Can Biofuels Save Rural Towns?

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A major political selling point of ethanol production is the possible salvation it offers small towns in the center of the United States. But does “the biofuel revolution” actually benefit these communities or just Vinod Khosla? That’s the topic that Kansas State researchers will tackle with the $696,000 grant they received last week from the Department of Energy.

At the most basic level, the researchers want to know how these communities are responding to the influx of capital and interest in places where the population has been declining for years. What are the issues that local communities might have with the reconfiguration of their towns around a new industry? Communities like “BioTown USA”, formerly Reynolds Indiana, have been deeply affected by a biofuel rebranding and the recent suspension of the planned ethanol biorefinery.

Focusing on six towns in Iowa and Kansas, the researchers will study how the economic and social sustainability of ethanol plants affects communities. They’ll also tackle how the plants and biofuel crops are affecting the local water economies, especially in Kansas, where water is particularly scarce. As the grant’s principal researcher, Theresa Selfa, an assistant professor at K-State, put it, “How do they balance water demands between agricultural crops for food versus for fuel and then for household, municipal and industrial uses?”

At first glance it appears that the researchers are skeptical of the biofuel industry. But the first product of the research — a profile of the city and county of Russell, Kansas (pdf) — is a good argument for the necessity of capital influx. Russell County has lost 44% of its 1950 population base. It’s not surprising: the per capita income of is around $24,000, about 75% of the Kansas and United States averages. San Mateo County, by contrast, has per capita income of $36,000.

It seems that there are two options for towns and counties like Russell: find new industries or continue a long, slow death. Are biofuels that new industry? LECG, a consulting firm, released a study last week detailing how a 50 million gallon ethanol plant puts almost $2 million into local pockets each year. The extra local cash has positive local impacts that “benefit local community banks with increased deposits of payrolls and lending as local business activity increases.”

But the Kansas researchers think that the plant ownership composition will have a major impact on whether or not biofuels save these towns. The researchers want to know whether smaller, local plants are more beneficial to small towns than larger, nonlocally owned production facilities.

On that score, the LECG report has bad news. The report states that equity costs for a 100 million gallon plant have risen to $95 million, pushing farmers out of investing partnerships. The same goes for local banks, as the typical community bank can only spot $2 million of an estimated $130 million total debt cost.

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