Corn grows in front of an ethanol refinery in July, 2021, in Chancellor, S.D.Stephen Groves/The Associated Press
Canada’s ethanol industry is asking Ottawa to act quickly to protect it from an increase in subsidized U.S. imports of the clean fuel.
U.S. ethanol imports have grown to make up around 70 per cent of the Canadian market, compared to 50 per cent five years ago, according to Renewable Industries Canada, an association representing biofuels producers.
This is largely because of a U.S. tax credit for clean fuel launched under former president Joe Biden and extended under President Donald Trump’s “big beautiful bill” last year.
The result is stalled investment in domestic processing, including the planned $200-million expansion of an ethanol plant in Southwestern Ontario, industry spokespeople say.
Ethanol is a liquid alcohol, derived from plant materials. It is often used as a blending agent in fuel to reduce the volume of greenhouse gases it produces. A diminishing ethanol industry also affects corn farmers across Ontario and Quebec as one-third of the corn produced in these provinces feeds ethanol refineries, industry spokespeople say.
“We need to just update our own regulation so that the existing production that we have today, and our farmers depend on, is safeguarded,” said Andrea Kent, board member of Renewable Industries Canada and vice-president of industry and governmental affairs at Greenfield Global, a producer and supplier of ethanol.
Ottawa’s biofuels subsidies come into force as country tries to stay competitive with U.S.
In 2022, Mr. Biden introduced the 45Z Clean Fuel Production Credit under his landmark Inflation Reduction Act. The policy incentivizes fuel producers by giving them a payout for making their products less carbon intensive.
For ethanol, the credit is estimated to be about 5 to 30 cents a litre, said Omamoke Kagho, a carbon market analyst for ClearBlue Markets, a carbon advisory and market intelligence firm.
The tax credit applies to all fuel produced in the U.S. using eligible feedstocks sourced domestically or from Canada and Mexico, and this fuel can be exported, meaning that the credit can effectively “cross the border” when ethanol is imported into Canada, said Mr. Kagho.
A surge in these imports speaks to how this credit is making Canadian ethanol uncompetitive, said Ms. Kent. And this is largely because U.S. clean fuel is the beneficiary of two incentives – one in the U.S. and one in Canada.
Canadian fuel producers receive credits under the Clean Fuel Regulations for adding biofuels such as ethanol into their mix. The CFR came into force in 2023 and – like the credit system for biofuels in the U.S. – is touted as a way to reduce greenhouse gas emissions while supporting farmers.
The CFR gives producers an equally valued credit regardless of whether they use domestically produced ethanol or ethanol imported from the U.S.
“So American producers are collecting their subsidy cheque from the U.S. program under President Trump,” said Ms. Kent. “Then they collect a credit from our Canadian system, and that means that Canadian ethanol producers and their farmers are getting undercut pretty significantly.”
In September, Ottawa announced it would be making changes to the CFR. It floated a couple of options to address the gap between the U.S. credit and Canadian incentives including domestic biofuel blending requirements and a credit multiplier. The latest announcement on the matter – published in January – said Environment and Climate Change Canada will publish draft amendments in the Canada Gazette, but did not specify when.
This fix could still take a while, said Ms. Kent, while imports from the U.S. are climbing and suppressing domestic investment.
Changes need to happen to reflect the reality of the U.S. subsidy, said Kevin Norton, chief executive of Alco Energy Canada, which runs an ethanol plant in Aylmer, Ont.
Mr. Norton has secured the environmental permits to expand the plant‘s production capacity from 400 million litres to 600 million annually, an investment that will amount to around $200-million. The surge in U.S. imports has not cut into his sales so far, but has tightened margins to the point where expansion no longer makes sense. The company will not be investing in the expansion until Ottawa imposes regulations that would offer greater protection.
Ethanol producers want Ottawa to implement regulations that would require fuel suppliers to blend a minimum amount of locally produced fuels, and implement a credit multiplier system that would grant Canadian fuels more credit value a litre to account for the U.S. subsidy.
The credit multiplier would be a “calibration tool” that would give an equivalent boost to Canadian-made ethanol and therefore “offset a specific, quantifiable price advantage for a foreign-subsidized product,” said Ms. Kent.
Canadian consumers have benefited from an integrated North American biofuels market. Regulations that encourage more biofuel usage help keep prices down at the gas pump, said Fred Ghatala, president of Advanced Biofuels Canada. If Ottawa missteps when it comes to changing biofuel regulations, it could cost consumers more for gas during a continuing energy crisis.
While the U.S. credit does present a challenge for the competitiveness of Canadian biofuel production, Ottawa can protect the industry if it treads carefully, said Mr. Ghatala.
“If they do the minimum domestic content and a conservative multiplier, we think they can end up with the right set of tools to keep our market competitive for the long term.”