Report recommends dropping biofuel subsidies in Canada, suggestion slammed by industry

Canada’s biofuel policies have reduced greenhouse gas (GHG) emissions, but subsidies to the industry should be terminated due to their cost, Canada’s Ecofiscal Commission (EFC) says.

In a report titled Course Correction: It’s Time to Rethink Canadian Biofuel Policies, EFC examines the extent to which biofuel policies have achieved their objectives and whether they have been cost-effective.

Federal and provincial governments in Canada currently use two different types of policies to encourage the production and use of biofuels.

Production subsidies provide cash payments directly to biofuel producers, while fuel mandates require petrol and diesel to be blended with ethanol and biodiesel.

The EFC report finds that these biofuel policies have reduced GHG emissions by an average of 3 million tonnes per year from 2010 to 2015, less than a half of 1% of Canada’s total GHG emissions.

However, EFC says this small reduction has come at a great price, as the total consumer and taxpayer cost has been approximately C$640 million (€433.7m) per year.

On a per-tonne basis, the estimated average cost of the emissions reductions have ranged from C$128 to C$185, which the economist group says is far greater than the cost achievable with a carbon price.

EFC chair Chris Ragan, an associate professor of economics at McGill University and member of the federal government’s Advisory Council on Economic Growth, says carbon pricing should be the “backbone” of climate policy as it is the most cost-effective way to cut GHG emissions.

“In the policy context now emerging in Canada, with over 80% of Canadians living in provinces with a carbon pricing system in place or soon to be, and the federal government stepping in to fill the gaps, it is prudent to re-examine older policies to see if they still make sense,” Ragan said.

“Our research finds that biofuel policies don’t pass this test, and that it’s time for governments to correct course and shift to the more cost-effective policies now available, carbon pricing and flexible performance standards,” he added.

‘Ill-advised’ suggestions

The EFC report has been slammed by the Canadian biofuels industry, with the country’s bioeconomy representative Renewable Industries Canada (RIC) calling it “skewed, flawed, and unacceptable”.

According to RIC, the report uses information that ignores independent biofuels cost benefit analyses and omits current government data and reports as the basis of its recommendations, including the “ill-advised” suggestion to terminate biofuel mandates.

“Ecofiscal’s recommendation to phase out renewable fuel mandates shows how little appreciation it has for how the fuel market functions, what it takes to successfully lower GHG emissions from our transportation sector, and meet Canada’s climate change objectives,” said RICanada president Andrea Kent in a statement.

RIC claims that instead of being “uneconomic”, biofuels have returned over C$5 billion to the Canadian economy and created over 14,000 jobs since 2007, and will provide a C$3.7 billion net return on investment to the federal government.

Ecofiscal’s analysis of the Canadian government’s cost benefits is based on one report from 2010, while farm income has actually tripled since biofuels became a significant part of the Canadian economy, RIC says.

RIC supports a national price on carbon but says there is no “one size fits all” approach to reducing GHG emissions and that transportation needs a variety of policies, including low carbon fuel standards and biofuels mandates.