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Course Correction: It’s Time to Rethink

Canadian Biofuel Policies

October 2016

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Overview

1. Policy Context2. Biofuel Policy as Climate Policy 3. Other Policy Objectives4. A New Policy Context for Biofuels in Canada5. Recommendations for Governments

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Biofuel Policies in Canada

Government measures providing economic or financial support to the production and use of biofuels

• Renewable fuel mandates• Production subsidies

Four government objectives: 1. Reduce GHGs2. Promote rural economic development3. Reduce air pollution4. Encourage the development of next-generation biofuels.

1. Policy Context

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Increasing Canadian Production of Biofuels1. Policy Context

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Canada’s Renewable Fuel Mandates

1. Policy Context

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Estimating GHG Emissions Reductions

2. Biofuel Policy as Climate Policy

We compute outcomes with policies in place and compare them with the “counterfactual” case of no policies

We provide estimates for:1. GHG emissions reductions from policies2. Costs of policies (to consumers, to government, and to the economy)

Technical Considerations

• “Lifecycle assessment”: all emissions from production to consumption• System boundaries: global emissions vs. domestic emissions reductions • Uncertainty in lifecycle emissions• “Additionality” of policy impact• Indirect land-use emissions

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GHG Emissions Reductions

Fuel Type Global Emissions Reductions

Domestic Emissions Reductions

Ethanol 2.2 2.1

Biodiesel 0.8 1.1

Total* 3.0 3.1

Average Annual Emissions Reductions, 2010–2015 (Mt CO2e)

*Totals may not sum due to rounding

2. Biofuel Policy as Climate Policy

(Context: Canada’s total GHG emissions are currently about 732 Mt.)

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The Costs of Biofuel PoliciesWe explore three cost concepts:

1. Consumer costs: the extra amount paid by consumers for the more expensive biofuels

2. Fiscal costs: direct expenditures from provincial and federal subsidy programs

3. Economic Costs: costs to the economy from distortions created by policy

(# 3 is not equal to #1 + #2)

2. Biofuel Policy as Climate Policy

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For Eco-Geeks: Illustrating The Costs

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Consumer Costs: Ethanol

2. Biofuel Policy as Climate Policy

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Consumer Costs: Biodiesel

2. Biofuel Policy as Climate Policy

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Consumer + Fiscal Costs = $640 M Annually

2. Biofuel Policy as Climate Policy

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Cost per Tonne of Emissions Reduced

Fuel Type Global Emissions Reductions

Domestic Emissions Reductions

Ethanol $185 $180

Biodiesel $165 $128

Annual Average Per-Tonne Cost of Emissions Reductions From Biofuel Policies

2. Biofuel Policy as Climate Policy

Why might these estimates be too optimistic?

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Sensitivity Analysis

If we use the upper bounds for emissions intensities?• $238–$284 per tonne for ethanol policies • $189–$596 per tonne for biodiesel policies

Source: Adapted from IEA, 2011

2. Biofuel Policy as Climate Policy

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Other Objectives of Biofuel Policies

Supported rural economic

development?Reduced air pollution?

Accelerated new biofuel

technologies? Rural economic

benefits from biofuel policies have been small

Canadian biofuel policies may help some farmers and biofuel producers, but have other adverse economic impacts

Biofuels have not clearly reduced air pollution

Low blending levels of biofuels are unlikely to generate significant health benefits

Current policies may have slowed the development of next-generation biofuels

Tensions between objectives of rural economic development and driving next-generation biofuels

3. Other Policy Objectives

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A New Policy Context

15 years ago, biofuel policies offered a practical opportunity to generate benefits for farmers, biofuel producers, and the environment.

But today’s policy context is different:• Information about these policies is better • Carbon pricing is becoming mainstream• Demonstration of flexible performance standards

4. A New Policy Context for Biofuels in Canada

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Conclusions1. Biofuel policies are an expensive way to reduce GHG emissions:

Aggregate costs (fiscal + consumer) are roughly $640 million annually $180–$185/tonne for ethanol policies; $128–$165/tonne for biodiesel

policies Less optimistic estimates suggest that costs could be even higher:

• $238–$284/tonne for ethanol

• $189–$596/tonne for biodiesel policies

These costs are far greater than what is available with a $30/tonne (or less) carbon tax.

5. Conclusions and Recommendations

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Conclusions (2)

2. Biofuel policies have not achieved their other objectives

3. Competing objectives undermine the performance of biofuel policies

4. An emerging Canadian policy context offers the option for smarter climate policy

5. Conclusions and Recommendations

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Recommendations1. Provincial and federal production subsidies should be

terminated, as initially planned.

2. Provincial and federal governments should phase out renewable fuel mandates.

3. Provincial and federal governments should continue working toward an increasing pan-Canadian carbon price.

4. As part of the policy transition, governments should complement carbon pricing with flexible performance standards and funding for research and development.

5. Conclusions and Recommendations

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Thank you.

Questions?