Ethanol firms watch U.S. move to E15

Canada's ethanol industry is watching closely as the U.S. takes steps to increase the amount of ethanol blended into gasoline by as much as 50 per cent.

If that does happen, there are differing views about whether producers here will benefit in the short run.

The U.S. Environmental Protection Agency Wednesday approved standards allowing 15 per cent ethanol blending with gasoline.

The standard, known as E15, would mean an increase from the currently allowed10 per cent and would be for use in cars made in 2007 or later.

The move would pave the way forthe White House to enact regulations requiringrefiners to meet E15 standards, possibly as early as the spring.

The EPA's approval has been delayed as opponents of ethanol raise myriad concerns, from the use of food for fuel, air quality,engine damage, water use andwhether ethanol production uses more energy than it creates.

The food-for-fuel debatebecame more pointed recently, ascorn pricesreached a two-year high of $5.73 US on Oct. 8,the highest level since September 2008. The rise followed a forecast thatbad weather will mean a smaller than expected increase in production this year.

The U.S. ethanol industry primarily uses corn for its feedstock and is expected toconsume 4.7 billion bushels, more than a third of the crop, this year.

Sam Kanes, a biofuels analyst with Scotia Capital,said he expects the odds favour a move to a higher U.S. standard.

"It appears likely but not certain," he told CBC News.

Opposition led tothe proposal that E15 be allowed only in cars made in 2007 and later, based on the argument older cars may suffer engine damage.

But there are serious questions about whether reconfiguring gasoline pumps to accommodate both new cars and old ones is even practical.

Kane said it would "bastardize the whole U.S. fuel system, which is totally unacceptable."

He expected a political compromise might result in a standard providing for 12.5 per cent.

Good for Canadian industry

If the change does come, it'll be good news for Canada's industry, according to Ken Field, chairman of Toronto-based Greenfield Ethanol, Canada's largest ethanol company.

GreenField Ethanol produces 450 million litres in fuel ethanol annually, which is sold at 1,300 gas stations.

Altogether, Canada has 16 ethanol plants (see sidebar) with the capacity to produce 1.8 billion litres per year. The largest part of that almost 70 per cent usescorn as a feedstock.

Field predicted Canada would have to follow an American move. Canada's standard, which becomes law in December,requiresfive per cent blending.

"We follow rules they impose for car manufacturing, for their fuel economy standards, for their gasoline regulation and that's because it's an absolutely integrated [automobile] market."

Kane said the U.S. move would hurt Canada's industry, at least in the short term.

Withthe Canadian industrynow importing U.S. corn to meet its needs, raising the standard would increasedemand from American refiners and, along with that, prices.

Over the next two years, however,he said both the Canadian and American ethanol industry should have prospects of between 10 to15 per cent annual growth, depending on where corn and gasoline prices go.

The U.S. government has moved to encourage ethanol use in orderto reduce reliance on foreign oil, cut back on greenhouse gas emissions and expand markets for corn farmers.

Ottawa, too, is serious about ethanol. Itprovided $119 million 70 per cent of the cost for a 225-million-litre-per-year plant that Greenfield brought into operation at Johnstown, Ont., 70 kilometres south of Ottawa, in late 2008.

Field predicted that a U.S. change also would raise ethanol's profile with consumers and voters here.

He expected to capitalize on what he believes is the public's growing concerns about the environmental effects of oil exploration and dependence on foreign oil.

This year's oil spill from a BP rig in the Gulf of Mexico "brought a tremendous amount of attention to the fact that the method of now producing crude for our use is potentially very damaging to our environment," Field said.

"And there's a lot of people very concerned about drilling in the Arctic and drilling in Hibernia because that could affect Canadians big time."

For every claim made by ethanol's opponents, Field has an answer.

Among them: that it produces at least 2.3 times more energy than it uses in production and that, compared to gasoline,its use reduces greenhouse gases by approximately 70 per cent.

Field said ethanol use in Canada can only grow.

There are already 700,000 flexfuel vehicles capable of using 85 per cent ethanol, or E85 in Canada,

As well,three major automakers GM, Ford and Chrysler havepledged thatby 2012 at least 50 per cent of vehicles made will be able to take E85.

ButField said it will take leadership from Ottawa.

"Almost all the gas stations in Canada are owned by the major oil companies.It's not in their interest to put E85 pumps into their stations, so this is going to have to be mandated by government.

"This business has to become huge. We don't have a choice. We have to find alternative energy for transportation," he said.