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
1
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
2
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
3
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)
4
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
5
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
6
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)
7
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
8
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
9
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
10
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)
11
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
12
Canadian Ethanol Production Capacity
million gal./year
579
434
289
145
0
1970
1980
1990
2000
2010
2020
Source: Government of Alberta 2000, Government of Canada
2004, appendix 3
13
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
14
Feedstocks Used in Canadian Ethanol Plants
15
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
16
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
17
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
18
Ethanol Production Costs
• Ethanol plants in Canada are small
• Estimates of production costs range
from $.55 – 1.10 per gallon
• Depend on value of feedstock
• Studies show large returns to scale
19
Ethanol Production Costs by Plant Size (in US Dollars)
US$/
gallon
1.53
1.39
1.25
1.11
0.97
0.83
5.3
10.5
15.8
21.1
26.3
31.5 million gallons
Source: Government of Manitoba (2002c)
20
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
21