Fuel from farm: Indiana's bold biofuel goal: one billion gallons of ethanol and biodiesel annually.

THERE'S MORE TO DO with corn in Indiana ... and soybeans too. In fact, those Hoosier staples of agribusiness are on the leading edge of the state's rising profile as a leader in biofuel production.

As oil prices have risen to record levels and political uncertainties threaten the availability of foreign supplies, the United States has turned to its heartland to seek fuel from its farms. And Indiana has answered that call with one of the most aggressive biofuel initiatives in the country.

Last month Gov Mitch Daniels announced that Louis Dreyfus Agriculture Industries plans to build the world's largest biodiesel plant near Claypool in northeastern Indiana. The new facility, two other biodiesel and six ethanol plants are currently under construction in the state, joining an existing ethanol plant in South Bend and creating a new industry that may reshape Indiana agribusiness.

"It's been a hectic year of dramatic progress in renewable fuels development in our state," Daniels said in announcing the new biodiesel plant at the second National Agriculture/Forestry Renewable Energy Summit in Washington, D.C. "In just one year, we're growing from one alternative fuels plant to nine, with more to come. We said our ag sector would be a big part of our economic comeback, and here's the proof."

Daniels was one of only two governors to speak at the summit and he is charting an aggressive course for Indiana's biofuels. Recent federal legislation requires the blending of 7.5 billion gallons of ethanol and biodiesel into motor fuel by 2012 and the nation is currently estimated to have only half the production capacity to meet that amount.

It makes sense that Indiana is stepping up to the plate. The state is the fourth-largest producer of soybeans and the fifth-largest produce of corn in the country. Soybeans planted on 5.5 million acres of land in Indiana produce more than 200 million bushels annually while another 5.6 million acres produce some 780 million bushels of corn.

Using the new biofuel facilities under construction, Indiana plans to shift part of those two crops from the food supply to the energy supply, creating 400 million gallons of ethanol and 95 million gallons of biodiesel each year. According to the governor's office, Indiana's goal is to produce a combined 1 billion gallons of ethanol and biodiesel annually.

Lt. Gov. Becky Skillman, who also serves as the secretary of agriculture and rural development, says the new emphasis on biofuels is great news for the state and especially important to rural communities.

"This is rural development at its finest," she says, explaining that biofuel production will create new jobs in farming communities while expanding the future markets for the state's crops.

"We're rapidly moving from nowhere to national leadership," Skillman says. However, she also notes that raising awareness of biofuels is as important as building the infrastructure to produce them.

To help with that promotion, Skillman has spent the last year driving an E85 Tahoe on loan to the state from General Motors. Having logged more than 20,000 miles across all parts of the state, Skillman says the vehicle has been an effective billboard for the state's biofuel ambitions and generates lots of questions wherever she drives.

She also is spearheading an effort to use the state's fleet of 150,000 vehicles to promote use of biofuels by displaying stickers showing their use of ethanol or biodiesel. "For biofuels to be successful, we need to create a culture in which it is common for Hoosiers to use E85 or biodiesel," she explains.

While projects around the country are exploring other alternatives to the traditional gasoline-powered engine, including electric hybrid engines, natural gas engines and hydrogen fuel cells, Indiana is focusing on two biofuel alternatives that can be made from its leading agricultural products: ethanol made from corn and biodiesel produced from soybeans.

Ethanol. Ethanol is a high-octane (approximately 105) liquid fuel that is produced by fermenting corn or other grains and therefore is renewable, biodegradable and cleaner to burn. It can be blended with gasoline in low levels of up to 10 percent and used in regular gasoline engines. Hundreds of gas stations in Indiana are already selling such gasoline containing low levels of ethanol.

A higher concentration of 85 percent ethanol and 15 percent gasoline can be formulated into E85 fuel that can be used by vehicles with special FlexFuel engines. Those engines are being produced by General Motors, Ford, Daimler Chrysler, Mercedes, Nissan and Mazda and an estimated 4 million FlexFuel vehicles are already on the roads.

However, many people driving FlexFuel vehicles may not be aware that they can use E85. Although that information may be included in their owner's manual, the lack of E85 fuel pumps hasn't made the choice much of an option. For example, although it's estimated that some 4,000 vehicles in Marion County could use E85 fuel, it is currently only available at Joe's Junction #9, a Phillips 66 station on Kentucky Avenue.

Getting more people to understand the benefits of using ethanol is an important issue for farmers growing corn in the state. "If we are going to grow Indiana's ethanol industry, we need to start investing in consumer awareness and education to grow demand along with supply," says Dean Eppley, president of the Indiana Corn Marketing Council.

That's exactly what the state hopes to do by promoting its use of FlexFuel vehicles and Skillman expects the total number of E85 pumps in Indiana will increase from 23 to 40 by December. According to the National Ethanol Vehicle Coalition, there are currently 600 E85 fueling stations in the United States.

