Petroleum companies say the federal government has taken one step forward and two steps back in crafting its biofuel policy.
They are upset with Ottawa for announcing that it will terminate the excise tax exemption on renewable fuel, a move they say will encourage ethanol and biodiesel producers to export their product to the United States and lead to escalating prices in Canada.
“Taxing the very fuel that government wants Canadians to buy sends a confusing signal about the government’s commitment to a renewable fuels strategy,” said Tony Macerollo, vice-president for public and government affairs with the Canadian Petroleum Products Institute.
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In its March 19 budget announcement, the federal Conservatives said the exemption is more than offset by new measures, including a national biofuel mandate, a loan program to encourage farmer investment and new production incentives.
Incentive rates will be up to 10 cents per litre for ethanol and 20 cents for biodiesel for the first three years of the program, after which they will decline. Those credits will be paid directly to biofuel plants.
However, with the removal of the excise tax exemption, blenders will have to pay an additional 10 cents per litre on ethanol and four cents on biodiesel.
“You’ve taken from one side of the ledger and moved it to the other,” Macerollo said.
Kory Teneycke, executive director of the Canadian Renewable Fuels Association, doesn’t accept the connection between producer incentives and the tax exemption. He offered an alternative explanation.
The ethanol tax exemption was introduced in 1992, yet more than a decade later only two major petroleum companies, Husky Energy and Suncor Energy, were blending the alternative fuel in Canada.
It was having little impact on boosting ethanol consumption, so provincial and federal governments replaced that ineffective policy with mandated requirements for ethanol and biodiesel.
“Governments decided to move from the carrot to the stick,” Teneycke said.
The production incentives were a separate issue, he added, pointing out that petroleum companies are free to take advantage of them by investing in the production side of the business, a move that would be welcomed by government and the Canadian Renewable Fuels Association.
Macerollo said when the new measures take effect on or after April 1, Canadian petroleum companies will compete with firms in the United States that receive a blender’s credit amounting to about 13 cents per litre.
“At a minimum (the new policy) exacerbates the already existing disparity between Canada and U.S. jurisdictions,” he said.
Macerollo contends the federal policy will lead to higher biofuel prices for Canadian consumers because there is a good chance the savings that were passed to consumers through the excise exemption will not make it that far down the chain under a production incentive scheme.
He foresees that Canadian ethanol manufacturers will collect the production incentives and ship product to the U.S. market where they can take advantage of the lucrative blender’s credit, especially in the short-term when there is likely to be a shortage of supply in that marketplace.
Teneycke balked at that suggestion.
“Where is the evidence of that? Our members are signing contractual relationships to sell biofuels to Canadian petroleum companies,” he said.
“It’s a completely bogus argument. I’m not aware of a single company doing that.”
Contrary to what Macerollo suggested, Teneycke claims the blender’s credit is built into U.S. biofuel prices and because Canadian values are based on those prices, producers can take advantage of the credit in either market.
Macerollo said the Canadian Petroleum Products Institute is asking the federal government to keep the tax exemptions in place. Teneycke doubts that will happen, but he wishes them luck.
