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Canadian Ethanol Production Policy Questioned in Report
A recent report from the CD Howe Institute in Canada has caused a storm of controversy in the renewable fuels community, writes TheBioenergySite senior editor, Chris Harris
The report from Douglas Auld, adjunct professor in the Department of Economics at the University of Guelph questions whether production of ethanol and renewable fuels from grain and other sources actually does reduce greenhouse emissions.
It questions whether the money being spent in subsidies to produce renewable fuels is being directed correctly.
And it questions whether renewable fuel production is beneficial to the farming community.
However, when the report was published it was met with fury from some quarters.
A letter from Gordon Quaiattini, the president of the Canadian Renewable Fuels Association called on the institute to immediately withdraw the report and asked for the institute to consider the association's rebuttal as part of the Institute's external review policy.
Mr Quaiattini said the report "fails all reasonable tests of independence, integrity, and objectivity" and he added that the report was flawed.
Prof Auld's report says that ethanol production is frequently praised for its "purported contributions to reducing greenhouse gas (GHG) emissions, and promoted as a strategy to lower dependence on fossil fuels".
It says the Canadian government has committed more than C$2 billion to programmes to promote and subsidise its production, seeing it as an alternative motor fuel and at the same time a means of supporting farmers' incomes.
"This Commentary questions the wisdom of such policies. It argues that there is no conclusive scientific evidence that ethanol reduces GHGs or energy use," says Prof Auld.
"Further it argues that associated support programs for farmers are a double-edged sword, penalizing the majority not involved in ethanol production, and that increased ethanol production has a serious impact on food prices.
"Finally, the study argues that government spending to reduce GHGs through increased ethanol use is far out of line with reasonable alternatives. For every tonne of carbon dioxide (CO2) offset under the current ethanol regime, the average subsidy is $368.
"This is more than seven times the cost of using alternative energy policies to achieve the same reduction.
"Policymakers should reconsider the headlong thrust into corn ethanol as a GHG reduction policy.
"It cannot be justified once the significant price effects, economic costs, and consequences for income distribution in Canada and, indeed, globally are considered.
"Instead, more cost-effective GHG-reduction strategies that utilize scientifically proven sources should be pursued."
The report says that government support for ethanol production has existed for almost 40 years.
And it says that large government subsidies to the private sector, such as those required to produce ethanol, are possibly justified on two theoretical grounds.
"The first rationale concerns a clearly identifiable failure of the market system so that the price and output for a particular good do not reflect the true costs or benefits associated with that product. In the case of ethanol, the market failure is that gasoline users do not take into account the cost, or environmental damage caused by their use of gasoline, and fail to consider the benefits of ethanol.
"A second possible rationale is the encouragement of rural development through a redistribution of public funds - in this case, largely paid for by consumers and urban residents."
But Prof Auld says that even if these criteria are met they come at a high price. He questions the methods and value of the subsidies and whether the recent Canadian removal of benefits for low emission cars will help the promotions of the production of ethanol.
He adds that because the country also has a tariff on imported ethanol, the price of cheap ethanol imports is raised. Last year Canada imported 500 million litres of ethanol. The country also used 500,000 tonnes of wheat and a million tonnes of corn in its production.
Prof Auld also says that the concept of providing subsidies to farmers for ethanol production is also to be questioned.
"Ethanol policy will thus benefit some farmers at the expense of others," the report says.
"Proportionally, there are 46,000 more livestock production farms than corn and grain farms. Owners of agricultural land, however, will be ethanol policy's main beneficiaries as the higher prices of farm products are capitalized in higher land prices.
"Owners of marginal land may also benefit as more acreage is put into corn and/or wheat production."
The report also questions whether ethanol product actually reduces greenhouse gases.
"From an environmental perspective, the bottom line for ethanol policy is determining whether shifting consumption to ethanol from gasoline reduces greenhouse gases without increasing overall energy use. When ethanol is blended with gasoline, the final consumer emits less greenhouse gases than he/she would using undiluted gasoline," Prof Auld says.
"However, once the complete production process of ethanol is taken into account, it is unclear whether ethanol production uses less energy and emits less greenhouses gases overall.
"Yet current policies, both federal and provincial, do not reflect this uncertainty."
The report adds: "In support of government subsidies and reduced excise taxes, federal and provincial governments have argued that corn ethanol is a fuel that produces appreciably lower levels of GHGs than gasoline.
"While there is strong evidence that the "tailpipe" emissions - exhaust from vehicles - are reduced when ethanol is used in place of gasoline, this ignores the net life-cycle emissions of ethanol production."
It says that the green house gases that are produced by ethanol should also take into account the amount of CO2 that is produced in the production of the fuel and not just the amount that is produced when it is used.
The report concludes: "Canada's current ethanol policy imposes a significant cost on Canadian and foreign consumers, benefits only a few groups of Canadian farmers at the expense of many others, contributes to rising global food prices and has a large fiscal cost for government.
"More cost-effective policies are available."
And it adds: "The main drawback to cellulose ethanol at this time is the cost of production."
Prof Auld calls on the government to reconsider its commitment to C$2 billion in subsidies and he questions why the government is pursuing policies to support ethanol production.
However, he said that it will take political will to admit that current policy is misguided, and offers little if any contribution to reducing greenhouse gases.
Further Reading
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- | You can view the full report by clicking here. |
August 2008
