Canadian ethanol market is being hammered by cheaper U.S. imports

Canadian renewable fuel stakeholders are eagerly awaiting potential updates and amendments to the Clean Fuel Regulations (CFR) that could come down this week. Ethanol demand continues to expand across Canada, however, domestic processors face mounting pressure as subsidized ethanol imports capture the vast majority of that growth. Without policy adjustments to address cross-border market distortions, Canadian processors risk losing out on critical reinvestment and expansion opportunities, says Andrea Kent, past president and current board member of Renewable Industries Canada. The Clean Fuel Regulations needs targeted fixes for domestic biofuel production to remain competitive. Kent points out that while the CFR was designed to lower carbon intensity of fuel, lower-cost American imports backed by generous federal production tax incentives are undercutting Canadian suppliers. "The CFR itself is like a magnet... designed to bring in the lowest cost, cleanest fuel available," she says. "Right now, a Canadian producer has probably got, if you're looking at price, somewhere between a seven to 35 per cent difference compared to an import, which gets its policy support before it crosses the border, and then this double dip in our own policy." To level the playing field, industry advocates are pushing Ottawa to implement proposed targeted amendments—specifically a bonus credit mechanism for Canadian producers utilizing local feedstock. Kent says that strengthening domestic ethanol production delivers substantial economic ripple effects for Canadian farmers, who currently send one in three bushels of corn to local processing plants. Aligning regulatory credits would help de-risk planned capital investments, ensure long-term plant efficiency, and keep value-added processing opportunities within rural Canadian communities. Trending The highest-yielding canola hybrid in a variety trial may not necessarily be the one that puts the most bushels in the bin on your farm. With more hybrids and traits available, choosing hybrids can mean looking beyond yield numbers and considering the specific challenges facing individual fields. In this episode of RealAgriculture's Canola School, Amber... Read more » I'm Lyndsey Smith with RealAgriculture. Joining me now is Andrea Kent. She's past president of Renewable Industries Canada and a current board member. Welcome here, Andrea. Thank you so much for having me. It's great. Oh, okay. So, uh, it is September. Parliament is sitting again. Um, it means that we hope, uh, things that we've been waiting for to learn about, including clean fuel regulations, the CFR, Maybe are coming down the pike. We'll see. While we're waiting though, Andrea, I'd love for you— could you catch us up or sort of recap where we're at in this process? What are we sort of waiting for here? Yeah, absolutely. It definitely feels like the government is ready to go, both in terms of picking up some new initiatives with a lot of vigour, and we kind of hope that that energy and that determination also extends to some things that have been on the work list for a while. And the Clean Fuels Regulations are not always top of mind in a lot of policy conversations, or even like the broader kind of cross-border, you know, developments that have been happening, especially over the summer. But they are something that are really, really important to growers in Canada, ethanol producers. And when you look at ethanol in particular, it's It's growing. The market is actually growing leaps and bounds year over year. The policy has worked, but we've been asking for some amendments because what we've seen is that all of that market growth from the CFR has been captured by imports right now. We're, you know, the largest customer of American ethanol, and we want to make sure that domestic producers are capturing the Canadian market growth as well too. And, you know, there's, there's some differences across the border, and we need, we need our obviously to adapt to those differences. In the most simple terms, the CFR requires gasoline and diesel to become progressively cleaner or lower carbon over time. Biofuels are the largest solution to that. And when you look at that, ethanol is the largest part of the largest solution because it's, it's more affordable than gasoline. How ethanol is treated in the US is it receives a production subsidy. And that production subsidy is, is more generous depending on the carbon that's in the ethanol. So the lower the carbon, the higher the production incentive in the US. And because we are importing so much ethanol to meet our blending ambitions, and also the affordability aspect, more and more imports have been filling the growing ethanol The credit that a domestic producer gets is exactly the same as a credit that an import with a subsidy would receive. Right. We've asked the government to look at a way to reconcile that. They proposed in September of last year 2 really targeted surgical fixes for industry to consider. You know, I think the words that the Prime Minister used at the time was very focused on domestic production, very focused on kind of being very, very intent in terms of going quickly in that regard. That was about a year ago. So now here we are, right, we're waiting to see where that lands. In particular, a mechanism that would just award bonus credits if you're a Canadian producer using Canadian feedstock, because that's what Canadian producers use. Most of the corn is you know, like 90 kilometres from the ethanol plant, right? You would get a bonus to the CFR credits. Keeps the border open, but, you know, recognises that the imports have an edge over domestic producers. So, okay, so that is incredibly helpful. And there's 2 details I want to just lay out here. I mean, we are talking economics here, right? So part of this I understand is price-driven, right? So what comes out of the US has been, is potentially cheaper to bring in than domestic sources. Is there a component of the background on that lower carbon intensity score? Do we need to get that complicated or is it really that we just need to deal with the price side? No, I think the fundamentals here were that ethanol is a low-carbon fuel, right? Period, nonstop, right? Some of it, you know, is, it's really low carbon. Others, it's, you know, it's still, it's still low carbon, but, but maybe not as premium in terms of how it's, how it's grown and produced. The CFR itself is like a magnet, right? Like it is designed very intentionally, number one, for open borders and free trade, right? It wasn't designed at a time where there would be export subsidies or kind of this you know, distortion across 2 policies. And the other thing is it's designed to bring in like the lowest cost, cleanest fuel available. It's flexible, right? Yeah. So it's kind of a magnet for low-carbon ethanol by design. And Canada and the US are both very, very good at producing low-carbon ethanol. We have that in common. Right. But you're right, it does really affect price. And, you know, it does kind of, you know, cause people to tune out a little bit because it sounds more technical. You're like, oh, a multiplier, and kind of arguing over these decimal points of what the value of that multiplier should be. But the fundamentals are we're in a time right now where we