ETHANOL POLICIES, PROGRAMS AND PRODUCTION IN CANADA

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ETHANOL POLICIES, PROGRAMS AND PRODUCTION IN
CANADA

• Presented by
• Michael Vourakes
• President
• GES International

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Canadian Ethanol Production Capacity
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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

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Feedstocks Used in Canadian Ethanol Plants
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Quebecs 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 .10/cents per litre
• Until 2012

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Ethanol Production Capacity

• Manitoba plant was first in Canada (1980) now
  produces 10.56 m litres/year
• EEP slated to finance 7 new plants that will add
  780 m litres/year
• 19 other plants are in planning stage
• Most eligible for provincial assistance
• Will add 1,268 m litres/year

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Ethanol Production Capacity

• Currently 252 million litres
• Fuel ethanol about 2/3
• Fuel ethanol production concentrated in SE
  Ontario (72) where Commercial Alcohols has 2
  plants (160 m litres/year and 23.2 m litres/year)

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Main Instruments of Federal Ethanol Expansion
Program

• Excise gasoline tax exemption
• 0.10/litre
• Imports of US produced ethanol eligible
• Ethanol Expansion
• Contingent loan guarantees (102 m)
• Public awareness (2.2 m)
• Subsidies for production facilities (73 m)

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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

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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

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Saskatchewan Incentives

• .10/litre 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 (lt15 m litres)

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Manitobas Incentives

• Tax exemption is . 07 per litre
• Plus .08 per litre 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

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Ontarios Incentives

• Tax exemption of .09 per litre (until 2010)
• 3.65 m subsidy to Commercial Alcohols for its
  Chatham plant
• Use of ethanol blends in government vehicle fleet

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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

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Feedstock

• Grain based production accounts for 92 of
  production capacity
• Corn (73), wheat (17), barley (3)
• Agricultural and forestry waste (7)

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Iogen Corporation

• Based in Ottawa
• World leader in cellulose technology
• Demonstration plant produced 4.5 m litres per
  year
• April 2004 announcement
• Searching for location for commercial plant
• 1,653 tons per day of feedstock
• 204 m litres ethanol per year

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Co-Products

• Cellulose based ethanol
• Lignin (burned to produce steam)
• Grain based ethanol
• Fibre, proteins, minerals, vitamins
• Dry milling (dominant in Canadas small plants)
• Wet milling only one in Canada (Alberta)
• and is integrated with feedlot

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Ethanol Production Costs

• Ethanol plants in Canada are small
• Estimates of production costs range from .12
  .24 per litre
• Depend on value of feedstock
• Studies show large returns to scale

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Ethanol Production Costs by Plant Size (in US
Dollars)
 

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• Source Government of Manitoba (2002c)
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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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Canadas Renewable Fuel Strategy (May 2006)
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Canadian Renewable Fuel Strategy (RFS)

• Mandatory 5 renewable fuel content (ethanol and
  bio-diesel) in Canadian gasoline and diesel by
  2010

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Goals of the Canadian Renewable Fuel Strategy

• Reduces emissions to the environment (lower
  emissions, and reduce greenhouse gases), from an
  agricultural standpoint
• Provides a mechanism to ensure primary producers
  are partners in this growing economic opportunity
• Ensures that industry is able to participate

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How will the RFS help Canadians?

• Encourage new incentives for investment in rural
  areas
• Provide consumers a hedge against rising
  petroleum prices

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Benefits to the Canadian Economy and Environment

• 4.2 mega tonne per year reduction of GreenHouse
  Gas (GHG) emissions
• 14,000 new jobs created
• 1.5 billion dollar investment to build required
  facilities

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Benefits to Producers

• 240 million bushel new domestic market for oil
  seeds and grains produced by Canadian farmers
• Higher commodity prices and less reliance on
  government support
• Annual need of 3.0 3.3 billion litres of
  renewable fuel

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Barriers faced by Canadian producers

• Market access
• Competitiveness
• Financing
• Risk
• Regulatory Issues

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Strategy for Market Access

• 5 requirement on all fuel consumed
• Minimum requirements for ethanol and bio-diesel
• Support for E85 (85 renewable and 15 gasoline)
• Push for greater government procurement

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Strategy for Enhance Competitiveness

• Remove gas excise exemption of.10 cents per liter
  (cpl)
• Create a tax credit of .10 cpl for renewable
  fuels (e.g. Quebec)
• Support small renewable fuel producers (lt 150
  million litres per year) with .03 cpl (up to 60
  million litres)
• Commodity credit program for new production of
  .10 cpl for first twelve months

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Strategy to Improve Financing of Biofuel Plants

• Create flow through shares to make it easier to
  raise equity financing (matching similar programs
  for oil/gas, mining etc.)
• Increase farmer equity using 100 non-repayable
  matching of contributions by government up to
  75,000 per farmer (max 20 million per project)

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Strategy to Reduce Risk

• Government assistance via direct capital
  investment and/or provision of loan guarantees to
  commercialize new technology like cellulose
  ethanol
• Continued funding of Research Development
  efforts between government and industry

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Questions
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Gracias!

• With assistance and special thanks to
• Robin Speer,Director,Public Affairs,Canadian
  Renewable Fuels Association (CFRA)
• 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