Kory Teneycke, a leading national advocate for the biofuel industry, went before MPs last week to urge that the federal government not design its biofuel strategy in a way that makes it social or rural development policy.
Base it on economics and economies of scale, he said.
It was a comment clearly aimed at proposals by Saskatchewan advocates for smaller plants in rural areas around the province.
Teneycke, executive director of the Canadian Renewable Fuels Association, joined a panel on Parliament Hill to proclaim the potential of the Canadian ethanol and biodiesel industry if the government sets the right regulatory rules and incentives.
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But he said the history of the industry in the United States is that to be viable, plants have to be large.
“There are real economies of scale at play, both in ethanol and biodiesel production,” he said. A federal government financial model for biofuel plants in North America shows that “a 200-million-litre ethanol plant would have production costs 15 percent lower and a return on investment almost three times higher than that of a 25-million-litre-a-year plant.”
Teneycke said the federal government should keep that in mind when deciding which development proposals to support.
“The government should not pursue policies that encourage the creation of an inefficient industry or limit others from participating in this market.”
Those were fighting words for Lionel Labelle, president of the Saskatchewan Ethanol Development Council and a member of the industry panel appearing before MPs.
He was in town to promote government support for a community based, farmerÐcontrolled industry with plants built where the grain is grown. It was a vision of plants throughout Saskatchewan buying millions of bushels of grain, boosting prices and creating hundreds of rural jobs.
“The federal government has to have a preferential bias in its programming to ensure that producers get into the ownership cycle,” he said.
Plants should get built where people want to build them on the scale that works for the investors, and government support should be there whatever the size.
“That’s the right way to manage these things so we can move away from this debate about economies of scale because with all due respect, I will debate anybody in this room on economies of scale.”
Labelle said ethanol production is a key answer for Saskatchewan’s depressed farm and rural economy.
What could a vibrant ethanol industry with a bias toward producer ownership do for western agriculture, he asked: “The simple answer is everything.”
Teneycke said Saskatchewan’s dream of smaller plants is not the way to build a competitive industry in a North American market where most plants are larger. He referred MPs to the experience in the United States where the oil embargoes, shortages and high prices in the 1970s led to a rush of ethanol plant construction. As 1985 dawned, there were 163 ethanol plants in the U.S., many producing less than 20 million litres per year.
That year, oil prices fell and by the end of the year, more than half the plants were out of business and by 1990, there were 21 plants and virtually all of the small ones were gone. The recent boom in ethanol construction in the U.S. has concentrated on larger plants.
“History shows that when the smaller plants face tougher competition, they simply are not cost effective,” Teneycke said.
