BIOFUELS - AT WHAT COST? Government support for ethanol ... support for ethanol and biodiesel in Canada ... Biofuels–At what cost? Government support for ethanol and biodiesel

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  • April 2009

    Prepared by:

    Tara Laan, Todd Alexander Litman and Ronald Steenblik

    Prepared for:

    Global Subsidies Initiative (GSI)

    International Institute for Sustainable Development (IISD)

    BIOFUELS AT WHAT COST?

    Government support for ethanol and biodiesel in Canada

    One of a series of reports addressing subsidies for biofuels in selected OECD countries

  • BiofuelsAt what cost?

    Government support for ethanol and biodiesel in

    Canada

    Published April 2009

    This report was updated with new information in April 2011

    Prepared by:

    Tara Laan

    Todd Alexander Litman

    Ronald Steenblik

    For the Global Subsidies Initiative (GSI)

    of the International Institute for Sustainable Development (IISD)

  • i

    2009, International Institute for Sustainable Development IISD contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, measurement and assessment, and natural resources management, and the enabling role of communication technologies in these areas. We report on international negotiations and disseminate knowledge gained through collaborative projects, resulting in more rigorous research, capacity building in developing countries, better networks spanning the North and the South, and better global connections among researchers, practitioners, citizens and policy-makers. IISDs vision is better living for allsustainably; its mission is to champion innovation, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency (CIDA), the International Development Research Centre (IDRC) and Environment Canada, and from the Province of Manitoba. The Institute receives project funding from numerous governments inside and outside Canada, United Nations agencies, foundations and the private sector. International Institute for Sustainable Development Head Office 161 Portage Avenue East, 6th Floor Winnipeg, Manitoba Canada R3B 0Y4 Tel: +1 (204) 958-7700 Fax: +1 (204) 958-7710 Web site: www.iisd.org International Institute for Sustainable Development Global Subsidies Initiative International Environment House 2 9 chemin de Balexert 1219 Chtelaine Geneva, Switzerland Tel: +41 22 917-8373 Fax: +41 22 917-8054 Web site: www.globalsubsidies.org BiofuelsAt what cost? Government support for ethanol and biodiesel in Canada April 2009 By Tara Laan, Todd Alexander Litman and Ronald Steenblik

    ISBN 978-1-894784-28-3

    http://www.globalsubsidies.org/

  • ii

    Acknowledgments

    This report has benefited from the input of many experts. The first draft of the report was completed by Todd Alexander Litman of the Victoria Transport Policy Institute in British Columbia, Canada. The report was expanded by Ronald Steenblik in 2007 while he was Research Director of the Global Subsidies Initiative (GSI) with the assistance of Mark Frickel, an independent consultant. Tara Laan, updated and completed the report with the expert assistance of Doug Koplow, Earth Track Inc.

    A number of individuals were generous with their time and advice in reviewing the report. In particular, we thank:

    Douglas Auld (Department of Economics, University of Guelph);

    Annette Hester (University of Calgary);

    Terry McIntyre (Technology Strategies Branch, Environment Canada); and

    Zahir Islam (Food and Rural Affairs, Agriculture and Agri-Food Canada).

    We also wish to thank Heather MacLean for her useful advice on life-cycle analysis, Bob Brennand for his input regarding Manitobas biofuel production and policies, as well as Neil McIlveen and Bill Toms for their advice on Canadian tax policy related to ethanol.

    The comments and insights of these experts helped to greatly improve the final version. However, the report should not be interpreted as necessarily representing their individual views. And, as is always the case, any remaining errors or inaccuracies remain the responsibility of the authors.

    Finally, this effort and the other work of the GSI could not have been undertaken without the generous support provided by the governments of Denmark, the Netherlands, New Zealand and Sweden, as well as the William and Flora Hewlett Foundation. The views expressed in this study do not necessarily reflect those of the GSIs funders, nor should they be attributed to them.