have a growing ethanol market because we designed our policy to do that. And the economic benefits that come with local ethanol production for farmers are huge. Like, 1 in 3— Bushels of corn go to a local ethanol plant. We want to make sure that we can compete in that market. And right now, a Canadian producer has probably got, if you're looking at price, somewhere between, you know, like a 7 to 35% difference compared to an import, which gets number one, its policy support before it crosses the border, and then this double dip in our own policy. So that's it. It's like CFR is working. It's doing what it's supposed to do. Ethanol is the biggest piece of the pie right now for really good reason, which it delivers a great economic lift to rural communities where the ethanol is produced. But if you can understand a double dip, which I think many of us can in other contexts, you can really understand the policy gap here that we're asking for government to address in the CFR. There's a lot of complicated things happening right now. There's a tonne of complicated, more complicated aspects of the CFR, but this is very, very clear. It's the most pronounced and it has the easiest fix to it. Right. Which should be good news. Which should be, right. And so I guess that, that's one of the keys that we're at here. And, and, you know, you're hopeful obviously that when we get news of what some of these amendments might be, that maybe that amendment is worked in. I wanna talk about sort of the reality though, of if we follow that line of where You know, if we can bring in cheaper ethanol to meet the regulation, what does that really mean for an ethanol producer, let's say? I would imagine it really at some point puts a lot of pressure on the profitability of an ethanol producer. So without this amendment, what, you know, what does that look like? What does the future look like for an ethanol producer? Yeah, there's a little bit of a paradox again because the market is strong. Right. So the market for ethanol in Canada and the US right now is growing, it is strong. The decision really comes down to where that ethanol plant is going to be producing, which side of the border. And right now, when you're looking at the 2 options between, you know, putting a plant somewhere like, you know, Iowa, or, you know, putting it in Ontario, without a fix to Canada's CFR, the clear choice is that you're going to favour somewhere where you have not only strong production-based policy, but you also then are able to export into a premium market, that premium market being Canada, right? Right. What, you know, bringing in, again, just adjusting our own domestic policy and our own regulatory policy here relieves that pressure for a Canadian producer producer, and it allows there to be a more equal playing field, which I know is an overused expression these days, but it does. It allows a Canadian producer to, number one, compete on price in the Canadian market. Number two, finally kind of de-risk some investments and some planned expansions that have been sitting kind of waiting for this fix. And number 3, it makes sure that the competitiveness of Canadian ethanol production in a globally decarbonizing context, right, continues to be really competitive. I don't think that people really understand, or I shouldn't say understand, but like appreciate fully that when you have investments in an ethanol plant, sometimes it is to expand production, which is very, very positive and great. But sometimes it is just to continue to make ethanol production more efficient so you can be more competitive globally. And the US is able to do both right now. It's being described as a mini ethanol boom happening in the US. But here in Canada, we've been flat for the past few years. So we've held on, we're treading water for the most part. But those investments aren't going to happen until you kind of see a correction in the CFR for Yeah, so then to bring this to the farm level as well, I mean, we recognise when there is a demand that that can help either put a floor on prices or even increase them. A diversified area to sell to or customer to sell to, usually a good option. From the farm level though, you know, changing the CFR or fixing some of what has not worked. What impact do you see that having for domestic producers, for farmers? Yeah, I think it's, you know, if I were to put, you know, again, you know, kind of like a circle around where it matters most and kind of maybe a note to some of the approach that, you know, has been traditionally the case when you look at the clean fuel regulations, we need to get out of just a climate You know, mindset here. I think, you know, when you look at the potential for this, it is kind of going back to the roots of rural economic development, which is the origin storey of Canada's ethanol policy in the CFR. And I think farmers still support that, certainly the farmers that are, you know, part of the industry in Ontario and Quebec, and, you know, who work with us on RI Canada, because, you know, they helped us build this market. And local ethanol plants are a grain customer, a really reliable one. So, you know, when you look at, again, things that, you know, would matter the most to, you know, a farmer, as well as, you know, I think just a lot of citizens, is why are we not able to capture the growth in a market we've built ourselves, especially right now where there's so much global uncertainty, and so many things are being redefined at a pace that was hard to imagine a couple of years ago. Should we really be taking this long and potentially forfeiting market growth here at home, right? Like, this is something that we can win and we can do much better at. And I think there's a lot of potential there to come together and kind of make up for some lost time. I don't think anyone, you know, is expecting that all issues related to energy and the clean fuels regulations can be solved by the end of the month. But I definitely think that, you know, the issues around ethanol are a very, very straightforward fix. Okay. One of the points of divide as well too, and this is something that I think farmers have clued into really well, is because the US45C is a tax credit, it's publicly reported by public ethanol companies. Right. Right. So it's really easy to kind of see the revenues that are coming in on the US. So when you look at, you know, policy documents that haven't taken that into account, there should be much more confidence now than there was a year or a year and a half ago, because we can see how valuable this is and why the fix is needed. Yeah, absolutely. Okay, Andrea, we're going to leave it there. Thank you so much. This is fantastic. And we will, as you said, there's still, you know, a day and a half left in this month. We may still see these changes before October 1st. But when they do come, We'll touch base again. We'll see where they're at. Maybe a week that starts in September, that counts. That counts. That lets us— that counts. Yeah, we'll keep holding our breath till Friday. Okay. I know, I know people, people are working hard on it, Lyndsey. So fingers crossed. Okay. Yes. All right. Okay. Thank you so much for joining me here on the show. Really appreciate it. That's great. Thank you. For the latest ag news, agronomic advice, and more, cheque out RealAgriculture.com and RealAg Radio.