus making it a natural choice for a supplement as demand for cleaner burning gasoline increased.

After the 1990 Clean Air Act amendment, corn-based ethanol production burgeoned in Minnesota. (5) By the turn of the century, the boom had spread to South Dakota. Today, of the more than one hundred ethanol plants in the United States, nearly half are located in Minnesota, South Dakota, and Iowa. There are thirteen ethanol plants operating in South Dakota, three under construction, and three more under development (6) South Dakota ethanol plants are expected to produce nearly one billion gallons of ethanol in 2008, (7) having a retail value of nearly $2 billion at today's prices. Nearly 250 million bushels, more than one-third of South Dakota's corn crop, goes to ethanol production. (8)

The economic impact of the growth of the ethanol industry on South Dakota is enormous. In the last ten years, ethanol production, as a value-added agricultural industry, has grown from one small privately financed plant in Scotland, South Dakota, producing one million gallons of ethanol per annum to its present level of nearly one billion gallons. Today Sioux Falls, South Dakota, is home to POET [TM] Energy Company, the world's largest producer of fuel-grade ethanol at 1.2 billion gallons per annum. (9) VeraSun Energy, a Brookings-based, publically-traded company, started east of Brookings with the construction of its Aurora plant. VeraSun's three-state operation produces 670 million gallons of ethanol per annum and aims to produce one billion gallons by 2009. (10) US BioEnergy, another ethanol producer that started in South Dakota, merging with VeraSun. US BioEnergy's multi-state business currently produces approximately 450 million gallons of ethanol per annum from four plants, with four more plants under construction. The merged companies will headquarter in Sioux Falls.

The ethanol production industry, at today's prices, purchases more than $1 billion of locally-produced corn and produces more than $2 billion worth of ethanol and cattle feed. (11) Over 14,000 South Dakotans have invested more than $400 million in ethanol production facilities, receiving an average of thirty-three percent return on investment. (12)

PART I. AIR EMISSIONS AND WASTE WATER DISCHARGE PERMITTING IN SOUTH DAKOTA

WILLIAM TAYLOR ([dagger])

1. AIR EMISSIONS

   Air quality is by far the most frequently discussed environmental issue in the ethanol industry. The Clean Air Act (13) regulates atmospheric emissions from ethanol plants. Enacted in its first iteration in the 1970s, the Clean Air Act delegates considerable responsibility to the states. Each state is required to adopt a state implementation plan (SIP). (14) South Dakota enacted air quality legislation (15) on the heals of the Clean Air Act. The Department of Environment and Natural Resources, acting through the Board of Minerals and Environment, published a series of regulations implementing the federal and state clean air legislation. (16) State regulations are found at South Dakota Administrative Regulation 74:36. The Environmental Protection Agency (EPA) approved South Dakota's legislation and regulations as the state's implementation plan. When South Dakota's state implementation plan was approved by the EPA, it became "federally enforceable. (17)

   Under the South Dakota regulator scheme, ethanol plants must obtain a permit before beginning construction (18) of any part of a plant that has the potential to emit regulated pollutants. (19)

   Regulated pollutants typically found in an ethanol emissions stream include airborne suspended particulates, sulfur dioxide (S02), nitrous oxide (NOX), volatile organic compounds (VOCs), hazardous air pollutants (HAPs), and carbon monoxide (CO).

   Volatile organic compounds are organic chemicals that degrade in sunlight, causing smog. (20) Hazardous air pollutants are a category of chemicals with a relatively high degree of toxicity. HAPs are listed in the Code of Federal Regulations and are also adopted into the state regulatory scheme by reference. (21)

   Ethanol plant emissions to the atmosphere are measured in tons per annum. Facilities that emit greater than 100 tons per year of any criteria pollutant, or greater than ten tons per year of any HAP, or greater than twenty-five tons per year of all HAPs in the aggregate, are "major sources" (22) under the Clean Air Act and its South Dakota counterpart. Ethanol plants that emit less than 100 tons per year, or less than ten tons of HAPs per year, are "minor sources. (23)

   Construction permits and post-construction operating permits are issued by the South Dakota Department of Environmental and Natural Resources (DENR) based on the proposed facility's potential to emit criteria pollutants and HAPS. Persons...