In order to fill those pumps, ethanol plants are currently under construction in Cloverdale, Linden, Rensselaer, Marion, Clymers and Rushville. The state's first ethanol plant is already operating in South Bend. When completed, those plants are expected to use 150 million bushels of corn annually, roughly 20 percent of the state's corn crop, to produce more than 410 million gallons of ethanol.

Biodiesel. Biodiesel is also a renewable, biodegradable and clean-burning fuel that is made by chemically reacting alcohol with soybean and other vegetable oils. Biodiesel contains no petroleum, but is often used in blends ranging from two percent to 20 percent (B20) biodiesel.

A major advantage of biodiesel is that is can be used in unmodified diesel engines with the existing fueling infrastructure. Vehicles using biodiesel also produce fewer emissions of carbon monoxide and other harmful pollutants.

Indiana currently has four fuel terminals with biodiesel blending capabilities, the second-most in the nation. It also has the third-highest number of public pumps, with 68 offering biodiesel. However, the state started the year with no production of biodiesel.

That will change with construction of plants in Morristown, Hammond and the Louis Dreyfus plant in Claypool. Together they are expected to use 60 million bushels of soybeans each year to produce 95 million gallons of biodiesel.

The Claypool plant alone is projected to consume up to 25 percent of the state's soybean crop. The first part of the project is a soybean processing plant that will produce both soybean oil and soybean protein meal that is used to feed livestock. The second part is an integrated biodiesel plant that will produce 80 million gallons per year.

"We believe Claypool represents an ideal site for this investment in the growing and dynamic biofuels space," says Erik Anderson, CEO of Louis Dreyfus Commodities North America. "Ample soybean supplies coupled with deep local markets for feed and biodiesel consumption made Indiana our top choice for this facility."

"Indiana is getting a soybean processing facility and a biodiesel production facility To have both planned for construction is unprecedented in the U.S. today," says Chris Novak, executive director of the Indiana Soybean Board.

Such increased demand for corn and soybeans will help Indiana farmers counter the increased supply of crops that has entered the world market from South America, says Fred Henderson, a Sharpsville farmer, who promotes soybean use around the country.

Since half of Indiana's corn and soybean crops are exported outside the United States, increasing the use of those products domestically is good news for farmers, he says. Having the production facilities in Indiana is an added bonus, he says.

"The farmers are very excited. They are looking forward to this industry coming to Indiana," Henderson says. In addition to producing the corn and soybeans for biofuels, Henderson says farmers are also becoming major consumers of ethanol and biodiesel in the their operations because they understand and value the related environmental benefits.

Related economic benefits, While the increased production of biofuels is certainly good news for the state's farming community, the economic benefits are expected to be realized all across the state. That's one of the state's goals in bringing agriculture and economic-development leaders together to explore how their combined efforts can move the state forward.

For example, the construction of nine new biofuel plants is a reversal of plant closings that have dominated the news in recent years. Skillman notes the combined projects are expected to represent an investment of $600 million in capital expenditures and create some 375 new jobs.

In addition, Indiana transportation commissioner Tom Sharp says the increased production of biofuels will lead to upgrades of the state's transportation systems as roads and private rail lines are upgraded to handle increase shipping of corn and soybeans. If production continues to grow as expected, Indiana may even see the creation of biofuel pipelines that export Indiana's new fuels to other parts of the country.

Sharp also notes that Indiana's central location which makes it a hub for transportation and trucking companies will also be an asset for the state's effort to increase the use of biofuels. The Department of Transportation already is one of the state's largest consumers of biodiesel and purchased 150,000 gallons in the year ending August 2005, Sharp adds. Once the new biodiesel plants come on line, trucks from around the United States can fill up on the cleaner, renewable fuel as they pass through the state.

Indiana's New Biofuel Plants

                             ETHANOL

Plant Name                Town, County

Putnam Ethanol            Cloverdale, Putnam
Cargill/Demeter           Linden, Montgomery
Iroquois BioEnergy        Rensselaer, Jasper
Central Indiana Ethanol   Marion, Grant
The Andersons             Clymers, Cass
Rush Renewable Energy     Rushville, Rush

                            BIODIESEL

Plant Name                Town, County

Integrity Bio-Diesel      Morristown, Shelby
Evergreen Renewables      Hammond, Lake
Louis Dreyfus             Claypool, Kosciusko

                                            ETHANOL

Plant Name                        Com needed      Ethanol produced
                            (annual bushels)      (annual gallons)

Putnam Ethanol                    22 million            60 million
Cargill/Demeter                   37 million           100 million
Iroquois BioEnergy              14.8 million            40 million
Central Indiana Ethanol         14.8 million            40 million
The Andersons                     40 million           110 million
Rush Renewable Energy             22 million            60 million

                                          BIODIESEL

Plant Name                   Soybeans needed    Biodiesel produced
                            (annual bushels)      (annual gallons)

Integrity Bio-Diesel             6.7 million            10 million
Evergreen Renewables             3.3 million             5 million
Louis Dreyfus                     50 million            80 million