  • iii

    Table of contents

    Lists of tables and figures v

    Currency conversion note vi

    Abbreviations and acronyms vii

    Executive summary 1

    1 Introduction and outline of the report 6

    1.1 Liquid biofuels in Canada 6

    1.2 Framework of the analysis 10

    1.3 Outline of the report 11

    2 Overview of the liquid biofuels industry in Canada 13

    2.1 Market context 14

    2.2 Ethanol 15

    2.2.1 Cost structure 17

    2.2.2 International trade 18

    2.3 Biodiesel 19

    2.3.1 Cost structure of production 21

    2.3.2 International trade 21

    2.4 Ownership 21

    3 Government support for ethanol 23

    3.1 Volume-linked support 24

    3.1.1 Market price support 24

    3.1.2 Federal and provincial excise tax concessions 29

    3.1.3 Carbon tax exemptions 31

    3.1.4 Federal and provincial income tax concessions 32

    3.1.5 Support based on current output 34

    3.2 Policies affecting the cost of intermediate inputs 36

    3.2.1 Policies affecting the costs of feedstocks 36

    3.3 Subsidies to factors of production 37

    3.3.1 Federal programs for capital 37

    3.3.2 Provincial programs for capital 44

    3.3.3 Support for services 46

    3.3.4 Subsidies to by-product utilization 46

    3.4 Research and development 46

    3.4.1 Federal programs 46

    3.4.2 Provincial research and development programs 50

    3.5 Subsidies related to consumption 51

    3.5.1 Subsidies to capital-related fuel distribution and disbursement 51

    3.5.2 Support for vehicles capable of running on biofuels 51

    4 Current support for biodiesel 54

    4.1 Output-linked support 55

    4.1.1 Market price support 55

  • iv

    4.1.2 Federal and provincial exemption from excise taxes 57

    4.1.3 Support based on current output 58

    4.1.4 Policies affecting the cost of intermediate inputs 59

    4.2 Subsidies to factors of production 59

    4.2.1 Capital infrastructure 60

    4.2.2 Provincial programs for capital 61

    4.2.3 Support for services 62

    4.3 Research and development 63

    4.3.1 Federal programs 63

    4.3.2 Provincial research and development programs 64

    4.4 Subsidies related to consumption 65

    4.4.1 Support for vehicles capable of running on biofuels 65

    5 Aggregate support to ethanol and biodiesel 68

    5.1 Total support estimates 68

    5.2 Subsidy intensity 71

    5.2.1 Subsidy per unit energy output and as a share of retail price 71

    5.2.2 Support per unit of fossil-fuel-equivalent displaced 73

    5.2.3 Subsidy per tonne of CO2-equivalent displaced 76

    5.3 Estimates of future subsidies 78

    5.3.1 Projections based on current programs 78

    5.3.2 Other potential costs to government and the economy 80

    6 Key findings and recommendations 83

    Bibliography 86

    Annex 1A comparison of life-cycle estimates for greenhouse-gas emissions and

    net energy balance for biofuels made from feedstocks used in Canada 96

    About the authors 109

    About the Global Subsidies Initiative 110

  • v

    Lists of tables and figures

    Tables

    Table 2.1 Canadian ethanol production capacity .....................................................................17

    Table 2.2 Canadian imports and exports of denatured ethanol ............................................18

    Table 2.3 Source of imports of denatured ethanol (000 litres) .............................................18

    Table 2.4 Canadian biodiesel production capacity ..................................................................20

    Table 3.1 Renewable fuel mandates in Canada for ethanol ...................................................28

    Table 3.2 Excise tax exemptions for ethanol in Canada ........................................................31

    Table 3.3 Tax expenditure: estimates and projections for the Scientific Research and

    Experimental Development (SR&ED) Tax Incentive Program .....................33

    Table 3.4 Per-litre producer subsidies for ethanol ..................................................................35

    Table 3.5 Ethanol Expansion Program funding ......................................................................38

    Table 3.6 Recipients of ecoAgriculture Biofuels Capital Initiative grants to ethanol

    producers, to April 2009 ........................................................................................41

    Table 3.7 Write-off periods for biofuels-related capital under present law relative to

    estimated actual service life ...................................................................................43

    Table 3.8 Estimated subsidy value of accelerated depreciation to the ethanol sector:

    revenue loss (C$millions) .......................................................................................43

    Table 3.9 SD Tech Fund allocation to ethanol projects to end 2008...................................49

    Table 4.1 Canadian biodiesel mandates ..........................

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