The United States ethanol industry continues to set ethanol production records and this past November set another production record by reaching 126,000 barrels per day – an increase of 16% over last year. Trends indicate a record year of production, equalling over 7 billion litres.

Since 1990 when the Clean Air Act introduced the oxygen mandate, over 900 million gallons of production has been added. This additional capacity can be attributed directly to the oxygen mandate south of the border. More importantly, the mandate has transformed a fledgling industry into a bona fide industry that employs over 35,000 people.

The CRFA has recently conducted a comparison between the Canadian and U.S. ethanol markets and their respective public policy environments. Based on concerns about the growing spread in value between U.S. and Canadian ethanol, the CRFA has highlighted some significant findings about the level of support that the Canadian industry receives. While it is widely accepted that the differences in the Canadian and U.S. marketplace are largely due to the existing oxygen mandate in the United States, it is important to understand what this mandate has done for the industry south of the border and how Canada can learn from this experience.

From a microeconomic point of view, this relatively new industry in the U.S. has created the conditions that will encourage new entrants into the marketplace. Key among these conditions is the creation of a reformulated gasoline pool. This market allows for the short-term sale of ethanol into a pool at premium prices. In Canada, due to the lack of a mandate, the majority of ethanol is sold on long-term contracts at a discount to gasoline. These long-term contracts are also critical for obtaining project financing in Canada. This systemic obstacle to expanding production must be addressed if facilities are to be built in Canada.

Today, more than 200 million litres of potential ethanol production in Canada may never be realized due to some of these obstacles. In addition, a growing gap between the value for ethanol in the U.S. and Canada has put future ethanol production in jeopardy. In short, Canada needs to create more value for ethanol if we are to achieve the growth targets set by the federal government.

Meeting the federal government’s target of 1 billion litres of production by 2010 will require a clear renewable fuels strategy from the federal government.

“The federal government is going to have to decide how important ethanol is to them,” said Bliss Baker, President of the Canadian Renewable Fuels Association. “If they want this industry to succeed, they will have to commit to a clear national strategy that includes a Renewable Fuels mandate and stick with it.”

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