by Chelsea Laskowski
For over a decade taxpayers have helped get ethanol into people’s gas tanks. They won’t be that helpful from now on.
The Ethanol Fuel Grant Program, a provincial subsidy, started in 2002 when the government was looking for a way to boost renewable fuel production in the province.
New regulations required fuel distributors to add ethanol to all gasoline. A good portion of that had to come from Saskatchewan, but the province’s one small-scale ethanol producer couldn’t do it alone.
The subsidy provided a huge incentive for ethanol producers to start building in the province. Since then they’ve invested more than $441 million in plant construction. Instead of one producer, the province now has five.
The government helped establish a reliable customer base for producers by granting a 15 cent per litre subsidy to distributors buying ethanol in the province.
In March, the government announced plans to reduce that subsidy to 10 cents per litre, saving the government $8 million, and indicated that it will be phased out over the next few years.
“In this budget we’re looking at the ethanol piece. We want to move away from that sort of sector-specific tax credit or grant,” said Premier Brad Wall.
High wheat prices have raised the cost of turning grain into ethanol. However, there is no requirement for distributors to buy all ethanol from producers in Saskatchewan. An oversupply from the United States has driven ethanol prices down, further reducing the financial return for producers.
For Terra Grain Fuels, the province’s largest ethanol producer, the subsidy’s end is a financial blow that puts its 45 employees’ jobs in jeopardy, said Owen Mitchell, vice-president of capital markets for Just Energy, which owns Terra Grain Fuels.
Terra Grain is currently able to pay back its debt load. If the subsidy reduction cuts off enough cash flow that Terra Grain can’t meet its debt obligations, the company will end up in the hands of the bank, said Mitchell.
“It’s a very difficult spot to try and operate in. It’s not just our business... I’m sure the profitability of all ethanol plants are being threatened at this point in time,” he added.