Industries with promise and a benefit to society, which use new technology and require changes in infrastructure, should be able to get government help.
But it should be a hand up and not a hand out. Support should end once the industry is established.
So it is with biofuel.
Ethanol and biodiesel are attractive because they are renewable, offer modest greenhouse gas reduction, help stabilize crop prices and create jobs and economic activity in rural areas.
The cost of biofuel support is offset by reduced subsidies to crop farmers as the new demand for grain lifts prices and supports income.
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It has been a legitimate use of taxpayers’ money to get this industry started by helping build production plants and provide assistance in the first few years when the infrastructure was being developed to make the fuel widely available.
The United States started down this path before Canada and now has a successful ethanol industry that this year used 40 percent of the American corn crop.
The American government also has instituted a mandatory biofuel use policy. It guarantees industry growth because the mandate is structured to increase to 36 billion gallons by 2022 from 12.6 billion this year.
Now that the industry is mature and has the mandate, subsidies are not necessary.
But in the U.S., ethanol policy has a favoured position. It is wildly popular in the corn-growing Midwest and the way to the White House is made easier by winning the primary in Iowa. That helps explain why the U.S. Congress less than a year ago voted to extend for a year biofuel subsidies that were to expire at the end of 2010.
However, facing a $1.4 trillion deficit and a $14.5 trillion debt, U.S. politicians must find ways to cut spending.
A Senate coalition of deficit fighters and urban representatives who doubt ethanol’s environmental credentials recently voted to end the $6 billion in annual ethanol subsidies.
The measure was attached to a wider bill that might not pass, but it sent a strong signal that the days are numbered for rich ethanol incentives in the U.S.
It is high time. The existing subsidy regime enriched the ethanol industry at the expense of the livestock feeding industry.
It is too much to say that ethanol is the only cause of today’s high food prices – fast rising food demand, a string of weather problems, speculators and high oil prices are more to blame – but it has helped push up the price of feed grains. The cattle and hog industries that have faced trade problems associated with disease, unprofitability and shrinking herds do not look favourably on government subsidizing an industry that pushes up the cost of their feed.
There is still a role for government to support research and development of new generation biofuel, such as ethanol made from cellulose, which is expected to have better environmental credentials. But on a general basis, the industry should now stand on its own feet.
In Canada, the ethanol industry has been supported by the now expired Ethanol Expansion Program, which has helped fund plant construction, and the current ecoEnergy for Biofuels Program.
That program will invest $1.5 billion over nine years at first, paying producers an operating incentive of 10 cents per litre for ethanol and 26 cents per litre for biodiesel. In later years the incentives decline and the program expires in 2017.
Some provinces also have assistance programs, and a federal five percent ethanol mandate began in December.
Biofuel producers responded, investing $3 billion in plants and infrastructure in Canada. But when these programs expire government must let go, allowing those in the industry to succeed or fail based on their business acumen.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Joanne Paulson collaborate in the writing of Western Producer editorials.
