BOCA RATON, Fla. – A federal subsidy program for the Canadian biofuel industry is scheduled to begin on April 1, but the industry has yet to see the final version of the program and has reservations about the preliminary details.
“Frankly, we’ve still got some concerns over the EcoEnergy Initiative, the fact that it’s not going to be right for biodiesel,” said JoAnne Buth, president of the Canola Council of Canada at the group’s 41st annual convention.
On Dec. 3, 2007, federal agriculture minister Gerry Ritz announced the EcoEnergy for Biofuels Initiative, a program that will dole out $1.5 billion over the next nine years in support of biofuel production in Canada. It runs from April 1, 2008 to March 31, 2017.
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After reviewing the details of the program, the biofuel sector realized it wasn’t going to work for them as outlined, said Doug Hooper, chief executive officer of Canadian BioEnergy Corporation, a company that plans to build a 225 million litre biodiesel plant adjacent to Bunge Canada’s oilseed crushing plant near Edmonton.
The biggest problem is the stipulation that payments will get clawed back once a company’s rate of return exceeds 20 percent, a calculation that includes biofuel subsidies from the provinces.
Biodiesel developers say the only way they can compete with their U.S. counterparts is if they receive a total subsidy of 35 cents per litre of fuel produced.
Provinces have various programs that average about 15 cents per litre. So the industry needs an additional 20 cents from Ottawa.
But that won’t happen if the provincial payments are included in the rate of return calculation as set out in the original announcement.
“It effectively eroded the program commitment base amount by 50 percent because they included this provincial sharing formula,” said Hooper.
He said the only way a company would get the maximum 20 cent federal subsidy is by operating with significant losses, which is not a workable scenario.
Construction on biodiesel projects cannot proceed without a clearly defined program from Ottawa that addresses that oversight.
Bankers and equity providers want to make sure biofuel companies will be eligible for the full 20 cents per litre federal subsidy before they commit to projects and so do the companies themselves.
“Having a program that is not working at the same time as you’ve got high escalation in feedstock prices means you have to step back and say, ‘Is this going to work?'” said Hooper.
He said the Canadian Renewable Fuels Association and other industry participants have been engaged with Natural Resources Canada on ways to make the program function better and is confident it has been “reanalyzed and resolved” but there has been no new announcement to date.
He expects the revised details to be released by the end of March and applauded the department and its minister for their willingness to create a better way to deliver the $1.5 billion that has already been budgeted for the program.
“I haven’t seen a wavering of commitment at all from the people in charge,” he said.
