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 $ /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 Source: Government of Alberta 2000, Government of Canada 2004, appendix 3 million gal./year

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) million gallons US$/ gallon

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