Canada’s national biofuel lobby is happy to be taken seriously by Ottawa even if it’s not sure what exactly was announced in the March 19 federal budget.
“We have certainly been the victim of token efforts in the past, where you are mentioned in a budget with lots of flowery language but no money,” said Kory Teneycke, executive director of the Canadian Renewable Fuels Association.
That was not the case this year, with the federal Conservatives pledging $2 billion in support of renewable fuel production.
“This is a serious amount of money and this is a serious effort on the part of government to get it right,” he said.
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But there are questions about how the cash will be doled out.
The Conservatives allocated $1.5 billion for an operating incentive program and $500 million for next-generation fuels like cellulosic ethanol. The seven-year program is set to begin on April 1, 2008.
Incentives will be up to 10 cents per litre for ethanol and 20 cents per litre for biodiesel for the first three years of the program, after which they will decline. Support will stop when rates of return exceed 20 percent, a measure that will be determined annually.
Teneycke expects more details over the next three or four months.
One burning issue is whether the program starts on April 1, 2008, for all players or if projects will receive seven years of support following the date their plant is commissioned.
If it is the former that could spell disaster for many producer-owned plants, which are a long way from commercialization. The Saskatchewan Ethanol Development Council has trashed the budget announcement because it suspects that is the case.
Teneycke cautioned against assuming the worst.
“The government wants to have producer-led projects in the market. They have been both explicit and implicit about that desire,” he said.
While the rate-of-return cap calculation has not been specified, Teneycke speculated it will not be a company-by-company measure but an annual industry-wide gross margin calculation based on factors like feedstock costs and biofuel prices.
He hopes provincial subsidies will not count toward profit margins because that would claw back federal dollars and encourage provinces to end their support of the industry.
It could be a huge payout for companies that get the full incentive. It would mean $13 million per year for Husky Energy’s ethanol plant in Lloydminster, Sask., and $12 million annually for Biox Corp.’s biodiesel plant in Hamilton, Ont., which cost $24 million to build.
Whether they get the full amount depends on the cap, said Teneycke. When grain prices are rising and fuel prices falling, like in 2006, the incentives would be triggered.
But when ethanol companies are raking in profits like they were two years ago, the cap would stop incentive payments.
Teneycke said there will be “vigorous discussions” about the unspecified decline in support starting in the fourth year of the program.
“The competitiveness gap with the U.S. is not variable and it is not declining, so any decline would have to be quite modest,” he said.
In coming months, industry representatives will meet with officials of the finance, treasury board, agriculture and natural resources departments to put flesh on the biofuel incentive.
