Editorial
Cut the corn!: It belongs on the plate, not in tank
Producing ethanol for cars can waste as much energy as it makes
JEREMY BROWN
Freelance, Sunday, October 16, 2005
The Ontario provincial government recently announced a requirement for all gasoline sold in the province to be a blend of of five per cent ethanol by 2007, to increase to 10 per cent by 2010. Premier Dalton McGuinty's government claims ethanol is cheaper than gasoline and better for the environment.
While ethanol might appear cheap at the pumps, the facts show we are just paying for it through our taxes, and its use might do little to curb environmental concerns.
Various levels of government have provided substantial support to expand ethanol production in Canada. The federal government's Ethanol Expansion Program has allocated $118 million for the construction or expansion of ethanol plants across the country. Earlier this year, McGuinty announced a new $512-million fund to subsidize the building of ethanol plants in Ontario.
To make ethanol a financially attractive option for consumers, governments exempt it from fuel taxes. The federal government exempts ethanol from its 10-cents-per-litre tax. Thus, a gasoline blend consisting of 10-percent ethanol receives a one-cent- per-litre exemption. Similarly, Ontario exempts ethanol from its 14.7-cents-per-litre fuel tax. In total, the tax exemption of a 10- per-cent blend is 2.47 cents per litre.
According to Statistics Canada, Ontario drivers consumed 15.7 billion litres of gasoline last year. At that rate, the proposed five-per-cent blend would represent forgone revenue of $115 million per year at the provincial level and $78.5 million per year from the federal coffers. The 10- per-cent blend would double that to $230 million per year and $157 million per year.
With no change in road usage, government expenditures are likely to remain unchanged, so that foregone revenue will have to be made up through other means. Subsidizing production and exempting ethanol from fuel taxes means all Ontarians pay for drivers to use ethanol regardless of how much they drive. This is effectively a subsidy by those who do not drive, or drive little, to those who drive the most.
Non-drivers might be happy to subsidize drivers if they received a benefit from drivers switching to ethanol. The federal and provincial governments claim this is so because using ethanol results in less greenhouse-gas emissions. But, it's not clear this benefit exists.
Natural Resources Canada reports using gasoline blends containing 10-per-cent ethanol reduces greenhouse-gas emissions by three to eight per cent, depending on the type of biomass used in production. However, one should consider the entire production process, not just the final combustion of ethanol vs. gasoline.
According to a recent study from researchers at Cornell University and the University of California-Berkeley, turning plants into liquid might use more energy than producing gasoline. How? Consider the energy used in producing the crop, including production of pesticides and fertilizer, running farm machinery, irrigating, grinding, transporting the crop and, finally, distilling the ethanol.
Comparing energy input with energy output for producing ethanol, the study found producing ethanol requires between 29 and 57 per cent more fossil energy to produce than the resulting fuel provides, depending on the biomass used. Producing gasoline from crude oil requires 15 per cent more fossil energy than the gasoline contains; half the energy cost of ethanol.
The Ontario government has justified the requirement for ethanol in gasoline by claiming it's cheaper and better for the environment. But governments have had to subsidize its production and exempt it from fuel taxes to make it financially viable. Because ethanol is a gasoline substitute, if it were truly cheaper, consumers would have demanded it long ago, and entrepreneurs would have provided it to them.
Furthermore, by citing the environmental benefits of consuming ethanol without accounting for its total energy requirement, the Ontario government is deceiving the public about the true costs and benefits of ethanol. The fact they had to force it on drivers is further proof there is little demand for this expensive product that will do little to help protect the environment.
Given the high cost and questionable benefit from using ethanol, perhaps we're better off leaving the corn on our plates, rather than putting it in our cars.
Jeremy Brown is a policy analyst in the Fraser Institute's Centre for studies in risk, regulation and environment.
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