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What's ethanol's economic impact? Depends on who you ask

Agriculture.com Staff 02/12/2008 @ 3:18pm

New data from two sides of the renewable fuels sector raise questions as to what exactly is the economic impact of ethanol production, particularly in the state where the largest quantity is currently produced: Iowa.

Late last month, John Urbanchuk, director of industry consulting firm LECG, LLC, said at a meeting of the Iowa Renewable Fuels Association that, once completed, Iowa's ethanol plants will generate $12.7 billion in income and $790 million in state tax revenue. The prior number comprises 10% of Iowa's gross domestic product, according to Urbanchuk. In all, the industry will create 96,000 jobs in the state.

"These impacts result from the combination of ongoing operations as well as construction of new biofuels plants. The impact of ongoing operations is permanent and increases as the industry grows," he says. "While the impacts from construction are temporary and end when construction is complete, Iowa is expected to benefit from continued expansion of the biofuels industry over the next decade.

"Increased economic activity and new jobs result in higher levels of income for Iowa households. The ethanol industry puts $2.8 billion into the pockets of Iowa consumers on an annual basis."

Yet these numbers, particularly the figure for the number of new jobs created, are largely exaggerated, says Iowa State University (ISU) economist Dave Swenson. Ultimately, once all facilities either under construction or currently in the planning phase are in operation, 8,169 jobs will be created by the industry statewide. This sum, which still translates to a $245-million impact on Iowa's economy, is a far cry from nearly 100,000 new jobs, Swenson says.

"Eight thousand jobs indicates a substantial impact to the Iowa economy, particularly when you consider that the state has added just 42,000 jobs in the last seven years," Swenson says. "Other studies have distorted the reality of how many jobs are producing ethanol by overestimating that number."

A spillover danger of numbers like these, Swenson adds, exists in how the state government reacts. If employment numbers are, in fact, inflated, it could lead to funding gaps in other areas where it's needed more.

"The gap between the rhetoric of promotion and the analysis of state economists is often immense," Swenson says. "If excess public funds are diverted to the promotion of ethanol industries based on highly inflated job values, the state runs the very real risk of short‐changing other worthy public spending categories."

New data from two sides of the renewable fuels sector raise questions as to what exactly is the economic impact of ethanol production, particularly in the state where the largest quantity is currently produced: Iowa.

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