1

ETHANOL POLICIES, PROGRAMS AND

PRODUCTION IN CANADA

Kurt Klein Robert Romain* Maria Olar* Nancy Bergeron*

•Professor, Department of Economics, University of Lethbridge, Lethbridge, Alberta

* Centre for Research in the Economics of Agrifood (CREA), Laval University, Ste. Foy, Quebec

2

Kyoto Protocol

• Ratified by Canadian government 2002• GHG emissions 94% of 1990 level

– BAU - 841m tons per year– Kyoto – 623 m tons per year

• Government plans increase production and use of ethanol and other bio-fuels

3

Federal Ethanol Expansion Plan

• By 2010, at least 35% of Canadian consumption of fuel to be E10

• To meet target, ethanol production must increase from 63 m gallons to 370 m gallons

4

Main Instruments of Federal Ethanol Expansion

Program• Excise gasoline tax exemption

– US$ 0.28/gallon– Imports of US produced ethanol eligible

• Ethanol Expansion– Contingent loan guarantees ($102 m)– Public awareness ($2.2 m)– Subsidies for production facilities ($73

m)

5

Provincial Policies on Ethanol

• Driven mainly by characteristics of provincial economies– Manitoba and Saskatchewan want to

boost their rural economies– Alberta has lower incentives due to

importance of oil industry– BC wishes to stimulate cellulose-based

ethanol because of forest residues

6

Alberta Incentives for Ethanol

• $.25 per gallon tax exemption for 5 years after start-up of an ethanol production plant

• No restriction on ethanol source • Alberta has only one plant – it

exports almost all of its production to the US

7

Saskatchewan Incentives

• $.42/gallon tax exemption for 5 years• Ethanol must be produced and

consumed in Saskatchewan• Ethanol Fuel Act, May 2002

– Fuel volumes must contain 2.5% ethanol by July 2004, 7.5% by April 2005

– Distributors must purchase 30% of ethanol from small plants (<6.6 m gallons)

8

Manitoba’s Incentives

• Tax exemption is $.32 per gallon• Plus $.37 per gallon subsidy• Only for ethanol produced and

consumed in Manitoba• Biofuels Act requires that by

September 2005, 85% of gasoline sold in province must contain 10% ethanol

9

Ontario’s Incentives

• Tax exemption of $.41 per gallon (until 2010)

• $3.65 m subsidy to Commercial Alcohols for its Chatham plant

• Use of ethanol blends in government vehicle fleet

10

Quebec’s Incentives

• No fuel ethanol plant in Quebec – just one producing industrial ethanol

• Another being built with help of federal Ethanol Expansion Program– Will have tax exemption of

$.44-.55/gallon– Until 2012

11

Ethanol Production Capacity

• Currently 63 million gallons– Fuel ethanol about 2/3

• Fuel ethanol production concentrated in SE Ontario (72%) where Commercial Alcohols has 2 plants (40 m gal/year and 5.8 m gal/year)

12

Ethanol Production Capacity

• Manitoba plant was first in Canada (1980) – now produces 2.64 m gal/year

• EEP slated to finance 7 new plants that will add 195 m gal/year

• 19 other plants are in planning stage

– Most eligible for provincial assistance– Will add 317 m gal/year

13

Canadian Ethanol Production Capacity

1970 1980 1990 2000 2010 2020

Source: Government of Alberta 2000, Government of Canada 2004, appendix 3

million gal./year

579

434

289

145

0

14

Feedstock

• Two main feedstocks – grains and cellulose

• Most ethanol production in N. America uses corn as feedstock– Exception is in western Canada where

wheat is dominant feedstock– Not enough heat degree days for corn

15

Feedstocks Used in Canadian Ethanol

Plants

16

Feedstock

• Grain based production accounts for 92% of production capacity– Corn (73%), wheat (17%), barley (3%)– Agricultural and forestry waste (7%)– Favored wheat is medium quality CPS

varieties

17

Iogen Corporation

• Based in Ottawa• World leader in cellulose technology• Demonstration plant produced 1 m g/y• April 2004 announcement

– Searching for location for commercial plant

– 1653 tons per day of feedstock– 45 m gallons ethanol per year

18

Co-Products

• Cellulose based ethanol– Lignin (burned to produce steam)

• Grain based ethanol– Fibre, proteins, minerals, vitamins– Dry milling (dominant in Canada’s small

plants) – Wet milling – only one in Canada (Alberta)and is integrated with feedlot

19

Ethanol Production Costs

• Ethanol plants in Canada are small• Estimates of production costs

range from $.55 – 1.10 per gallon• Depend on value of feedstock• Studies show large returns to scale

20

Ethanol Production Costs by Plant Size (in US Dollars)

 

         

 

Source: Government of Manitoba (2002c) 

5.3 10.5 15.8 21.1 26.3 31.5 million gallons

US$/gallon1.53

1.39

1.25

1.11

0.97

0.83

21

Concluding Note

• Increased production of ethanol will reduce GHG production in Canada

• Existing technologies do not make ethanol manufacture profitable– Requires government assistance or

regulations• Federal and provincial governments

have subsidy programs• Much research remains to be done