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APPENDIX F Economic Benefits Regional economic impacts are a function of the inputs used to produce a final good or service, in this case alternative jet fuel. Processing a commodity and producing a good con- tributes to the local or regional economy to the extent that local inputs are used. Payments for wages and salaries for plant employees; locally purchased supplies, materials, and utilities; and payments to local financial institutions represent new activity in the local economy as a result of production activities. These initial local expenditures are referred to as direct impacts. Direct impacts in turn set in motion subsequent rounds of spending and re-spending that result in secondary impacts called indirect and induced effects. The subsequent spending and re-spending as a result of additional economic activity is often referred to as the multi- plier effect. These effects are most often estimated using inputoutput models. IMPLAN and RIMS models are widely accepted and used for estimating regional economic impacts (Leistritz 2003). A number of factors affect the potential regional economic impact of an alternative fuel produc- tion facility: (a) choice of feedstock, (b) extent of study area, (c) nature of ownership, (d) specific model/analysis assumptions, and (e) differences in study areas. F.1 Choice of Feedstock The choice of feedstock will affect the degree of regional economic impact. The general assumption for agricultural inputs is that the product is already being produced and sold in an alternative market. For example, corn used in ethanol production would likely be used for animal feed or exported in the absence of ethanol production. Thus payments to produc- ers for the commodity with existing markets would occur regardless of the presence of a processing plant. The direct impacts of the processing operation would include payments for locally produced inputs such as labor and utilities but would not include commodity feed- stock purchases such as vegetable oil that already have established markets. However, if the feedstock has little or no alternative market, as is the case with agricultural residues, the sale of these feedstocks to an alternative fuels processing facility would represent a new rev- enue source for farmers. Accordingly, payments for feedstocks without established markets would be included in the estimate of regional economic impacts. Considering feedstock costs will likely represent a substantial operating expense for any processing facility; inclusion of feedstock cost would likely increase regional economic impacts substantially. Leistritz et al. (2009) compared the regional economic impacts of a biomass-based (cellulosic) ethanol plant with a corn-based facility. The cellulosic biorefinery had a much greater regional economic impact because payments to producers for feedstock represented new income to farmers and others in the supply chain while the corn used at a corn-based facility had other markets. 92

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Economic Benefits 93 F.2 Extent of Study Area The definition of the study area can also affect impact analysis results. Studies have estimated impacts for a single county (Peters 2007; Low and Isserman 2008), a small multi-county site area (Swenson and Eathington 2006), and the economy of an entire state (Hodur, Leistritz, and Hertsgaard 2006; Flanders et al. 2007). There is no right or wrong approach to defining the study area. The definition of the study area often depends on who constitutes the primary audience for the study (e.g., local leaders or state decision makers). Generally speaking, the larger the study area, the larger the regional economic impact. For example, impacts measured at the state level will always be greater than those for a single county or a multi-county area within the state. F.3 Nature of Ownership The degree of local ownership can have a substantial impact on a regional economy. If a pro- cessing facility is largely or wholly owned by farmers or other local investors, facility profits will be distributed to these local owners, and a substantial portion may be spent locally. If the facil- ity is owned by a corporation headquartered elsewhere, the profits and potentially some oper- ating expenses such as centralized accounting, marketing, and other administrative expenses may leave the local area. Local operating expenditures are likely to be greater for a locally owned facility, while many operational activities might be centralized off-site for a corporately owned facility. The extent of local ownership can have a substantial influence on impact estimates. Swenson and Eathington (2006) present estimates for a 50-million-gallon-per-year (MGY) ethanol plant employing 35 workers. With no local ownership, the project supported a total of 207 jobs (direct and secondary employment). When local ownership was increased to 25%, the direct and secondary employment increased by 15% to 239 jobs. At 50% local ownership, direct and second- ary employment increased 29% to 265 jobs, and at 75% local ownership it increased by 42% to 293 jobs. (It should be noted that this study was done at a time when profits in the ethanol industry were very high. Results would likely be different if current profit levels were used.) F.4 Model/Analysis Assumptions Differences in assumptions incorporated in the impact model and analysis procedure may also affect regional economic impacts. For example, Hodur, Leistritz, and Hertsgaard (2006) estimated the economic impacts of a North Dakota corn ethanol plant. Because very little of the corn that would supply the plant came from the local area, no local corn price premium was included in the analysis. Project attributes can also substantially affect impact estimates. The employment multi- plier in Hodur, Leistritz, and Hertsgaard (2006) might appear inflated at first glance. However, the plant was fueled by North Dakota lignite coal, and the coal purchased to fire the plant represented a net increase in coal production for the state. In fact, coal purchases represented 49% of the plant's direct impacts. In this context, the resulting employment estimates appear reasonable. F.5 Differences in Study Areas Demographic and infrastructure characteristics of the local area that is home to an alternative fuels production facility will also affect regional economic impacts. A processing facility located in or near a substantial trade center with a somewhat diversified, self-sufficient economy will have larger secondary impacts, other things equal, than a sparsely populated rural site. Low and Isserman (2008) analyzed the impact of 100-MGY ethanol plants at two locations in Illinois. One site county was described as mixed rural with a population of 109,000, while the other site county was rural with a population of less than 9,000. Employment impacts (direct and secondary employment) in the more urbanized county were nearly twice that of the rural county with the smaller population.