Looming risk of Manitoba ethanol plant closure

In the past weeks, I was contacted by Matthew Frank, reporter with Free Press sister publication the Carillon. Frank astutely uncovered something unexpected and disturbing for Manitoba, but also with broader policy implications (U.S. ethanol imports force out Canadian producers, domestic industry at risk: expert, published in the Carillon Nov. 21).

Without changes, Manitoba is at risk within a foreseeable time frame of our 160-million-litre-per-year ethanol plant in Minnedosa being forced to close and cease operations. That means significant losses of both local jobs and economic value.

There are two linked problems precipitating this calamity. First is the ongoing, permitted import of ethanol made in the U.S. That might sound OK except that U.S. biofuels are also highly subsidized by the U.S. government, subsidies accelerated to current levels under the Biden administration’s Inflation Reduction Act in 2022. They have been strongly continued under U.S. President Donald Trump, despite his dismissive rhetoric about environment, and, ironically, the U.S. apparently being unfairly treated by others. Massive “dumping” of excessively subsidized renewable fuels from the U.S. means Canadian manufacturers struggle to stay afloat.

The second problem is, bizarrely, self-inflicted by Liberal governments, primarily via the Clean Fuel Regulation. Initiated under Trudeau, it also came into effect in 2022. Trudeau’s Liberals, self-absorbed with grandiose environmental pretensions, welcomed U.S. renewable fuels with open arms, even providing monetized credits to them under the regulation. As such, U.S. manufacturers get huge subsidies from the U.S., but then on top are given more from Canada. How can any Canadian facility compete?

And it does not end there. Canadian biofuels plants, especially ethanol, tend to be classified as “large final emitters” despite producing significant net reductions. As such, they are charged the industrial carbon tax. U.S. manufacturers on the other hand pay nothing.

Sadly, little has changed under Prime Minister Mark Carney. Earlier this year, the Canadian Border Services Agency and the Canadian International Trade Tribunal investigated a complaint from a B.C. biorefinery about subsidized U.S. renewables dumped into Canada. In May, they ruled against the Canadian firm, despite pretty obvious circumstances. Carney appears more focused on preserving the interests of Trump than the interests of Canadians.

It is true that Canada always imported some ethanol from the U.S., but this changed significantly in 2022 with the CFR. Growth in ethanol is now dominated by U.S. imports, representing more than 60 per cent of all used within Canada. We are now excessively dependent on U.S. ethanol interests, and subsidizing them unnecessarily to boot.

A lot of changes are needed to correct the CFR, but are unlikely to ever happen. One silly error in the earlier commodity carbon tax was noted years ago, that is taxing some ethanol content that should not have happened. It cost Manitobans more than $30 million. The feds were alerted, but nothing was rectified. Carney now is also fixated solely on “big projects.” Nothing else counts.

So what can we do? Key is that Carney, to save his government, has responded in the past to inevitability and external pressures, for example, unceremoniously dumping the unloved commodity carbon tax. It is now time to end both the CFR and industrial carbon tax, a power Carney already demonstrated. My suggestions are brusque, but prompted by deteriorating conditions and a federal government disinterested in needed amendments.

The potential for change thus rests more in the hands of opposition parties, to put increasing pressure on Carney. The CFR has proven singularly useless, already shown to have grossly overstated performance, mostly by double counting and taking credit for pre-existing provincial volumetric mandates. It is costing Canadian jobs, so no loss.

The industrial carbon tax earlier offered some hope, but depended on companies having solid finances, hardly the case anymore. Think Algoma Steel, also a large emitter. They are laying off a third of their workforce. In the trade war, the industrial carbon tax became a millstone; our own government rubbing salt in the wounds under the guise of environmental virtue. Opposition parties may be conservative or progressive, but all can see these misguided policies are now killing jobs and gutting our economy.

As a parting shot at Trump, we need not wait for the federal government, with U.S. biofuel firms already afraid of retaliation. The Manitoba government is within rights to charge imported renewable fuels to take account of excessive U.S. subsidies. We, however, need not keep the money. Instead, we could send monthly cheques in Canadian dollars directly to the president, stating, “Mr. Trump enclosed is U.S. government subsidy money collected from renewable fuels coming into Manitoba. You are free to encourage your biofuel industry but not dump overly subsidized product into our country. This is no tariff, given we are returning funds to your government.”

Robert Parsons teaches in the I.H. Asper School of Business, University of Manitoba.