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ETHANOL POLICIES, PROGRAMS AND PRODUCTION IN CANADA

ETHANOL POLICIES, PROGRAMS AND PRODUCTION IN CANADA. Kurt Klein * Robert Romain ** Maria Olar ** Nancy Bergeron ** Professor, Department of Economics, University of Lethbridge, Lethbridge, Alberta

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ETHANOL POLICIES, PROGRAMS AND PRODUCTION IN CANADA

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  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. 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 Canadian Ethanol Production Capacity

  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. US$/gallon1.53 1.39 1.25 1.11 0.97 0.83 5.3 10.5 15.8 21.1 26.3 31.5 million gallons Ethanol Production Costs by Plant Size (in US Dollars) Source: Government of Manitoba (2002c)

  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

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